<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
======================
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-10161
AMENDMENT NO. 1
FIRSTMERIT CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-1339938
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO 44308-1444 (330) 996-6300
(Address of principal executive offices) (Zip code) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
AND
PREFERRED SHARES PURCHASE RIGHTS
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. YES [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the approximate aggregate market value of the voting stock held
by non-affiliates of the registrant as of February 2, 1998: $1,572,007,275.
Indicate the number of shares outstanding of registrant's common
stock as of February 2, 1998: 61,762,140 Shares of Common Stock, No Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE> 2
Portions of the Proxy Statement of FirstMerit Corporation, dated
February 23, 1998, in Part III.
The undersigned registrant hereby amends the following items of its
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 on Form 10-K for the fiscal year ended December 31, 1997, for the purpose
of furnishing the financial statements for the FirstMerit Corporation Employee
Stock Purchase Plan and the FirstMerit Corporation and Subsidiaries Employees'
Salary Savings Retirement Plan:
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investment securities (at market value)................... $1,116,787 1,187,524
Federal funds sold........................................ 33,100 15,550
Commercial loans.......................................... 1,553,707 1,373,806
Mortgage loans............................................ 852,482 944,887
Installment loans......................................... 922,227 876,997
Home equity loans......................................... 250,513 195,924
Credit card loans......................................... 103,041 90,028
Tax-free loans............................................ 8,947 15,119
Leases.................................................... 143,958 159,237
---------- ----------
Total earning assets................................... 4,984,762 4,859,072
---------- ----------
Allowance for possible loan losses........................ (53,774) (49,336)
Cash and due from banks................................... 166,742 222,164
Premises and equipment, net............................... 99,765 102,139
Accrued interest receivable and other assets.............. 109,966 93,941
---------- ----------
Total assets........................................... $5,307,461 5,227,980
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest bearing............................ $ 769,187 799,771
Demand-interest bearing................................ 470,601 450,187
Savings................................................ 1,278,933 1,309,275
Certificates and other time deposits................... 1,736,490 1,645,642
---------- ----------
Total deposits......................................... 4,255,211 4,204,875
---------- ----------
Securities sold under agreements to repurchase and other
borrowings............................................. 441,755 423,701
Accrued taxes, expenses, and other liabilities............ 80,159 75,697
---------- ----------
Total liabilities...................................... 4,777,125 4,704,273
---------- ----------
Commitments and contingencies............................. -- --
Shareholders' equity:
Preferred stock, without par value: authorized and
unissued 7,000,000 shares............................. -- --
Common stock, without par value: authorized 80,000,000
shares; issued 68,127,314 and 67,719,750 shares,
respectively.......................................... 110,069 107,343
Treasury stock, 6,159,845 and 3,806,964 shares,
respectively.......................................... (108,734) (59,258)
Net unrealized holding gains (losses) on available for
sale securities....................................... 3,246 (2,217)
Retained earnings...................................... 525,755 477,839
---------- ----------
Total shareholders' equity............................. 530,336 523,707
---------- ----------
Total liabilities and shareholders' equity............. $5,307,461 5,227,980
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................ $337,181 330,309 325,763
Interest and dividends on investment securities:
Taxable................................................. 64,048 75,498 82,836
Exempt from federal income taxes........................ 4,346 5,004 6,347
-------- -------- --------
68,394 80,502 89,183
Interest on federal funds sold............................ 2,250 934 1,681
-------- -------- --------
Total interest income................................... 407,825 411,745 416,627
-------- -------- --------
Interest expense:
Interest on deposits:
Demand-interest bearing................................. 6,467 7,839 9,202
Savings................................................. 30,839 32,446 38,438
Certificates and other time deposits.................... 91,406 95,379 97,518
Interest on securities sold under agreements to repurchase
and other borrowings.................................... 23,657 25,109 35,775
-------- -------- --------
Total interest expense.................................. 152,369 160,773 180,933
-------- -------- --------
Net interest income..................................... 255,456 250,972 235,694
Provision for possible loan losses.......................... 21,593 17,751 19,763
-------- -------- --------
Net interest income after provision for possible loan
losses................................................ 233,863 233,221 215,931
-------- -------- --------
Other income:
Trust department.......................................... 13,442 12,182 10,712
Service charges on deposits............................... 26,100 24,372 20,622
Credit card fees.......................................... 14,355 11,415 9,372
Investment securities gains (losses), net................. 1,957 (1,776) 539
Other operating income.................................... 27,724 36,303 27,272
-------- -------- --------
Total other income...................................... 83,578 82,496 68,517
-------- -------- --------
Other expenses:
Salaries, wages, pension and employee benefits............ 90,949 94,554 107,735
Net occupancy expense..................................... 16,609 17,468 16,598
Equipment expense......................................... 12,717 12,894 13,417
Other operating expenses.................................. 70,805 84,786 90,029
-------- -------- --------
Total other expenses.................................... 191,080 209,702 227,779
-------- -------- --------
Income before federal income taxes and extraordinary
item.................................................. 126,361 106,015 56,669
Federal income taxes........................................ 39,998 35,075 30,950
-------- -------- --------
Income before extraordinary item........................ 86,363 70,940 25,719
-------- -------- --------
Extraordinary item -- gain on disposition of assets after
business combination (net of income tax effect of
$3,015)................................................... -- -- 5,599
-------- -------- --------
Net income.............................................. $ 86,363 70,940 31,318
======== ======== ========
Weighted average number of common shares
outstanding -- basic...................................... 62,717 65,216 66,908
======== ======== ========
Weighted average number of common shares
outstanding -- diluted.................................... 63,537 65,469 67,137
======== ======== ========
Per share data based on average number of shares
outstanding:
Basic net income per share:
Income before extraordinary item........................ $ 1.38 1.09 0.38
Extraordinary item...................................... -- -- 0.09
-------- -------- --------
Basic net income per share.................................. $ 1.38 1.09 0.47
======== ======== ========
Diluted net income per share:
Income before extraordinary item........................ $ 1.36 1.08 0.38
Extraordinary item...................................... -- -- 0.09
-------- -------- --------
Diluted net income per share................................ $ 1.36 1.08 0.47
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------------------
NET
UNREALIZED
HOLDING
(LOSSES) TOTAL
COMMON TREASURY AVAILABLE FOR RETAINED SHAREHOLDERS'
STOCK STOCK SALE SECURITIES EARNINGS EQUITY
------ -------- --------------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. $100,576 (694) (23,205) 446,642 523,319
Net income.............................. -- -- -- 31,318 31,318
Cash dividends ($0.51 per share)........ -- -- -- (35,299) (35,299)
Stock options exercised................. 3,285 -- -- -- 3,285
Treasury shares purchased............... -- (2,269) -- -- (2,269)
Market adjustment investment
securities........................... -- -- 21,913 -- 21,913
Acquisition adjustment of fiscal year... -- -- -- 614 614
-------- -------- ------- ------- --------
Balance at December 31, 1995.............. 103,861 (2,963) (1,292) 443,275 542,881
Net income.............................. -- -- -- 70,940 70,940
Cash dividends ($0.55 per share)........ -- -- -- (36,376) (36,376)
Stock options exercised................. 3,482 -- -- -- 3,482
Treasury shares purchased............... -- (56,295) -- -- (56,295)
Market adjustment investment
securities........................... -- -- (925) -- (925)
-------- -------- ------- ------- --------
Balance at December 31, 1996.............. 107,343 (59,258) (2,217) 477,839 523,707
Net income.............................. -- -- -- 86,363 86,363
Cash dividends ($0.61 per share)........ -- -- -- (38,447) (38,447)
Stock options exercised................. 2,726 -- -- -- 2,726
Treasury shares purchased............... -- (49,476) -- -- (49,476)
Market adjustment investment
securities........................... -- -- 5,463 -- 5,463
-------- -------- ------- ------- --------
Balance at December 31, 1997.............. $110,069 (108,734) 3,246 525,755 530,336
======== ======== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 86,363 70,940 31,318
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses............................... 21,593 17,751 19,763
Provision for depreciation and amortization............. 10,434 10,120 8,862
Amortization of investment securities premiums, net..... 2,801 4,491 2,592
Amortization of income for lease financing.............. (13,436) (12,656) (8,586)
(Gains) losses on sales of investment securities, net... (1,957) 1,776 (539)
Extraordinary gain on dispositions...................... -- -- (5,599)
Gain on sale of affiliate branches...................... -- (13,210) --
Deferred federal income taxes........................... (6,005) 15,549 2,305
(Increase) decrease in interest receivable.............. 746 2,657 2,356
Increase in interest payable............................ 828 183 5,913
Amortization of values ascribed to acquired
intangibles........................................... 1,868 3,148 3,153
Other increases (decreases)............................. (11,945) (28,508) 41,282
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 91,290 72,241 102,820
--------- --------- ---------
INVESTING ACTIVITIES
Dispositions of investment securities:
Available-for-sale -- sales............................... 209,174 343,600 98,688
Held-to-maturity -- maturities............................ -- -- 432,729
Available-for-sale -- maturities.......................... 226,462 301,468 200,895
Purchases of investment securities held-to-maturity......... -- -- (55,507)
Purchases of investment securities available-for-sale....... (357,335) (437,223) (437,840)
Net (increase) decrease in federal funds sold............... (17,550) (2,975) 1,125
Net (increase) decrease in loans and leases, except sales... (228,247) 33,996 (163,275)
Sales of loans.............................................. 45,651 77,773 80,627
Purchases of premises and equipment......................... (13,602) (22,405) (27,949)
Sales of premises and equipment............................. 5,542 4,304 16,766
Sales of affiliate branches................................. -- 13,210 --
--------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ (129,905) 311,748 146,259
--------- --------- ---------
FINANCING ACTIVITIES
Net decrease in demand, NOW and savings deposits............ (40,512) (139,000) (143,226)
Net increase (decrease) in time deposits.................... 90,848 (158,050) 103,694
Net increase (decrease) in securities sold under repurchase
agreements and other borrowings........................... 18,054 (63,257) (125,666)
Cash dividends.............................................. (38,447) (36,376) (35,299)
Purchase of treasury shares................................. (49,476) (56,295) (2,269)
Proceeds from exercise of stock options..................... 2,726 3,482 3,285
--------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............ (16,807) (449,496) (199,481)
Increase (decrease) in cash and cash equivalents............ (55,422) (65,507) 49,598
Cash and cash equivalents at beginning of year.............. 222,164 287,671 238,073
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 166,742 222,164 287,671
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Amortized cost of the held-to-maturity portfolio transferred
to the available-for-sale portfolio....................... $ -- -- 578,624
========= ========= =========
Cash paid during the year for:
Interest, net of amounts capitalized........................ $ 79,366 91,158 100,740
Income taxes................................................ $ 41,283 18,293 22,099
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FirstMerit Corporation and its
subsidiaries (the "Corporation") conform to generally accepted accounting
principles and to general practices within the banking industry. The
Corporation's activities are considered to be a single industry segment for
financial reporting purposes. The following is a description of the more
significant accounting policies:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
FirstMerit Corporation (the "Parent Company") and its wholly-owned
subsidiaries: Citizens Investment Corporation, Citizens National Bank,
Citizens Savings Corporation of Stark County, FirstMerit Bank, N.A.,
FirstMerit Community Development Corporation, FirstMerit Credit Life
Insurance Company, Peoples Bank, N.A., and Peoples National Bank. As
of October 14, 1997, The Old Phoenix National Bank of Medina and EST
National Bank were merged into FirstMerit Bank, N. A.
The results of operations of two former wholly-owned subsidiaries,
FirstMerit Bank, FSB (Clearwater, Florida) and FirstMerit Trust
Company, N.A., which were merged as FirstMerit Bank, N.A., are
included in the consolidated statements of income through December 30,
1996. This former subsidiary was sold December 31, 1996.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and related notes. Actual results could differ from those
estimates.
(c) Investment Securities
Debt and equity securities are classified as held-to-maturity,
available-for-sale, or trading. Securities classified as
held-to-maturity are measured at amortized or historical cost,
securities available-for-sale and trading at fair value. Adjustment to
fair value of the securities available-for-sale, in the form of
unrealized holding gains and losses, is excluded from earnings and
reported net of tax as a separate component of shareholders' equity.
Adjustment to fair value of securities classified as trading is
included in earnings. Gains or losses on the sales of investment
securities are recognized upon realization and are determined by the
specific identification method.
The Corporation designated the entire investment portfolio as
available-for-sale. Classification as available-for-sale allows the
Corporation to sell securities to fund liquidity and manage the
Corporation's interest rate risk. The Corporation does not maintain a
trading account.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances on deposit
with correspondent banks and checks in the process of collection.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed on the
straight-line and declining-balance methods over the estimated useful
lives of the assets. Amortization of leasehold improvements is
computed on the straight-line method based on lease terms or useful
lives, whichever is less.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(f) Loans
Impaired loans are loans for which, based on current information or
events, it is probable that the Corporation will be unable to collect
all amounts due according to the contractual terms of the loan
agreement. Impaired loans are valued based on the present value of the
loans' expected future cash flows at the loans' effective interest
rates, at the loans' observable market price, or the fair value of the
loan collateral.
(g) Interest and Fees on Loans
Interest income on loans is generally accrued on the principal
balances of loans outstanding using the "simple-interest" method. Loan
origination fees and certain direct origination costs are deferred and
amortized, generally over the contractual life of the related loans
using a level yield method. Interest is not accrued on loans for which
circumstances indicate collection is questionable.
(h) Provision for Possible Loan Losses
The provision for possible loan losses charged to operating expenses
is determined based on Management's evaluation of the loan portfolios
and the adequacy of the allowance for possible loan losses under
current economic conditions and such other factors which, in
Management's judgement, deserve current recognition.
(i) Lease Financing
The Corporation leases equipment to customers on both a direct and
leveraged lease basis. The net investment in financing leases includes
the aggregate amount of lease payments to be received and the
estimated residual values of the equipment, less unearned income and
non-recourse debt pertaining to leveraged leases. Income from lease
financing is recognized over the lives of the leases on an approximate
level rate of return on the unrecovered investment. Residual values of
leased assets are reviewed on an annual basis for reasonableness.
Declines in residual values judged to be other than temporary are
recognized in the period such determinations are made.
(j) Mortgage Servicing Fees
The Corporation generally records loan administration fees earned for
servicing loans for investors as income is collected. Earned servicing
fees and late fees related to delinquent loan payments are also
recorded as income is collected.
(k) Federal Income Taxes
The Corporation follows the asset and liability method of accounting
for income taxes. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. The effect of a change in tax rates is
recognized in income in the period of the enactment date.
(l) Value Ascribed to Acquired Intangibles
The value ascribed to acquired intangibles, including core deposit
premiums, results from the excess of cost over fair value of net
assets acquired in acquisitions of financial institutions. Such values
are being amortized over periods ranging from 10 to 25 years, which
represent the estimated remaining lives of the long-term interest
bearing assets acquired. Amortization is generally computed on an
accelerated basis based on the expected reduction in the carrying
value of such acquired assets. If no significant amount of long-term
interest bearing assets is acquired, such value is amortized over the
estimated life of the acquired deposit base, with amortization periods
ranging from 10 to 15 years.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(m) Trust Department Assets and Income
Property held by the Corporation in a fiduciary or other capacity for
trust customers is not included in the accompanying consolidated
financial statements, since such items are not assets of the
Corporation. Trust income is reported generally on a cash basis which
approximates the accrual basis of accounting.
(n) Per Share Data
The per share data is based on the weighted average number of common
stock and common stock equivalents outstanding during each year. See
Note 22 to Consolidated Financial Statements for more detailed
information.
(o) Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current reporting presentation.
2. ACQUISITION
On November 2, 1997, the Corporation signed an agreement to acquire
CoBancorp Inc., a bank holding company headquartered in Elyria, Ohio with
consolidated assets of approximately $666 million. CoBancorp Inc. will be merged
with and into the Corporation. Based on the Corporation's December 31, 1997
closing price of $28.375 per share, the value of the transaction is
approximately $174.3 million which is expected to be paid in a combination of
cash and the Corporation's common stock.
Consummation of the merger is expected in the second quarter 1998 subject
to CoBancorp Inc. shareholder's approval and regulatory approval and after the
satisfaction or waiver of all other conditions to the consummation as specified
in the merger agreement. The merger will be accounted for as a purchase
transaction.
3. INVESTMENT SECURITIES
Investment securities are composed of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Available for sale:
U.S. Treasury securities and U.S. Government
agency obligations.......................... $ 595,364 2,547 2,258 595,653
Obligations of state and political
subdivisions................................ 81,610 207 206 81,611
Mortgage-backed securities.................... 336,821 3,548 255 340,114
Other securities.............................. 97,995 1,564 150 99,409
---------- ------ ------ ---------
$1,111,790 7,866 2,869 1,116,787
========== ====== ====== =========
December 31, 1996
Available for sale:
U.S. Treasury securities and U.S. Government
agency obligations.......................... $ 660,199 1,517 5,975 655,741
Obligations of state and political
subdivisions................................ 93,694 547 654 93,587
Mortgage-backed securities.................... 324,818 2,458 1,999 325,277
Other securities.............................. 112,224 1,434 739 112,919
---------- ------ ------ ---------
$1,190,935 5,956 9,367 1,187,524
========== ====== ====== =========
</TABLE>
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
The amortized cost and market value of investment securities including
mortgage-backed securities at December 31, 1997, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities based
on the issuers' rights to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
---------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 133,474 133,384
Due after one year through five years....................... 278,657 279,747
Due after five years through ten years...................... 163,250 164,178
Due after ten years....................................... 536,409 539,478
---------- ---------
$1,111,790 1,116,787
========== =========
</TABLE>
Proceeds from sales of investment securities during the years ended
December 31, 1997 and 1996 were $206,054 and $343,600, respectively. Gross gains
of $2,531 and $2,003 and gross losses of $574 and $3,779 were realized on these
sales, respectively.
The carrying value of investment securities pledged to secure trust and
public deposits and for purposes required or permitted by law amounted to
$830,049 and $724,886 at December 31, 1997 and December 31, 1996, respectively.
4. LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Commercial, financial and agricultural...................... $ 875,715 748,858
Loans to individuals, net of unearned income................ 833,146 811,561
Real estate................................................. 1,982,059 1,936,342
Lease financing............................................. 143,955 159,237
---------- ---------
$3,834,875 3,655,998
========== =========
</TABLE>
The Corporation grants loans principally to customers located within the
State of Ohio.
Information with respect to impaired loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -----
<S> <C> <C>
Impaired Loans.............................................. $11,276 9,671
Allowance for Possible Loan Losses.......................... $ 2,280 1,913
Interest Recognized......................................... $ 460 622
======= =====
</TABLE>
Earned interest on impaired loans is recognized as income is collected.
The Corporation makes loans to officers on the same terms and conditions as
made available to all employees and to directors on substantially the same terms
and conditions as transactions with other parties. An
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
analysis of loan activity with related parties for the years ended December 31,
1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Aggregate amount at beginning of year....................... $ 41,308 34,173
Additions (deductions):
New loans................................................. 8,288 16,549
Repayments................................................ (16,694) (6,002)
Changes in directors and their affiliations............... (542) (3,412)
-------- --------
Aggregate amount at end of year............................. $ 32,360 41,308
======== ========
</TABLE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 49,336 46,840 35,834
Additions (deductions):
Provision for possible loan losses........................ 21,593 17,751 19,763
Loans charged off......................................... (27,261) (20,841) (12,925)
Recoveries on loans previously charged off................ 10,106 5,975 4,168
Decrease from sale of subsidiary.......................... (389)
-------- -------- --------
Balance at end of year...................................... $ 53,774 49,336 46,840
======== ======== ========
</TABLE>
6. MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING
In accordance with Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," and Statement No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," when the Corporation intends to sell originated or purchased loans
and retain the related servicing rights, it allocates a portion of the total
costs of the loans to the servicing rights based on estimated fair value. Fair
value is estimated based on market prices, when available, or the present value
of future net servicing income, adjusted for such factors as discount rates and
prepayments. Servicing rights are amortized over the average life of the loans
using the net cash flow method.
The components of mortgage servicing rights are as follows:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Balance at January 1, net................................... $2,301 15
Additions................................................... 2,219 2,434
Scheduled amortization...................................... (593) (148)
Less: allowance for impairment.............................. 0 0
------ -----
Balance at December 31...................................... $3,927 2,301
====== =====
</TABLE>
In 1997 and 1996, the Corporation's income before federal income taxes was
increased by approximately $1.6 million and $2.3 million, respectively, as a
result of compliance with the accounting Statements mentioned previously. The
consolidated financial statements for 1995 were prepared in accordance with
Statement of Financial Accounting Standards No. 65 "Accounting for Certain
Mortgage Banking Activities," which provided for servicing rights to be recorded
on purchased loans, but not originated loans.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Accounting regulations also require the Corporation to assess its
capitalized servicing rights for impairment based on their current fair value.
As permitted by the regulations, the Corporation disaggregates its servicing
rights portfolio based on loan type and interest rate which are the predominant
risk characteristics of the underlying loans. If any impairment results after
current market assumptions are applied, the value of the servicing rights is
reduced through the use of a valuation allowance.
At December 31, 1997 and 1996, the Corporation serviced for others
approximately $890 million and $871 million, respectively. The following table
provides servicing information for 1997:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance January 1........................................... $871,057 716,852
Additions:
Loans originated and sold to investors.................... 105,508 126,861
Existing loans sold to investors.......................... 100,670 167,746
Reductions:
Sale of servicing rights.................................. -- --
Loans sold servicing released............................. (5,311) --
Regular amortization, prepayments and foreclosures........ (181,739) (140,402)
-------- --------
Balance December 31......................................... $890,185 871,057
======== ========
</TABLE>
7. RESTRICTIONS ON CASH AND DIVIDENDS
The average balance on deposit with the Federal Reserve Bank to satisfy
reserve requirements amounted to $9,505 during 1997. The level of this balance
is based upon amounts and types of customers' deposits held by the banking
subsidiaries of the Corporation. In addition, deposits are maintained with other
banks at levels determined by Management based upon the volumes of activity and
prevailing interest rates to compensate for check-clearing, safekeeping,
collection and other bank services performed by these banks. At December 31,
1997, cash and due from banks included $4,255 deposited with the Federal Reserve
Bank and other banks for these reasons.
Dividends paid by the subsidiaries are the principal source of funds to
enable the payment of dividends by the Corporation to its shareholders. These
payments by the subsidiaries in 1998 are restricted by the regulatory agencies
principally to the total of 1998 net income. Regulatory approval must be
obtained for the payment of dividends of any greater amount.
8. PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- ESTIMATED
1997 1996 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
Land...................................................... $ 11,129 11,425 --
Buildings................................................. 82,841 81,642 10-35 yrs
Equipment................................................. 62,191 58,126 3-15 yrs
Leasehold improvements.................................... 13,093 13,124 1-20 yrs
-------- -------- ---------
169,254 164,317
Less accumulated depreciation and amortization............ 69,489 62,178
-------- --------
$ 99,765 102,139
======== ========
</TABLE>
Amounts included in other expenses for depreciation and amortization
aggregated $10,434, $10,120 and $8,862 for the years ended December 31, 1997,
1996 and 1995, respectively.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
At December 31, 1997, the Corporation was obligated for rental commitments
under noncancelable operating leases on branch offices and equipment as follows:
<TABLE>
<CAPTION>
YEARS ENDING LEASE
DECEMBER 31, COMMITMENTS
- - ------------ -----------
<S> <C>
1998 $ 6,968
1999 6,186
2000 4,928
2001 4,411
2002 3,404
2003-2010 5,637
-------
$31,534
=======
</TABLE>
Rentals paid under noncancelable operating leases amounted to $7,688,
$8,819 and $9,574 in 1997, 1996 and 1995, respectively.
9. CERTIFICATES AND OTHER TIME DEPOSITS
The aggregate amounts of certificates and other time deposits of $100 and
over at December 31, 1997 and 1996 were $405,931 and $271,634, respectively.
Interest expense on these certificates and time deposits amounted to $19,257 in
1997, $13,016 in 1996, and $14,360 in 1995.
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS
At December 31, 1997, 1996 and 1995, securities sold under agreements to
repurchase totaled $417,833, $368,566, and $336,033, respectively. The average
balance of securities sold under agreements to repurchase and other borrowings
for the years ended December 31, 1997, 1996 and 1995, amounted to $477,454,
$515,556, and $609,247, respectively. In 1997, the weighted average annual
interest rate amounted to 4.96%, compared to 4.87% in 1996, and 5.87% in 1995.
The maximum amount of these borrowings at any month end amounted to $557,738 in
1997, $608,782 in 1996, and $740,586 in 1995.
At December 31, 1997, 1996, and 1995, the Corporation had $17,922, $55,135,
and $75,875, respectively, of Federal Home Loan Bank advances. The 1997 balance
includes: $11,000 that have maturities within one year with an interest rate of
5.40%; $1,257 with maturities over one year to five years with interest rates of
4.65% to 8.10%; and $5,665 over five years with interest rates of 4.75% to
8.05%.
At December 31, 1997, the Corporation had an outstanding balance on a line
of credit with another financial institution totaling $6.0 million with an
interest rate of 6.01%. The interest rate on this debt is variable and
approximates one-month LIBOR plus 37.5 basis points.
Residential mortgage loans totaling $26,883, $82,702, and $107,813 at
December 31, 1997, 1996 and 1995, respectively, were pledged to secure FHLB
advances.
11. FEDERAL INCOME TAXES
Federal income taxes are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Taxes currently payable..................................... $46,000 19,526 31,660
Deferred expense (benefit).................................. (6,002) 15,549 2,305
------- ------- -------
$39,998 35,075 33,965
</TABLE>
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Actual Federal income tax expense differs from expected Federal income tax
as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. 35.0% 35.0% 35.0%
Increase (decrease) in rate due to:
Interest income on tax-exempt securities and tax-free
loans, net............................................. -1.3% -1.9% -3.8%
Goodwill amortization..................................... 0.3% 1.5% 0.9%
Reduction to tax reserves................................. -1.1% -1.4% -0.4%
Loan loss recapture at acquisition........................ 0.0% 0.0% 19.0%
Merger expenses at acquisition............................ 0.0% 0.0% 1.4%
Other..................................................... -1.2% -0.1% -0.1%
---- ---- ----
Effective tax rates......................................... 31.7% 33.1% 52.0%
==== ==== ====
</TABLE>
For 1997, 1996 and 1995, the deferred income tax expense results from
temporary differences in the recognition of income and expense for Federal
income tax and financial reporting purposes. The sources and tax effect of these
temporary differences are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Loan loss provision......................................... $(4,492) 6,323 (2,205)
Depreciation................................................ 198 (232) 375
Deferred loan fees, net..................................... 334 631 1,487
Leasing..................................................... (3,683) 6,708 8,442
FAS 106 postretirement benefits............................. (1,050) (1,012) (434)
FAS 87 pension expense...................................... 1,333 1,678 (1,767)
FHLB stock dividends........................................ 927 844 771
Severance costs............................................. 0 1,315 (1,315)
Valuation reserves.......................................... 633 675 (526)
Other....................................................... (202) (1,381) (2,523)
------- ------- -------
Total deferred income tax................................... $(6,002) 15,549 2,305
======= ======= =======
</TABLE>
Principal components of the Corporation's net deferred tax (liability) are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Excess of book loan provision over tax loan provision....... $ 9,746 5,254
Excess of tax depreciation over book depreciation........... (4,056) (3,858)
Leasing book basis income over tax basis.................... (24,331) (28,014)
Deferred loan fees tax basis income over book basis......... 596 930
Postretirement book basis expense over tax basis............ 4,734 3,684
Pension book basis expense over tax basis................... (1,212) 121
FHLB stock book basis over tax basis........................ (4,857) (3,930)
Security portfolio tax basis over book basis................ (1,694) 1,192
Severance costs book basis over tax basis................... -- --
Valuation reserves book basis over tax basis................ 147 780
Other....................................................... 3,277 3,075
-------- --------
Total net deferred tax (liability).......................... $(17,650) (20,766)
======== ========
</TABLE>
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
12. BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially
all of its employees. In general, benefits are based on years of service and the
employee's compensation. The Corporation's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
reporting purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future.
A supplemental non-qualified, non-funded pension plan for certain officers
is also maintained and is being provided for by charges to earnings sufficient
to meet the projected benefit obligation. The pension cost for this plan is
based on substantially the same actuarial methods and economic assumptions as
those used for the defined benefit pension plan.
The following table sets forth the plans' funded status and amounts
recognized in the Corporation's consolidated financial statements. The 1997
amounts shown reflect a change in the measurement date from December 31 to
September 30, 1997. Amounts shown for 1996 and 1995 have not been restated to
show the change in the measurement date.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $49,365, $49,703 and $48,567,
respectively........................................ $(55,386) (55,222) (54,780)
======== ======== ========
Projected benefit obligation............................. (70,719) (70,119) (73,926)
Plan assets at fair value, primarily U.S. government
obligations, corporate bonds and investments in
equity funds........................................ 80,877 71,929 67,035
-------- -------- --------
Plan assets in excess of projected benefit obligation.... 10,158 1,810 (6,891)
Unrecognized net (gains) losses.......................... (8,450) (3,215) 675
Unrecognized prior service cost.......................... 3,707 3,311 3,340
Remaining unrecognized net asset being amortized over
employees' average remaining service life.............. (792) (999) (1,206)
-------- -------- --------
Prepaid (accrued) pension cost........................... $ 4,623 907 (4,082)
======== ======== ========
Expected long-term rate of return on assets.............. 9.00% 9.00% 9.00%
Weighted-average discount rate........................... 7.50% 7.50% 7.25%
Rate of increase in future compensation levels........... 4.75% 4.75% 4.75%
======== ======== ========
</TABLE>
Net pension cost consists of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost................................................ $ 3,379 3,728 3,290
Interest cost on projected benefit obligation............... 4,880 4,978 5,175
Actual return on plan assets................................ (9,453) (3,827) (8,563)
Net total of other components............................... 3,202 (2,197) 2,976
------- ------- -------
Net periodic pension cost................................... $ 2,008 2,682 2,878
======= ======= =======
</TABLE>
The Corporation maintains a savings plan under Section 401(k) of the
Internal Revenue Code, covering substantially all full-time and part-time
employees after six months of continuous employment. Under the plan, employee
contributions are partially matched by the Corporation. Such matching becomes
vested when the employee reaches five years of credited service. Total savings
plan expense was $2,086, $2,108 and $2,294 for 1997, 1996 and 1995,
respectively.
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
13. POSTRETIREMENT MEDICAL AND LIFE INSURANCE PLAN
The Corporation has a benefit plan which presently provides postretirement
medical and life insurance for retired employees. Effective January 1, 1993, the
plan was changed to limit the Corporation's medical contribution to 200% of the
1993 level for employees who retire after January 1, 1993. The Corporation
reserves the right to terminate or amend the plan at any time.
The cost of postretirement benefits expected to be provided to current and
future retirees is accrued over those employees' service periods. Prior to 1993,
postretirement benefits were accounted for on a cash basis. In addition to
recognizing the cost of benefits for the current period, recognition is being
provided for the cost of benefits earned in prior service periods (the
transition obligation). The Corporation has elected to amortize the transition
obligation by charges to income over a twenty year period on a straight line
basis.
The following table sets forth the plan's status and amounts recognized in
the Corporation's consolidated financial statements. Beginning in 1997, the
plan's measurement date was changed from December 31 to September 30.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $(16,861) (20,259)
Fully eligible actives.................................... (2,910) (2,882)
Other actives............................................. (8,092) (7,747)
-------- --------
Total accumulated postretirement benefit obligation......... (27,863) (30,888)
Unrecognized prior net loss................................. 1,665 6,394
Unrecognized prior service costs............................ -- --
Unrecognized transition obligation.......................... 12,308 13,129
-------- --------
Accrued postretirement benefit cost......................... $(13,890) (11,365)
======== ========
</TABLE>
Net postretirement benefit cost includes:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Service cost................................................ $ 958 945
Interest cost............................................... 2,157 2,133
Actual return on plan assets................................ -- --
Amortization of transition obligation....................... 820 821
Net of other amortization and deferrals..................... 144 323
-------- --------
Net periodic postretirement cost............................ $ 4,079 4,222
======== ========
</TABLE>
The following actuarial assumptions effect the determination of these
amounts:
<TABLE>
<CAPTION>
PLAN YEAR JANUARY 1,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Expected long-term rate of return on assets................. N/A N/A
Weighted-average discount rate.............................. 7.50% 7.25%
Medical trend rates:
Pre-65.................................................... 12.4%-6.0% 12.4%-6.0%
Post-65................................................... 11.8%-6.1% 11.8%-6.1%
</TABLE>
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Shown below is the impact of a 1% increase in the medical trend rates
(i.e., 10.0% for 1998 grading down to 6.0% in 2002. This information is required
disclosure under SFAS No. 106.
<TABLE>
<CAPTION>
CURRENT
TREND TREND +1% % CHANGE
------- --------- --------
<S> <C> <C> <C>
Aggregate of the service and interest components of net
periodic postretirement health care benefit cost.......... $ 2,564 2,926 14.1%
Accumulated postretirement benefit obligation for health
care benefits............................................. 25,124 28,064 11.7%
</TABLE>
14. STOCK OPTIONS
The Corporation's 1982, 1992, and 1997 Stock Plans (the "Plans") provide
incentive options to certain key employees for up to 4,200,000 common shares of
the Corporation. In addition, these Plans provide for the granting of
non-qualified stock options to certain non-employee directors of the Corporation
for which 200,000 common shares of the Corporation have been reserved.
Outstanding options under these Plans are generally not exerciseable for at
least six months from date of grant.
Options under these Plans are granted at 100% of the fair market value.
Options granted as incentive stock options must be exercised within ten years
and options granted as non-qualified stock options have terms established by the
Compensation Committee of the Board and approved by the non-employee directors
of the Board. Options are cancelable within defined periods based upon the
reason for termination of employment.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Corporation continues to account for its stock option plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to
Employees," and makes no charges against income with respect to options granted.
However, SFAS No. 123 does require the disclosure of the pro forma effect
on net income and earnings per share that would result if the fair value
compensation element were to be recognized as expense. The following table shows
the pro forma earnings and earnings per share for 1997, 1996, and 1995 along
with significant assumptions used in determining the fair value of the
compensation amounts.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma amounts:
Net income................................................ $ 85,178 67,825 30,377
Earnings per share (basic)................................ 1.36 1.04 0.45
Earnings per share (diluted).............................. 1.34 1.04 0.45
Assumptions:
Dividend yield............................................ 3.5% 4.4% 4.4%
Expected volatility....................................... 23.3% 23.3% 23.7%
Risk free interest rate................................... 5.8%-6.8% 5.2%-6.7% 6.3%-7.3%
Expected lives............................................ 5 yrs. 5-6 yrs. 5 yrs.
</TABLE>
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
A summary of stock option activity for the last two years follows:
<TABLE>
<CAPTION>
AVAILABLE RANGE OF OPTION AVERAGE OPTION
FOR GRANT OUTSTANDING PRICE PER SHARE PRICE PER SHARE
---------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance
December 31, 1995.................. 1,634,660 1,308,856 2.16 - 12.10
Canceled........................ -- (26,580)
Exercised....................... -- (490,794) 2.16 - 12.10 $ 7.39
Granted......................... (1,157,980) 1,157,980 14.75 - 16.97 14.77
---------- --------- -------------- ------
Balance
December 31, 1996.................. 476,680 1,949,462 2.31 - 16.97 13.12
New shares reserved............. 2,200,000 --
Canceled........................ -- (181,260) 3.50 - 8.27 7.28
Exercised....................... -- (285,385) 2.31 - 15.44 9.89
Granted......................... (262,714) 262,714 2.31 - 26.00 20.58
---------- --------- -------------- ------
Balance
December 31, 1997.................. 2,413,966 1,745,531 $ 2.31 - 26.00 $14.75
========== ========= ============== ======
</TABLE>
The ranges of exercise prices and the remaining contractual life of options
as of December 31, 1997 were:
<TABLE>
<CAPTION>
$2-$9 $10-$18 $19-$26
RANGE OF EXERCISE PRICES ------ --------- -------
<S> <C> <C> <C>
Options outstanding:
Outstanding as of December 31, 1997......................... 30,364 1,501,353 213,814
Wtd-avg remaining contractual life (in years)............... 2.12 7.69 9.26
Weighted-average exercise price............................. $ 7.20 14.13 21.03
Options exerciseable:
Outstanding as of December 31, 1997......................... 30,364 805,520 189,314
Wtd-avg remaining contractual life (in years)............... 2.12 7.26 9.25
Weighted-average exercise price............................. $ 7.20 13.44 20.58
</TABLE>
The Employee Stock Purchase Plan provides full-time and part-time employees
of the Corporation the opportunity to acquire common shares on a payroll
deduction basis. Shares available under the Employee Stock Purchase Plan are
purchased at 85% of their fair market value on the business day immediately
preceding the semi-annual grant-date Of the 400,000 shares available under the
Plan, there were 19,204 and 12,512 shares issued in 1997 and 1996, respectively.
15. PARENT COMPANY
Condensed financial information of FirstMerit Corporation (Parent Company
only) is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
CONDENSED BALANCE SHEETS -------- -------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 26,627 21,897
Investment securities....................................... 1,207 1,161
Loans to subsidiaries....................................... 66,000 40,789
Investment in subsidiaries, at equity in underlying value of
their net assets.......................................... 429,770 430,708
Net loans................................................... 16,953 30,179
Goodwill.................................................... 133 267
Other assets................................................ 9,200 10,386
-------- -------
$549,890 535,387
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued and other liabilities............................... $ 19,554 11,680
Shareholders' equity........................................ 530,336 523,707
-------- -------
$549,890 535,387
======== =======
</TABLE>
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
CONDENSED STATEMENTS OF INCOME -------- ------- -------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries............................ $ 87,500 73,800 87,400
Other income................................................ 64,910 60,348 37,069
-------- ------- -------
152,410 134,148 124,469
Interest and other expenses................................. 65,161 59,970 59,652
-------- ------- -------
Income before federal income tax benefit and equity in
undistributed income of subsidiaries...................... 87,249 74,178 64,817
Federal income tax (benefit)................................ (1,248) (1,189) 5,215
-------- ------- -------
88,497 75,367 59,602
Equity in undistributed income (loss) of subsidiaries,
including extraordinary gain in 1995 of $5,599............ (2,134) (4,427) (28,284)
-------- ------- -------
Net income.................................................. $ 86,363 70,940 31,318
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
CONDENSED STATEMENTS OF CASH FLOWS -------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net income.................................................. $ 86,363 70,940 31,318
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed income of subsidiaries.............. 2,134 4,427 28,284
Gain on sale of assets -- FirstMerit Bank, N.A.............. -- (490) --
Cash received on FirstMerit Bank, N.A. sale................. -- 13,060 --
Addition to Provision for loan losses....................... 1,097 -- 1,100
Other....................................................... 7,397 3,396 12,190
-------- -------- -------
Net cash provided by operating activities................... 96,991 91,333 72,892
-------- -------- -------
Investing activities:
Proceeds from maturities of investment securities........... -- -- 10,262
Loans to subsidiaries....................................... (8,211) 63,228 (47,954)
Payments for investments in and advances to subsidiaries.... (10,840) -- --
Net increase (decreases) in loans........................... 12,100 (31,208) --
Purchases of investment securities.......................... (113) (133) (196)
-------- -------- -------
Net cash (used) provided by investing activities............ (7,064) 31,887 (37,888)
-------- -------- -------
Financing activities:
Cash dividends.............................................. (38,447) (36,376) (35,299)
Proceeds from exercise of stock options..................... 2,726 3,482 3,285
Purchase of treasury shares................................. (49,476) (56,295) (2,269)
Loans made to FirstMerit Bank, N.A.......................... -- (17,000) --
-------- -------- -------
Net cash used by financing activities....................... (85,197) (106,189) (34,283)
-------- -------- -------
Net increase in cash and cash equivalents................... 4,730 17,031 721
Cash and cash equivalents at beginning of year.............. 21,897 4,866 4,145
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 26,627 21,897 4,866
======== ======== =======
</TABLE>
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
16. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Disclosures of fair value information about certain financial instruments,
whether or not recognized in the consolidated balance sheets are provided as
follows. Instruments for which quoted market prices are not available are valued
based on estimates using present value or other valuation techniques whose
results are significantly affected by the assumptions used, including discount
rates and future cash flows. Accordingly, the values so derived, in many cases,
may not be indicative of amounts that could be realized in immediate settlement
of the instrument. Also, certain financial instruments and all non-financial
instruments are excluded from these disclosure requirements. For these and other
reasons, the aggregate fair value amounts presented below are not intended to
represent the underlying value of the Corporation.
The following methods and assumptions were used to estimate the fair values
of each class of financial instrument presented:
Investment securities -- Fair values are based on quoted prices, or
for certain fixed maturity securities not actively traded estimated values
are obtained from independent pricing services.
Federal funds sold -- The carrying amount is considered a reasonable
estimate of fair value.
Net loans -- Fair value for loans with interest rates that fluctuate
as current rates change are generally valued at carrying amounts with an
appropriate discount for any credit risk. Fair values of other types of
loans are estimated by discounting the future cash flows using the current
rates for which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Cash and due from banks -- The carrying amount is considered a
reasonable estimate of fair value.
Accrued interest receivable -- The carrying amount is considered a
reasonable estimate of fair value.
Deposits -- The carrying amount is considered a reasonable estimate of
fair value for demand and savings deposits and other variable rate deposit
accounts. The fair values for fixed maturity certificates of deposit and
other time deposits are estimated using the rates currently offered for
deposits of similar remaining maturities.
Securities sold under agreements to repurchase and other borrowings.
Fair values are estimated using rates currently available to the
Corporation for similar types of borrowing transactions.
Accrued interest payable -- The carrying amount is considered a
reasonable estimate of fair value.
Commitments to extend credit -- The fair value of commitments to
extend credit is estimated using the fees currently charged to enter into
similar arrangements, taking into account the remaining terms of the
agreements, the creditworthiness of the counterparties, and the difference,
if any, between current interest rates and the committed rates.
Standby letters of credit and financial guarantees written -- Fair
values are based on fees currently charged for similar agreements or on the
estimated cost to terminate or otherwise settle the obligations.
Loans sold with recourse -- Fair value is estimated based on the
present value of the estimated future liability in the event of default.
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
The estimated fair values of the Corporation's financial instruments based on
the assumptions described above are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997 1996
----------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Investment securities.............................. $1,116,787 1,116,787 1,187,524 1,187,524
Federal funds sold................................. 33,100 33,100 15,550 15,550
Net loans....................................... 3,781,101 3,786,953 3,606,662 3,585,534
Cash and due from banks............................ 166,742 166,742 222,164 222,164
Accrued interest receivable........................ 32,945 32,945 33,730 33,730
Financial liabilities:
Deposits........................................ 4,255,211 4,260,251 4,204,875 4,209,789
Securities sold under agreements to repurchase and
other borrowings................................ 441,755 441,926 423,701 423,852
Accrued interest payable........................... 17,291 17,291 16,433 16,433
Unrecognized financial instruments:
Commitments to extend credit....................... -- -- -- --
Standby letters of credit and financial guarantees
written......................................... -- -- -- --
Loans sold with recourse........................... -- -- -- --
</TABLE>
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
standby letters of credit, financial guarantees, and loans sold with recourse.
These instruments involve, to varying degrees, elements recognized in the
consolidated balance sheets. The contract or notional amount of these
instruments reflect the extent of involvement the Corporation has in particular
classes of financial instruments.
The Corporation's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit and financial guarantees written is represented by
the contractual notional amount of those instruments. The Corporation uses the
obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Corporation does not require collateral or
other security to support financial instruments with credit risk. The following
table sets forth financial instruments whose contract amounts represent credit
risk.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ---------
<S> <C> <C>
Commitments to extend credit................................ $1,508,351 1,295,118
========== =========
Standby letters of credit and
financial guarantees written................................ $ 114,304 89,404
========== =========
Loans sold with recourse.................................... $ 1,058 1,361
========== =========
</TABLE>
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally are extended at the then prevailing interest rates, have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Corporation upon
extension of credit is based on Management's credit evaluation of the counter
party. Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing and
similar transactions. Except for short-term guarantees of $33,796 and $30,965 at
December 31, 1997 and 1996, respectively, the remaining guarantees extend in
varying amounts through 2020. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extend- ing loan facilities
to customers. Collateral held varies, but may include marketable securities,
equipment and real estate. In recourse arrangements, the Corporation accepts
100% recourse. By accepting 100% recourse, the Corporation is assuming the
entire risk of loss due to borrower default. The Corporation's exposure to
credit loss, if the borrower completely failed to perform and if the collateral
or other forms of credit enhancement all prove to be of no value, is represented
by the notional amount less any allowance for possible loan losses. The
Corporation uses the same credit policies originating loans which will be sold
with recourse as it does for any other type of loan.
18. EXTRAORDINARY GAIN AND UNUSUAL CHARGES
During the third quarter 1996, the corporation recorded a one-time Savings
Association Insurance Fund ("SAIF") recapitalization charge that totaled $10.2
million. The charge was mandated by legislation passed by Congress and signed
into law September 30, 1996.
During 1995, the Corporation recognized an extraordinary gain of $5.6
million, net of taxes of $3.0 million, from the sale of several apartment
complexes formerly owned by a CIVISTA subsidiary. Other 1995 unusual charges
totaled $36.3 million of which $16.2 million related to lost tax benefits, $17.9
million were associated with reengineering costs, and $2.2 million were
severance expenses.
19. CONTINGENCIES
The nature of the Corporation's business results in a certain amount of
litigation. Accordingly, FirstMerit Corporation and its subsidiaries are subject
to various pending and threatened lawsuits in which claims for monetary damages
are asserted. Management, after consultation with legal counsel, is of the
opinion that the ultimate liability of such pending matters would not have a
material effect on the Corporation's financial condition or results of
operations.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial and per share data for the years ended December 31,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
IN THOUSANDS (EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total interest income..................... 1997 $ 98,562 102,215 102,510 104,538
==== ======== ======= ======= =======
1996 $101,627 103,385 104,362 102,371
==== ======== ======= ======= =======
Net interest income....................... 1997 $ 62,504 64,241 63,795 64,916
==== ======== ======= ======= =======
1996 $ 60,390 63,505 63,928 63,149
==== ======== ======= ======= =======
Provision for possible loan losses........ 1997 $ 4,161 5,033 6,182 6,217
==== ======== ======= ======= =======
1996 $ 2,957 3,170 3,485 8,139
==== ======== ======= ======= =======
Income (loss) before federal income
taxes................................... 1997 $ 30,172 31,447 31,832 32,910
==== ======== ======= ======= =======
1996 $ 28,817 28,679 19,835 28,684
==== ======== ======= ======= =======
Net income................................ 1997 $ 20,233 21,319 22,013 22,798
==== ======== ======= ======= =======
1996 $ 19,253 19,221 13,447 19,019
==== ======== ======= ======= =======
Net income per share -- basic............. 1997 $ 0.32 0.34 0.35 0.37
==== ======== ======= ======= =======
1996 $ 0.29 0.30 0.21 0.30
==== ======== ======= ======= =======
Net income per share -- diluted........... 1997 $ 0.32 0.33 0.35 0.36
==== ======== ======= ======= =======
1996 $ 0.29 0.29 0.21 0.29
==== ======== ======= ======= =======
</TABLE>
21. SHAREHOLDER RIGHTS PLAN
The Corporation has in effect a shareholder rights plan ("Plan"). The Plan
provides that each share of Common Stock has one right attached. Under the Plan,
subject to certain conditions, the Rights would be distributed after either of
the following events: (1) a person acquires 10% or more of the Common Stock of
the Corporation, or (2) the commencement of a tender offer that would result in
a change in the ownership of 10% or more of the Common Stock. After such an
event, each Right would entitle the holder to purchase shares of Series A
Preferred Stock of the Corporation. Subject to certain conditions, the
Corporation may redeem the Rights for $0.01 per Right.
22. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share" ("EPS"). SFAS 128 simplifies the
standards for computing EPS previously found in APB Opinion No. 15 ("APB 15"),
"Earnings per Share," and makes the standards comparable to recently adopted
international EPS guidelines. SFAS 128 replaces the presentation of "primary"
EPS with the presentation of "basic" EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement and a reconciliation
of the numerator and denominator used in the basic EPS calculation to the
numerator and denominator used in the diluted EPS calculation. Basic EPS
excludes dilution and is computed by dividing net income by the weighted-average
common shares outstanding. Diluted EPS reflects the dilution that would occur
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
if securities or other contracts to issue common stock were exercised or
converted to common stock (e.g., exercising of common stock options).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income.................................................. $86,363 62,717 $1.38
======= =====
Effect of dilutive stock options............................ 820
------
Diluted EPS:
Net income + assumed exercising of options.................. $86,363 63,537 $1.36
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income $70,940 65,216 $1.09
======= =====
Effect of dilutive stock options............................ 253
------
Diluted EPS:
Net income + assumed exercising of options.................. $70,940 65,469 $1.08
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
PER
SHARES INCOME SHARE
(DENOMINATOR) (NUMERATOR) AMOUNT
------------- ----------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income................................................ $25,719 66,908 $0.38
======= =====
Effect of dilutive stock options............................ 229
------
Diluted EPS:
Net income + assumed exercising of options............. $25,719 67,137 $0.38
======= ====== =====
</TABLE>
23. REGULATORY MATTERS
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to quantitative judgements
by regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1997, the
Corporation meets all capital adequacy requirements to which it is subject. The
capital terms used in this note to the consolidated financial statements are
defined in the regulations as well as in the "Capital Resources" section of
Management's Discussion and Analysis of financial condition and results of
operations.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRSTMERIT CORPORATION AND SUBSIDIARIES
As of December 31, 1997, the most recent notification from the Office of
the Comptroller of the Currency ("OCC") categorized the Corporation as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Corporation must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. In management's opinion, there are no conditions or events since the
OCC's notification that have changed the Corporation's categorization as "well
capitalized."
<TABLE>
<CAPTION>
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
---------------- ------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)............... $568,886 13.55% *335,984 8.0% *419,980 *10.00%
Tier I Capital
(to Risk Weighted Assets)............... 516,388 12.30% *167,992 4.0% *251,988 *6.00%
Tier I Capital
(to Average Assets)..................... 516,388 9.66% *213,909 4.0% *267,387 *5.00%
</TABLE>
* Greater than or equal to.
<PAGE> 26
MANAGEMENT'S REPORT
The management of FirstMerit Corporation is responsible for the preparation
and accuracy of the financial information presented in this annual report. These
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, based on the best estimates and judgement of
management.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, that transactions are executed
in accordance with the Corporation's authorization and policies, and that
transactions are properly recorded so as to permit preparation of financial
statements that fairly present the financial position and results of operations
in conformity with generally accepted accounting principles. These systems and
controls are reviewed by our internal auditors and independent auditors.
The Audit Committee of the Board of Directors is composed of only outside
directors and has the responsibility for the recommendation of the independent
auditors for the Corporation. The Audit Committee meets regularly with
management, internal auditors and our independent auditors to review accounting,
auditing and financial matters. The independent auditors and the internal
auditors have free access to the Audit Committee.
<TABLE>
<S> <C>
/s/ JOHN R. COCHRAN /S/ JACK R. GRAVO
CHAIRMAN AND CHIEF EXECUTIVE VICE PRESIDENT
EXECUTIVE OFFICER FINANCE AND ADMINISTRATION
</TABLE>
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of FirstMerit
corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our option.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FirstMerit
Corporation and subsidiaries as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand LLP
Akron, OH
January 15, 1998
<PAGE> 28
AVERAGE CONSOLIDATED BALANCE SHEETS
FULLY-TAX EQUIVALENT INTEREST RATES AND INTEREST DIFFERENTIAL
FIRSTMERIT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------ ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- --------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities:
U.S. Treasury securities
and U.S. Government
agency obligations
(taxable)............... $ 906,305 57,484 6.34% 1,110,581 69,010 6.21 1,218,604 75,759 6.22
Obligations of states and
political subdivisions
(tax-exempt)............ 86,873 7,074 8.14 100,630 7,404 7.36 122,244 9,369 7.66
Other securities.......... 102,327 6,568 6.42 99,977 6,489 6.49 106,176 7,077 6.67
---------- ------- --------- ------- --------- -------
Total investment
securities.......... 1,095,505 71,126 6.49 1,311,188 82,903 6.32 1,447,024 92,205 6.37
Federal funds sold.......... 41,636 2,250 5.40 19,233 934 4.86 22,011 1,681 7.64
Loans....................... 3,789,231 337,661 8.91 3,812,900 330,951 8.68 3,818,486 326,581 8.55
Total earning
assets.............. 4,926,372 411,037 8.34 5,143,321 414,788 8.06 5,287,521 420,467 7.95
Allowance for possible loan
losses.................... (51,155) (47,392) (37,923)
Cash and due from banks..... 176,697 207,533 220,787
Other assets................ 201,871 175,020 184,426
---------- --------- ---------
Total assets.......... $5,253,785 5,478,482 5,654,811
========== ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest
bearing................. $ 733,394 -- -- 745,102 -- -- 725,287 -- --
Demand-interest bearing... 448,976 6,467 1.44 447,524 7,839 1.75 426,608 9,202 2.16
Savings................... 1,279,859 30,839 2.41 1,399,011 32,446 2.32 1,514,374 38,438 2.54
Certificates and other
time deposits........... 1,701,886 91,406 5.37 1,772,150 95,379 5.38 1,782,817 97,518 5.47
---------- ------- --------- ------- --------- -------
Total deposits........ 4,164,115 128,712 3.09 4,363,787 135,664 3.11 4,449,086 145,158 3.26
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings...... 477,454 23,657 4.95 515,556 25,109 4.87 609,247 35,775 5.87
---------- ------- --------- ------- --------- -------
Total interest bearing
liabilities......... 3,908,175 152,369 3.90 4,134,241 160,773 3.89 4,333,046 180,933 4.18
---------- ------- --------- ------- --------- -------
Other liabilities........... 92,598 71,240 68,440
Shareholders' equity........ 519,618 527,899 528,038
---------- --------- ---------
Total liabilities and
shareholders'
equity.............. $5,253,785 5,478,482 5,654,811
Net yield on earning
assets.................... 258,668 5.25 254,015 4.94 239,534 4.53
======= ==== ======= ==== ======= ====
Interest rate spread........ 4.44 4.18 3.78
==== ==== ====
Income on tax-exempt
securities and loans...... 5,225 6,241 8,034
======= ======= =======
</TABLE>
- - ---------------
Notes: Interest income on tax-exempt securities and loans have been adjusted to
a fully-taxable equivalent basis.
Non-accrual loans have been included in the average balances.
<PAGE> 29
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 30
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants................................................ 1
Financial Statements:
Statements of Net Assets Available for Plan Benefits
at December 31, 1997 and 1996.............................................. 2
Statements of Changes in Net Assets Available for Plan
Benefits for the years ended December 31, 1997 and 1996................... 3
Notes to Financial Statements.................................................... 4-5
</TABLE>
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of the
FirstMerit Corporation
Employee Stock Purchase Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the FirstMerit Corporation Employee Stock Purchase Plan (the "Plan")
as of December 31, 1997 and 1996 and the related statements of changes in net
assets available for plan benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 1997 and 1996 and the changes in net assets available for plan
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Akron, Ohio
April 23, 1998
<PAGE> 32
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Cash $ 42,652 $ 169,828
Receivable from employees - 14,161
---------- ----------
42,652 183,989
Investment in FirstMerit Corporation common
stock, at fair value 57,743 897,866
---------- ----------
Net assets available for plan benefits $ 100,395 $1,081,855
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 33
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Additions to plan assets attributable to:
Employee contributions $ 445,681 $ 360,854
Employer contributions 148,339 61,851
Dividend income 2,639 29,898
Net appreciation (depreciation) in fair value of FirstMerit Corporation
common stock 9,734 88,628
----------- -----------
Total additions 606,393 541,231
----------- -----------
Deductions to plan assets attributable to:
Benefits paid to participants 1,574,919 318,349
Dividends paid to participants - 31,722
Service fees 12,934 -
----------- -----------
Total deductions 1,587,853 350,071
----------- -----------
Net (decrease) increase (981,460) 191,160
Net assets available for plan benefits, beginning of year 1,081,855 890,695
----------- -----------
Net assets available for plan benefits, end of year $ 100,395 $ 1,081,855
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
1. PLAN DESCRIPTION:
The following brief description of the FirstMerit Corporation (the
"Corporation") Employee Stock Purchase Plan (the "Plan") is provided for
general information purposes only. Participants should refer to the
Prospectus for more complete information.
GENERAL: The Board of Directors of the Corporation established the Plan
on February 13, 1992 which was approved by the shareholders at the annual
meeting on April 8, 1992. The Plan provides eligible employees of the
Corporation with the opportunity to acquire the Corporation's Common
Shares on a payroll deduction basis. On January 1, 1997, the plan was
amended to provide for the transfer of all existing participant plan
assets to individual employees' brokerage accounts maintained by Merrill
Lynch. This amendment also provides for the monthly additions in
participant account balances to be transferred to the individual
employees' brokerage account. These transfers are reflected as benefits
paid to Plan participants in the Statement of Changes in Net Assets
Available for Plan Benefits.
CONTRIBUTIONS: Contributions to the Plan consist of participant payroll
deductions, post tax, of a specific dollar amount up to five percent of
the participant's compensation. As of January 1, 1996, contributions may
also include reinvestment of dividends. The election to participate in
the Plan must be completed on or before 15 business days prior to the
commencement of a semiannual grant period. The semiannual grant dates
were July 2 and January 2.
All contributions to the Plan were maintained by the Trust Services
Division of FirstMerit Bank. FirstMerit Bank is a subsidiary of the
Corporation, as well as the trustee of the Plan.
As a result of the plan amendment, the semiannual grant period was
changed to a monthly grant period, the FirstMerit Bank is no longer the
trustee for the plan, and the new employee brokerage accounts do not
permit the reinvestment of dividends in FirstMerit stock on a discounted
basis. These changes were effective for all transactions occurring after
January 1, 1997.
VESTING: Participant's are 100% vested in their account balances at all
times.
PURCHASES OF COMMON SHARES: Under the Plan, up to 200,000 of the
Corporation's Common Shares may be issued, subject to adjustment in the
event of certain transactions affecting the Corporation's capital
structure. Each participant in the Plan on a grant date is granted the
option to purchase, from such funds as contributed by the participant,
whole Common Shares of the Corporation at the option price of 85% of the
fair market value of such shares valued as of the business day
immediately preceding the grant date. Shares of Common stock granted
pursuant to the Plan may be authorized but unissued shares, shares now or
hereafter held in the treasury of the Company, or shares purchased on the
open market. When shares are purchased on the open market, the employer
must reimburse the plan for 15% of the purchase price through employer
contributions.
ELIGIBILITY: Any person who has been employed by the Corporation or any
of its subsidiaries for at least six months and who currently is employed
on a regular basis (any person customarily employed at least 20 hours per
week) is eligible to participate in the Plan. Executive officers of the
Corporation are not considered eligible employees.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. PLAN DESCRIPTION, CONTINUED:
TRANSFERABILITY: Rights to purchase Common Shares under the Plan are not
transferable, except by will or the laws of descent of distribution, and
they may not be subjected to any lien or liability. Options expire on
termination of employment for any reason other than disability or leave
of absence. No participant may purchase shares under the Plan if, after
the purchase, the participant would own more than 5% of the outstanding
Common Shares of the Corporation. In addition, no participant may
purchase shares exceeding $25,000 in fair market value in any one
calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared on an accrual basis in accordance with generally accepted
accounting principles.
USE OF ESTIMATES: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results may differ from those estimates.
INVESTMENTS: The investment in the Corporation's common shares is valued
at fair market value using readily available published market values.
The Plan presents in the statements of changes in net assets available
for plan benefits the net appreciation (depreciation) in the fair value
of its investments which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
ADMINISTRATIVE EXPENSES: Administrative expenses of the plan are paid by
the Corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Management has determined that the
carrying amount of financial instruments, as reported on the statement of
net assets available for plan benefits, approximates fair value.
3. RIGHT TO TERMINATE:
Although it has not expressed any interest to do so, the Corporation has
the right to terminate the Plan at any time. In the event of Plan
termination any remaining assets in the Plan must be used solely for
distributions to Plan participants.
4. INCOME TAX STATUS:
The Plan is a non-qualified plan under the Internal Revenue Code. The
Plan is not exempt from federal income taxes.
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 36
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
REPORT ON AUDITS OF FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 37
INDEX OF FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants .................................................... 1
Financial Statements:
Statements of Net Assets Available for Plan Benefits at December 31, 1997 and 1996 2
Statements of Changes in Net Assets Available for Plan Benefits for the years
ended December 31, 1997 and 1996 ............................................ 3
Notes to Financial Statements .................................................... 4-7
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes as of December 31, 1997 ......... 8
Schedule of Reportable Transactions for the year ended December 31, 1997 ......... 9
</TABLE>
FIRSTMERIT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
FirstMerit Corporation
We have audited the statements of net assets available for plan benefits of the
FirstMerit Corporation and Subsidiaries Employees' Salary Savings Retirement
Plan (the Plan) as of December 31, 1997 and 1996, and the related statements of
changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for plan
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary schedules included on
pages 8 and 9 are presented for purposes of additional analysis and are not a
required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplementary information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects, in relation to the basic
financial statements taken as a whole.
Akron, Ohio
April 15, 1998
1
<PAGE> 39
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Mutual funds:
Federated Government Obligations Fund $ 520,506 $ 1,170
Federated Short/Intermediate Government Fund 847,944 893,257
Federated Capital Preservation Fund 2,678,250 2,557,366
Fidelity Advisor Series IV Ltd. Term Bond Fund 989,140 980,163
Fidelity Advisor Equity Portfolio Growth Fund 5,027,628 3,855,632
Fidelity Blue Chip Growth Fund 5,878,736 4,403,645
Fidelity Overseas Fund 1,673,510 1,388,084
Newpoint Equity Fund 2,747,782 1,954,353
------------ ------------
20,363,496 16,033,670
------------ ------------
FirstMerit Corporation Common Stock 51,820,440 32,496,061
------------ ------------
Total 72,183,936 48,529,731
------------ ------------
Cash/book overdrafts (277,817) 143,978
Receivable from participants 140,296 133,638
Receivable from employers 84,454 82,399
Loans to participants 515,900 334,416
------------ ------------
462,833 694,431
------------ ------------
Net assets available for plan benefits $ 72,646,769 $ 49,224,162
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
2
<PAGE> 40
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Additions:
Contributions:
Participants' contributions $ 3,476,868 $ 3,617,325
Employers' contributions 2,086,244 2,234,702
----------- -----------
5,563,112 5,852,027
----------- -----------
Investment income:
Interest 28,191 19,406
Dividends 1,457,533 1,333,178
Net realized gain and unrealized appreciation (depreciation) of investments 21,744,399 5,917,287
----------- -----------
23,230,123 7,269,871
----------- -----------
Assets received from new participants 297,543 61,004
----------- -----------
Total additions 29,090,778 13,182,902
----------- -----------
Deductions:
Withdrawals by former participants 5,668,171 4,235,645
----------- -----------
Total deductions 5,668,171 4,235,645
----------- -----------
Excess of additions over deductions 23,422,607 8,947,257
----------- -----------
Net assets available for plan benefits at beginning of period 49,224,162 40,276,905
----------- -----------
Net assets available for plan benefits at end of period $72,646,769 $49,224,162
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
3
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PLAN:
The following brief description of the FirstMerit Corporation and
Subsidiaries (FirstMerit) Employees' Salary Savings Retirement Plan (the
Plan) provides only general information. Participants should refer to the
Plan Agreement for a more complete description of the Plan's provisions.
A. GENERAL
The Board of Directors of FirstMerit Corporation established this
defined contribution plan as of October 1, 1985. The Plan covers
all employees of FirstMerit, First National Bank of Ohio, The Old
Phoenix National Bank of Medina, Peoples National Bank, Peoples
Bank N.A., FirstMerit Trust Co. N.A., EST National Bank, and
Citizens National Bank (effective February 1, 1995) (the
"Employers") who have six months of service and have attained the
age of 21. As of October 14, 1997, First National Bank of Ohio,
The Old Phoenix National Bank of Medina and EST National Bank were
merged with FirstMerit Bank N.A. The Plan is subject to certain
provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
B. CONTRIBUTIONS
The Plan permits each participant to contribute from one percent
to fifteen percent of compensation. Such contributions are known
as voluntary pretax employee contributions. A participant's
voluntary pretax contributions and earnings are immediately vested
and non-forfeitable.
The Employers contribute as a matching contribution an amount
equal to 50 percent of the participant's voluntary pretax
contribution. The Employers will not make a matching contribution
with respect to any portion of a participant voluntary pretax
contribution that exceeds six percent of the participant's basic
compensation. These Employer matching contributions and earnings
are immediately vested and non-forfeitable.
The Plan also includes a supplemental matching account whereby the
Employers make additional matching contributions equal to 50% of
the participant's voluntary pretax employee contributions which do
not exceed three percent of the participant's basic compensation.
Participants become vested in the Retiree Medical Matching Program
upon achieving five years of service or upon attaining normal
retirement age.
C. PARTICIPANTS' ACCOUNTS
FirstMerit Bank, N.A. (a subsidiary of FirstMerit), as the trustee
for the Plan, maintains separate accounts for each participant.
The Plan allows each participant to direct their contributions in
FirstMerit Corporation common stock, a stable value fund, a
short-term government bond fund, an intermediate bond fund, a
high-quality, large capitalized stock fund, a blue chip growth
fund, a growth stock fund, an international stock fund, or a
combination thereof with the minimum investment in any option of
5%. Employer matching contributions are invested solely in
FirstMerit Corporation common stock purchased on the open market
by the trustee.
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
4
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. DESCRIPTION OF THE PLAN, CONTINUED:
D. PAYMENT OF BENEFITS:
Distributions to participants are made by one or more of the
following methods: (1) a single lump-sum payment, in cash; or (2)
payments in equal or nearly equal monthly, quarterly, semi-annual,
or annual installments over any period not exceeding 10 years or
the participant's life expectancy at the date such payments
commence, if less.
E. ADMINISTRATIVE EXPENSES
All expenses associated with administering the Plan, including the
trustee's fees and brokerage commissions on purchases of and
transfers between Investment Funds, are paid by the Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on an accrual
basis in accordance with generally accepted accounting principles.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and related notes. Actual results could differ from those estimates.
C. INVESTMENTS
Investments in securities are stated at current value. The current value
of marketable securities is based on quotations obtained from national
securities exchanges.
The current value of the investments in the mutual funds is based upon
the number of units held by the Plan at December 31 and the current value
of each unit based upon quotations and bids obtained from national
securities exchanges on the securities in the funds.
Securities transactions are recognized on the trade date (the date the
order to buy or sell is executed).
The Plan presents in the Statements of Changes in Net Assets Available
for Plan Benefits the net appreciation (depreciation) in the fair value
of its investments, which consists of the realized gains or losses and
the unrealized appreciation (depreciation) on these investments.
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
5
<PAGE> 43
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
D. RISK AND UNCERTAINTIES: The Plan generates a significant portion
of its revenues from investments in domestic and international
mutual funds, bonds and FirstMerit corporation common stock. As a
result, the Plan's revenues and net assets available for plan
benefits could vary based on the performance of the financial
markets.
E. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS: Management has
determined that the carrying amount of financial instruments, as
reported on the Statement of Net Assets Available for Plan
Benefits, approximates fair value.
3. INVESTMENTS:
During 1997 and 1996, the Plan's investments (including investments
bought, sold, and held during the period) appreciated (depreciated) in
value as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mutual funds:
Federated Short/Intermediate Government $ 2,855 $ (7,236)
Fidelity Advisor Series IV Ltd. Term Bond 7,127 (30,222)
Fidelity Advisor Equity Portfolio Growth 232,751 282,228
Fidelity Blue Chip Growth Fund 761,170 187,783
Fidelity Overseas Fund 34,324 56,036
Newpoint Equity Fund 275,413 127,461
FirstMerit Corporation Common Stock 17,452,405 3,868,260
----------- -----------
Total $18,766,045 $ 4,484,310
=========== ===========
</TABLE>
4. FEDERAL INCOME TAXES:
The Plan and Trust qualify under Section 401 of the Internal Revenue Code
and the Trust is exempt from federal income taxes under Section 501(a).
The plan obtained its latest determination letter on November 13, 1995,
in which the Internal Revenue Service stated that the plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The plan has been amended since receiving the
determination letter. However, the plan administrator and the plan's tax
counsel believe that the plan is currently designed and being operated in
compliance with the applicable requirements of the Internal Revenue Code.
Therefore, no provision for income taxes has been included in the plan's
financial statements.
5. PLAN TERMINATION:
Although they have not expressed any intent to do so, the Plan may be
terminated by unanimous action of the Boards of Directors of the
participating Employers.
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
6
<PAGE> 44
7. STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS BY FUND:
for the year ended December 31, 1997
<TABLE>
<CAPTION>
FEDERATED FIDELITY
FIRSTMERIT SHORT/ FEDERATED ADVISOR TERM
CORPORATION INTERMEDIATE CAPITAL SERIES IV LTD.
COMMON GOVERNMENT PRESERVATION TERM BOND
STOCK FUND FUND FUND BOND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Additions:
Contributions:
Participants' contributions $ 1,063,620 $ 105,013 $ 254,252 $ 132,637
Employers' contributions 2,086,244
----------- ----------- ----------- -----------
3,149,864 105,013 254,252 132,637
----------- ----------- ----------- -----------
Investment income:
Interest 28,191
Dividends 1,115,539 46,425 153,409 64,214
Net unrealized appreciation (depreciation) of investments 19,053,645 292 4,985
----------- ----------- ----------- -----------
20,197,375 46,717 153,409 69,199
----------- ----------- ----------- -----------
Assets received from new participants 139,863 1,301 8,984 9,232
----------- ----------- ----------- -----------
Total additions 23,487,102 153,031 416,645 211,068
----------- ----------- ----------- -----------
Deductions:
Withdrawals by former participants 3,883,634 82,465 349,209 95,975
----------- ----------- ----------- -----------
Total deductions 3,883,634 82,465 349,209 95,975
Excess of additions over deductions 19,603,468 70,566 67,436 115,093
----------- ----------- ----------- -----------
Net transfers with other funds 8,648 (115,878) 53,448 (106,116)
Net change in assets during the year 19,612,116 (45,312) 120,884 8,977
----------- ----------- ----------- -----------
Net assets available for plan benefits at beginning of period 33,191,663 893,256 2,557,366 980,163
----------- ----------- ----------- -----------
Net assets available for plan benefits at end of period $52,803,779 $ 847,944 $ 2,678,250 $ 989,140
=========== =========== =========== ===========
<CAPTION>
FIDELITY
ADVISOR
EQUITY FIDELITY BLUE FIDELITY
PORTFOLIO CHIP GROWTH OVERSEAS NEWPOINT
GROWTH FUND FUND FUND EQUITY FUND TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Additions:
Contributions:
Participants' contributions $ 620,405 $ 708,684 $ 255,698 $ 336,559 3,476,868
Employers' contributions 2,086,244
----------- ----------- ----------- ----------- -----------
620,405 708,684 255,698 336,559 5,563,112
----------- ----------- ----------- ----------- -----------
Investment income:
Interest 28,191
Dividends 20,916 36,952 16,519 3,559 1,457,533
Net unrealized appreciation (depreciation) of investments 915,631 1,162,404 122,811 484,631 21,744,399
----------- ----------- ----------- ----------- -----------
936,547 1,199,356 139,330 488,190 23,230,123
----------- ----------- ----------- ----------- -----------
Assets received from new participants 43,986 83,662 1,713 8,802 297,543
----------- ----------- ----------- ----------- -----------
Total additions 1,600,938 1,991,702 396,741 833,551 29,090,778
----------- ----------- ----------- ----------- -----------
Deductions:
Withdrawals by former participants 396,791 549,941 125,741 184,415 5,668,171
----------- ----------- ----------- ----------- -----------
Total deductions 396,791 549,941 125,741 184,415 5,668,171
Excess of additions over deductions 1,204,147 1,441,761 271,000 649,136 23,422,607
----------- ----------- ----------- ----------- -----------
Net transfers with other funds (32,151) 33,330 14,426 144,293
Net change in assets during the year 1,171,996 1,475,091 285,426 793,429 23,422,607
----------- ----------- ----------- ----------- -----------
Net assets available for plan benefits at beginning of period 3,855,632 4,403,645 1,388,084 1,954,353 49,224,162
----------- ----------- ----------- ----------- -----------
Net assets available for plan benefits at end of period $ 5,027,628 $ 5,878,736 $ 1,673,510 $ 2,747,782 72,646,769
=========== =========== =========== =========== ===========
</TABLE>
Note: The FirstMerit Corporation Common Stock Fund includes cash, receivables
from participants and employers and loans to participants.
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
7
<PAGE> 45
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1997
<TABLE>
<CAPTION>
CURRENT
COST VALUE
------------ ------------
<S> <C> <C>
Mutual Funds:
Federated Government Obligations Funds - 1,169.88 units $ 520,506 $ 520,506
Federated Short/Intermediate Government - 86,304.99 units 840,033 847,944
Federated Capital Preservation - 255,736.55 units 2,678,250 2,678,250
Fidelity Advisor Series IV ltd. Term Bond - 93,260.08 units 974,129 989,140
Fidelity Advisor Equity Portfolio Growth - 90,699.41 units 3,955,911 5,027,628
Fidelity Blue Chip Growth - 134,709.23 units 4,539,890 5,878,736
Fidelity Overseas Fund - 45,009.20 units 1,545,919 1,673,510
Newpoint Equity Fund - 137,436.95 units 2,082,284 2,747,782
------------ ------------
17,136,922 20,363,496
FirstMerit Corporation Common Stock -1,826,271 shares 22,494,417 51,820,440
Cash (277,817) (277,817)
Receivable from participants 140,296 140,296
Receivable from employers 84,454 84,454
Loans to participants 515,900 515,900
------------ ------------
$ 40,094,172 $ 72,646,769
============ ============
</TABLE>
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
8
<PAGE> 46
SCHEDULE OF REPORTABLE TRANSACTIONS
for the year ended December 31, 1997
<TABLE>
<CAPTION>
NUMBER NUMBER OF PURCHASE SELLING COST OF GAIN
ASSET DESCRIPTION OF SHARES TRANSACTIONS PRICE PRICE ASSET ON SALE
------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Category 3: Series of transactions
in same security exceeds 5% of value
FirstMerit Corporation Common Stock
Issue: 337915102 126,450 98 $4,933,289 $ - $ - $ -
FirstMerit Corporation Common Stock
Issue: 337915102 82,060 182 - 3,078,244 1,564,360 1,513,884
Federated Government Obligations Fund
Issue: 60934N104 4,948,871 160 4,948,871 - - -
Federated Government Obligations Fund
Issue: 60934N104 4,425,535 160 - 4,429,535 4,429,535 -
</TABLE>
FIRSTMERIT CORPORATION AND SUBSIDIARIES
EMPLOYEES' SALARY SAVINGS RETIREMENT PLAN
9
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Financial Statements appear in Part II of this
Report:
Consolidated Balance Sheets
December 31, 1997 and 1996
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
Management's Report
Independent Auditors' Report
Report of Independent Accountants
Statements of Net Assets Available for FirstMerit
Corporation Employee Stock Purchase Plan
Benefits at December 31, 1997 and 1996
Statements of Changes in Net Assets Available for FirstMerit
Corporation Employee Stock Purchase Plan Benefits
for the years ended December 31, 1997 and 1996
Notes to Financial Statements
Report of Independent Accountants
Statements of Net Assets Available for FirstMerit
Corporation and Subsidiaries Employees'
Salary Savings Retirement Plan Benefits
December 31, 1997 and 1996
Statements of Changes in Net Assets Available for
<PAGE> 48
FirstMerit Corporation and Subsidiaries
Employees' Salary Savings Retirement Plan
Benefits for the years ended December 31,
1997 and 1996
Notes to Financial Statements
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Akron,
State of Ohio, on the 29th day of April, 1998.
FIRSTMERIT CORPORATION
By: /s/ Jack R. Gravo
Jack R. Gravo, Executive Vice President, Finance
and Administration (Principal Financial Officer
and Principal Accounting Officer)
<PAGE> 50
EXHIBIT INDEX
EXHIBIT
NO. ITEM
23 Consent of Coopers & Lybrand, L.L.P.
<PAGE> 1
Exhibit 23
The Board of Directors
FirstMerit Corporation
We consent to the incorporation by reference in the Registration Statement
Nos. 33-7266, 33-47074, 33-47147, 33-57076, and 33-57557 on Forms S-8, of (i)
our report dated January 15, 1998, relating to the consolidated balance sheets
of FirstMerit Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997;
(ii) our report dated April 23, 1998, relating to the Statements of Net Assets
Available for Plan Benefits of Employee Stock Purchase Plan at December 31, 1997
and 1996 and the Statements of Changes in Net Assets Available for Plan Benefits
for the years then ended; and (iii) our report dated April 15, 1998, relating to
the Statements of Net Assets Available for Plan Benefits Employee's Salary
Savings Retirement Plan December 31, 1997 and 1996, and the Statements of
Changes in Net Assets Available for Plan Benefits for the years then ended; all
of such reports appear in Amendment No. 1 to the annual report on Form 10-K of
FirstMerit Corporation.
/s/ Coopers & Lybrand, L.L.P.
Akron, Ohio
April 30, 1998
