<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-10161
FIRSTMERIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1339938
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO
44308-1103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(330) 996-6300
(TELEPHONE NUMBER)
OUTSTANDING SHARES OF COMMON STOCK, AS OF
SEPTEMBER 30, 1999
89,802,272
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 SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
<PAGE> 2
FIRSTMERIT CORPORATION
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
The following statements included in the quarterly unaudited report to
shareholders are incorporated by reference:
Consolidated Balance Sheets as of September 30, 1999, December 31,
1998 and September 30, 1998
Consolidated Statements of Income for the three-month and nine-month
periods ended September 30, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
year ended December 31, 1998 and for the nine months ended September
30, 1999
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998
Notes to Consolidated Financial Statements as of September 30, 1999,
December 31, 1998, and September 30, 1998
Management's Discussion and Analysis of Financial Conditions as of
September 30, 1999, December 31, 1998 and September 30, 1998 and
Results of Operations for the quarter and nine months ended September
30, 1999 and 1998 and for the year ended December 31, 1998.
<PAGE> 3
<TABLE>
<CAPTION>
FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------
(In thousands) (Unaudited, except December 31, 1998)
-----------------------------------------------
September 30 December 31 September 30
------------ ----------- ------------
1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment securities $ 2,020,384 1,903,266 1,804,131
Federal funds sold & other investments 1,140 6,739 8,864
Commercial loans 2,981,820 2,613,838 2,341,814
Mortgage loans 1,334,623 1,648,346 1,996,757
Installment loans 1,436,541 1,199,014 1,265,165
Home equity loans 396,272 377,358 310,898
Credit card loans 100,681 99,541 93,872
Manufactured housing loans 672,398 289,308 240,683
Leases 218,032 171,040 203,889
----------- --------- ---------
Total loans 7,140,367 6,398,445 6,453,078
Less allowance for possible loan losses 106,892 96,149 79,693
----------- --------- ---------
Net loans 7,033,475 6,302,296 6,373,385
Cash and due from banks 295,008 327,997 247,724
Premises and equipment, net 134,094 140,841 140,512
Intangible assets 159,951 169,725 184,769
Accrued interest receivable and other assets 281,911 175,160 192,050
----------- --------- ---------
$ 9,925,963 9,026,024 8,951,435
=========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest bearing $ 1,009,982 1,026,377 940,298
Demand-interest bearing 631,193 917,765 893,730
Savings 1,705,227 1,810,340 1,800,008
Certificates and other time deposits 3,512,361 3,091,496 3,013,609
----------- --------- ---------
Total deposits 6,858,763 6,845,978 6,647,645
Securities sold under agreements to repurchase
and other borrowings 2,053,896 1,123,204 1,192,131
----------- --------- ---------
Total funds 8,912,659 7,969,182 7,839,776
Accrued taxes, expenses, and other liabilities 126,959 117,714 134,089
----------- --------- ---------
Total liabilities 9,039,618 8,086,896 7,973,865
Mandatorily redeemable preferred securities 21,450 32,472 50,000
Shareholders' equity:
Preferred stock, without par value: authorized 7 million shares
Preferred stock, Series A, without par value: designated 800,000
shares; none outstanding
Convertible preferred stock, Series B, without par value; designated
220,000 shares; 163,534, 403,232 and 419,242 shares outstanding
at September 30, 1999, December 31, 1998 and September 30, 1998,
respectively 3,934 9,299 9,671
Common stock, without par value:
authorized 300,000,000 shares; issued 92,046,920
91,161,362 and 90,866,857 shares, respectively 127,938 122,387 122,078
Capital surplus 117,535 117,845 109,532
Accumulated other comprehensive income (27,686) 5,858 11,158
Retained earnings 696,275 668,837 699,018
Treasury stock, at cost, 2,244,648, 1,166,604 and 1,664,619
shares, respectively (53,101) (17,570) (23,887)
----------- --------- ---------
Total shareholders' equity 864,895 906,656 927,570
----------- --------- ---------
$ 9,925,963 9,026,024 8,951,435
=========== ========= =========
</TABLE>
Certain previously reported amounts may have been classified to conform to
current presentation.
See notes to accompanying consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
FIRSTMERIT CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS Unaudited
- ----------------------------------------------- ---------------------------------------------------------------------
(Dollars in thousands) 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
1999 1999 1999 1998 1998
- ----------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities $1,854,863 1,718,124 1,820,047 1,778,551 1,829,307
Federal funds sold 9,149 1,149 4,353 5,739 3,051
Commercial loans 2,929,115 2,821,088 2,648,284 2,625,360 2,518,575
Mortgage loans 1,401,899 1,675,442 1,707,232 1,714,004 1,782,600
Installment loans 1,418,423 1,330,759 1,168,905 1,260,757 1,231,310
Home Equity loans 391,277 380,361 348,220 309,130 308,763
Credit card loans 100,756 100,290 102,080 96,694 93,272
Manufactured housing loans 593,752 415,032 368,503 266,759 204,376
Leases 202,950 180,729 170,352 187,638 198,657
---------- --------- --------- --------- ---------
Loans less unearned income 7,038,172 6,903,701 6,513,576 6,460,342 6,337,553
Less allowance for possible
loan losses 108,067 104,875 101,788 95,211 80,774
---------- --------- --------- --------- ---------
Net loans 6,930,105 6,798,826 6,411,788 6,365,131 6,256,779
Cash and due from banks 238,835 272,025 285,589 172,315 260,322
Premises and equipment, net 136,448 139,026 140,149 140,872 144,844
Accrued interest receivable
and other assets 428,498 400,547 402,371 405,167 375,451
---------- --------- --------- --------- ---------
Total Assets $9,597,898 9,329,697 9,064,297 8,867,775 8,869,754
========== ========= ========= ========= =========
LIABILITIES
Deposits:
Demand-non-interest bearing $1,036,066 1,080,078 1,066,573 1,000,358 974,650
Demand-interest bearing 659,437 694,590 659,189 671,672 847,578
Savings 1,741,610 1,836,459 1,878,596 1,674,459 1,784,982
Certificates and other time
deposits 3,407,053 3,109,435 3,111,321 3,247,273 3,064,187
---------- --------- --------- --------- ---------
Total deposits 6,844,166 6,720,562 6,715,679 6,593,762 6,671,397
Securities sold under agreements to
repurchase and other borrowings 1,718,674 1,538,493 1,239,299 1,163,821 1,107,895
---------- --------- --------- --------- ---------
Total funds 8,562,840 8,259,055 7,954,978 7,757,583 7,779,292
Accrued taxes, expenses and
other liabilities 150,905 154,059 172,874 151,472 141,243
---------- --------- --------- --------- ---------
Total liabilities 8,713,745 8,413,114 8,127,852 7,909,055 7,920,535
Mandatorily redeemable preferred securities 21,450 21,450 22,997 41,676 50,000
SHAREHOLDERS' EQUITY 862,703 895,133 913,448 917,044 899,219
---------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY $9,597,898 9,329,697 9,064,297 8,867,775 8,869,754
========== ========= ========= ========= =========
</TABLE>
Certain previously reported amounts may have been reclassified to conform to
current presentation.
See notes to accompanying consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
- ------------------------------------------------------------- (Unaudited)
(In thousands except per share data)
-----------------------------------------------------
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 148,582 138,395 430,136 393,663
Interest and dividends on securities:
Taxable 25,074 27,278 73,347 78,481
Exempt from Federal income taxes 1,616 1,309 5,093 3,498
Interest on Federal funds sold 102 37 167 156
--------- ------- ------- -------
Total interest income 175,374 167,019 508,743 475,798
--------- ------- ------- -------
Interest expense:
Demand-interest bearing 998 1,674 3,821 4,688
Savings 9,888 9,435 30,382 26,219
Certificates and other time deposits 44,063 47,620 123,314 135,809
Interest on securities sold under agreements
to repurchase and other borrowings 22,454 16,797 56,841 46,544
--------- ------- ------- -------
Total interest expense 77,403 75,526 214,358 213,260
--------- ------- ------- -------
Net interest income 97,971 91,493 294,385 262,538
Provision for possible loan losses 6,913 5,941 32,968 20,249
--------- ------- ------- -------
Net interest income after provision
for possible loan losses 91,058 85,552 261,417 242,289
--------- ------- ------- -------
Other income:
Trust department income 4,636 3,968 13,417 11,534
Service charges on depositors' accounts 11,203 10,810 30,872 29,580
Credit card fees 7,001 5,477 19,453 14,278
Service fees - other 4,301 2,786 11,075 7,561
Manufactured housing income 2,910 1,117 5,741 6,675
Securities gains (losses) (662) 2,148 7,415 5,511
Loan sales and servicing 2,192 6,199 6,055 12,854
Other operating income 6,953 4,541 18,979 15,512
--------- ------- ------- -------
Total other income 38,534 37,046 113,007 103,505
--------- ------- ------- -------
129,592 122,598 374,424 345,794
Other expenses:
Salaries, wages, pension and employee benefits 33,186 34,347 106,798 99,123
Net occupancy expense 5,333 5,852 16,205 17,306
Equipment expense 4,889 3,917 14,513 10,692
Amortization of intangibles 2,589 2,861 8,200 5,980
Other operating expense 24,911 25,834 103,538 84,233
--------- ------- ------- -------
Total other expenses 70,908 72,811 249,254 217,334
--------- ------- ------- -------
Income before Federal income taxes
and extraordinary item 58,684 49,787 125,170 128,460
Federal income taxes 18,780 15,932 41,015 41,006
--------- ------- ------- -------
Income before extraordinary item 39,904 33,855 84,155 87,454
Extraordinary item, net of tax benefit
of $3,148 (extinguishment of debt) --- --- (5,847) ---
--------- ------- ------- -------
Net income $ 39,904 33,855 78,308 87,454
========= ======= ======= =======
Other comprehensive income (loss), net of taxes:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses) arising during period (5,518) 7,649 (28,724) 9,657
Less/(add): reclassification for gains (losses) realized
in net income (430) 1,396 4,820 3,582
--------- ------- ------- -------
Other comprehensive income (loss), net of taxes (5,088) 6,253 (33,544) 6,075
--------- ------- ------- -------
Comprehensive Income $ 34,816 40,108 44,764 93,529
========= ======= ======= =======
Basic net income per share:
Income before extraordinary item $ 0.44 0.38 0.92 1.02
Extraordinary item --- --- (0.06) ---
--------- ------- ------- -------
Basic net income after extraordinary charge $ 0.44 0.38 0.86 1.02
========= ======= ======= =======
Diluted net income per share:
Income before extraordinary item 0.44 0.37 0.92 1.00
Extraordinary item --- --- (0.06) ---
--------- ------- ------- -------
Diluted net income after extraordinary charge $ 0.44 0.37 0.86 1.00
========= ======= ======= =======
Dividends paid $ 0.20 0.16 0.56 0.48
Weighted-average shares outstanding - basic 90,087 87,961 90,711 85,350
Weighted-average shares outstanding - diluted 91,260 90,798 91,970 87,472
</TABLE>
Certain previously reported amounts may have been reclassified to conform to
current reporting practices.
See accompanying notes to consolidated financial statements.
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
FIRSTMERIT CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1999 and Accumulated
years ended 1998 and 1997 Other
Preferred Common Capital Comprehensive
Stock Stock Surplus Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at Year Ended 1996 $ 22,693 114,149 64,462 (3,396)
Net income -- -- -- --
Cash dividends - common stock ($0.61 per share) -- -- -- --
Stock options exercised/debentures or preferred stock converted (12,776) 4,182 11,738 --
Shares issued - acquisition -- 549 4,911 --
Treasury shares purchased -- -- -- --
Stock dividends -- 1,013 (1,013) --
Market adjustment investment securities -- -- -- 7,999
Other -- -- 199 --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at Year Ended 1997 9,917 119,893 80,297 4,603
Net income -- -- -- --
Cash dividends - common stock ($0.66/share) and preferred stock -- -- -- --
Acquisition adjustment of fiscal year -- -- -- --
Stock options exercised/debentures or preferred stock converted (618) 400 3,717 --
Treasury shares purchased -- -- -- --
Treasury shares reissued - acquisition -- -- 25,919 --
Treasury shares reissued - public offering -- -- 6,518 --
Stock dividends -- 1,929 (1,929) --
Market adjustment investment securities -- -- -- 1,255
Other -- 165 3,323 --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 9,299 122,387 117,845 5,858
Net income (loss) -- -- -- --
Cash dividends - common stock ($0.56 per share) -- -- -- --
Cash dividends - preferred stock -- -- -- --
Stock options exercised/debentures or preferred stock converted (5,365) 5,596 (310) --
Treasury shares purchased -- -- -- --
Market adjustment investment securities -- -- -- (33,544)
Other -- (45) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 - Unaudited $ 3,934 127,938 117,535 (27,686)
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1999 and
years ended 1998 and 1997 Total
Retained Treasury Shareholders'
Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Year Ended 1996 582,519 (68,944) 711,483
Net income 114,708 -- 114,708
Cash dividends - common stock ($0.61 per share) (44,136) -- (44,136)
Stock options exercised/debentures or preferred stock converted (1,428) 1,616 3,332
Shares issued - acquisition 1,499 -- 6,959
Treasury shares purchased -- (51,147) (51,147)
Stock dividends (5) (722) (727)
Market adjustment investment securities -- -- 7,999
Other (1,250) 257 (794)
- -----------------------------------------------------------------------------------------------------------
Balance at Year Ended 1997 651,907 (118,940) 747,677
Net income 72,517 -- 72,517
Cash dividends - common stock ($0.66/share) and preferred stock (50,525) -- (50,525)
Acquisition adjustment of fiscal year (1,857) -- (1,857)
Stock options exercised/debentures or preferred stock converted (2,607) 12,111 13,003
Treasury shares purchased -- (25,703) (25,703)
Treasury shares reissued - acquisition -- 89,286 115,205
Treasury shares reissued - public offering -- 20,806 27,324
Stock dividends -- -- 0
Market adjustment investment securities -- -- 1,255
Other (598) 4,870 7,760
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 668,837 (17,570) 906,656
Net income 78,308 -- 78,308
Cash dividends - common stock ($0.56 per share) (51,007) -- (51,007)
Cash dividends - preferred stock 239 -- (239)
Stock options exercised/debentures or preferred stock converted -- 10,278 10,199
Treasury shares purchased -- (46,597) (46,597)
Market adjustment investment securities -- -- (33,544)
Other 376 788 1,119
- -----------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 - Unaudited 696,275 (53,101) 864,895
===========================================================================================================
</TABLE>
Certain previously reported amounts may have been reclassified to conform to
current reporting practices.
See accompanying notes to consolidated financial statements.
<PAGE> 7
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------------------
Operating Activities
- --------------------
<S> <C> <C>
Net income $78,308 87,454
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 32,968 20,249
Provision for depreciation and amortization 13,781 14,145
Amortization of investment securities premiums, net 1,811 1,020
Amortization of income for lease financing (10,144) (8,482)
Gains on sales of investment securities, net (7,415) (5,511)
Deferred federal income taxes (4,618) (7,518)
Increase in interest receivables (16,335) (5,437)
Increase in interest payable 12,895 1,215
Amortization of values ascribed to acquired intangibles 8,200 5,980
Other increases (68,852) (157,439)
--------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 40,599 (54,324)
--------------------
Investing Activities:
- ---------------------
Dispositions of investment securities:
Available-for-sale - sales 570,361 549,641
Available-for-sale - maturities 369,120 399,558
Purchases of investment securities
available-for-sale (1,102,442) (1,196,002)
Net decrease in federal funds sold 5,599 60,427
Net increase in loans and leases, except sales (754,003) (1,144,249)
Sales of loans -- 433,505
Purchases of premises and equipment (16,147) (26,936)
Sales of premises and equipment 9,113 1,467
----------------------
NET CASH USED BY INVESTING ACTIVITIES (918,399) (922,589)
----------------------
Financing Activities
- --------------------
Net decrease in demand, NOW and savings deposits (408,080) 488,995
Net increase in time deposits 420,865 138,386
Net increase in securities sold under repurchase
agreements and other borrowings 930,692 250,301
Proceeds from mandatorily redeemable preferred securities -- 50,000
Repayment of mandatorily redeemable preferred securities (11,022) --
Cash dividends (51,246) (35,627)
Purchase of treasury shares (46,597) (26,538)
Treasury shares reissued - acquisition -- 115,655
Treasury shares reissued - public offering -- 29,888
Proceeds from exercise of stock options 10,199 2,439
--------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 844,811 1,013,499
Increase (decrease) in cash and cash equivalents (32,989) 36,586
Cash and cash equivalents at beginning of year 327,997 211,138
--------------------
Cash and cash equivalents at end of year $295,008 247,724
====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
- --------------------------------------------------
Cash paid during the year for:
Interest, net of amount capitalized $111,282 153,491
Income taxes $44,548 52,710
====================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 8
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements September 30, 1999, December 31, 1998 and September 30, 1998
1. Organization - FirstMerit Corporation ("Corporation"), is a bank holding
company whose principal assets are the common stock of its wholly owned
subsidiary, FirstMerit Bank, N. A. In addition FirstMerit Corporation owns all
of the common stock of Citizens Investment Corporation, Citizens Savings
Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community
Development Corporation, FirstMerit Credit Life Insurance Company, Mobile
Consultants, Inc., and SF Development Corp.
2. Acquisitions and Merger-related Costs - On May 22, 1998, the Corporation
completed the acquisition of CoBancorp Inc., a bank holding company
headquartered in Elyria, Ohio with consolidated assets of approximately $666
million. CoBancorp, Inc. ("COBI") was merged with and into the Corporation and
accounted for under purchase accounting requirements. At the time of the merger,
the value of the transaction was $174.1 million. In connection with the merger,
the Corporation issued 3.897 million shares of its common stock (valued at
$29.375/share), paid approximately $50.0 million in cash, and assumed
merger-related liabilities of approximately $9.6 million. The transaction
created goodwill of approximately $136.5 million that will be amortized
primarily over 25 years.
The following pro forma information is not necessarily indicative of
the results which actually would have been obtained if the merger had been
consummated in the past or which may be obtained in the future.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Nine months ended September 30, 1998 for FirstMerit and three months ended March 31,
1998 for CoBancorp. CoBancorp results from April 1, 1998 to May 21, 1998 could not be
isolated and are not included in the following table. CoBancorp results from May 22, 1998
(the date of merger) through September 30, 1998 are included in the FirstMerit totals.
- -----------------------------------------------------------------------------------------
Pro Forma
FirstMerit CoBancorp Adjustments Combined
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $475,798 11,942 354 488,094
- -----------------------------------------------------------------------------------------
Net interest income 262,538 7,295 -1,151 268,682
- -----------------------------------------------------------------------------------------
Net income 87,454 1,307 -1,913 86,848
- -----------------------------------------------------------------------------------------
Weighted average diluted
shares 88,432
- -----------------------------------------------------------------------------------------
Earnings per diluted share $0.98
- -----------------------------------------------------------------------------------------
</TABLE>
On September 14, 1998, FirstMerit closed on the secondary underwritten
public offering of 1.38 million shares of FirstMerit Common Stock. The
reissuance of these shares was necessary to allow FirstMerit to treat the
Security First merger as a pooling-of-interests for accounting purposes.
<PAGE> 9
On October 23, 1998, the Corporation completed the acquisition of
Security First Corp. ("Security First"), a $678 million holding company
headquartered in Mayfield Heights, Ohio. Under terms of the merger agreement,
Security First was merged with and into the Corporation. The transaction was
structured with a fixed exchange ratio of 0.8855 shares of FirstMerit common
stock for each share of Security First common stock. At the time of the merger,
the pooling-of-interests transaction was valued at $22.58 per share, or
approximately $199 million. The accompanying consolidated financial statements,
the notes thereto and management's discussion and analysis have all been
restated to account for the acquisition as if it had happened at the beginning
of each period presented. In conjunction with the Security First acquisition,
the Corporation incurred merger-related and conforming accounting expenses of
approximately $17.2 million, before taxes, or $12.8 million after taxes. The
components of these costs and the remaining unpaid amounts at December 31, 1998,
March 31, 1999, June 30, 1999 and September 30, 1999 are shown in the following
table. During the third quarter, based on current information, estimated
liabilities associated with loan conversion expenses were reduced by $353.4
thousand. This amount was taken back into reported income but had no effect on
core earnings as the increase in reported income was offset by a reduction of
the same amount in merger-related expenses. The remaining liability at
September 30, 1999 is expected to be paid during 1999 and is not expected to
have any adverse effect on liquidity.
Dollars in thousands
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Remaining Remaining Remaining Remaining
Costs Liability Liability Liability Liability
Accrued December 31, March 31, June 30, September 30,
Description of Costs in 1998 1998 1999 1999 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salary, wages & benefits $ 1,689 50 42 42 42
- ------------------------------------------------------------------------------------------------
Occupancy and
equipment expense 552 511 482 475 206
- ------------------------------------------------------------------------------------------------
Loan conversion expense 1,516 1,031 844 776 155
- ------------------------------------------------------------------------------------------------
Professional services 4,450 1,467 -- -- --
- ------------------------------------------------------------------------------------------------
Other operating expenses 1,576 1,196 1,417 1,390 1,101
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 9,783 4,255 2,785 2,683 1,504
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Reduction of other
operating income 89 -- -- -- --
- ------------------------------------------------------------------------------------------------
Provision for loan losses
conforming entry 7,300 -- -- -- --
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Totals $17,172 4,255 2,785 2,683 1,504
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
On February 12, 1999, the Corporation completed the acquisition of
Signal Corp, a $1.9 billion bank holding company headquartered in Wooster, Ohio.
Under terms of the merger agreement, the fixed exchange ratio was 1.32 shares of
FirstMerit Common Stock for each share of Signal Common Stock and one share of
FirstMerit Series B preferred stock for each share of Signal Series B preferred
stock. Based on the closing price of $25.00 per common share and $71.00 per
Series B preferred share, the transaction, accounted for as a
pooling-of-interests, was valued at approximately $436 million. The accompanying
consolidated financial statements, the notes thereto and management's discussion
and analysis have all been restated to account for the acquisition as if it had
happened at the beginning of each period presented.
In conjunction with the Signal acquisition, the Corporation incurred
merger-related and conforming accounting expenses of approximately $43.8
million, before taxes, or $32.3 million after taxes. The components of these
costs and the remaining unpaid amounts at March 31, 1999, June 30, 1999 and
September 30, 1999 are shown in the following table. The unpaid liability at
September 30, 1999 is expected to be paid during the remainder of 1999 and is
not expected to have a material impact on liquidity.
Dollars in thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Remaining Remaining
Costs Liability Remaining Liability
Accrued March 31, Liability September 30,
Description of Costs 1st Q 1999 1999 June 30, 1999 1999
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salary, wages and benefits $ 7,736 1,555 -- --
- -----------------------------------------------------------------------------------------------------
Loan conversion expense 7,016 1,663 1,126 637
- -----------------------------------------------------------------------------------------------------
Professional services 8,856 295 -- --
- -----------------------------------------------------------------------------------------------------
Other operating expenses 10,014 6,483 5,857 3,701
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 33,622 9,996 6,983 4,338
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Provision for loan losses conforming 10,200
entry
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Totals $43,822 9,996 6,983 4,338
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
3. Segment Information - The Corporation provides a diversified range of banking
and certain nonbanking financial services and products through its various
subsidiaries. Management reports the Corporation's results through its major
segment classification - Supercommunity Banking. Included in this category are
certain nonbank affiliates, eliminations of certain intercompany transactions
and certain nonrecurring transactions. Also included are portions of certain
assets, capital, and support functions not specifically identifiable with
Supercommunity Banking. The Corporation's business is conducted solely in the
United States. The Corporation evaluates performance based on profit or loss
from operations before income taxes. The following table presents a summary of
financial results and significant performance measures for the three-month and
nine-month periods ended September 30, 1999. In the Earnings Summary and other
sections of Management's Discussion and Analysis, these same income statement
categories and ratios are calculated excluding merger and other unusual
expenses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Super
Community Parent & Corporate
1999 Banking Other Adjs/Elims Consolidated
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands) 3Q YTD 3Q YTD 3Q YTD 3Q YTD
- ----------------------------------------------------------------------------------------------------
OPERATIONS:
- ----------------------------------------------------------------------------------------------------
Net interest income $96,669 295,830 1,304 -1,434 -2 -11 97,971 294,385
- ----------------------------------------------------------------------------------------------------
Provision for possible
loan losses 6,623 32,233 290 735 -- -- 6,913 32,968
- ----------------------------------------------------------------------------------------------------
Other income 35,668 107,478 13,145 31,653 -10,279 -26,124 38,534 113,007
- ----------------------------------------------------------------------------------------------------
Other expenses 74,431 254,365 6,758 21,024 -10,281 -26,135 70,908 249,254
- ----------------------------------------------------------------------------------------------------
Income before
extraordinary
charge 33,859 73,780 44,528 86,413 -38,483 -76,038 39,904 84,155
- ----------------------------------------------------------------------------------------------------
Net income $33,859 67,933 44,528 86,413 -38,483 -76,038 39,904 78,308
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
(in millions)
- ----------------------------------------------------------------------------------------------------
AVERAGES:
- ----------------------------------------------------------------------------------------------------
Assets $ 9,610 9,328 NM NM NM NM 9,598 9,352
- ----------------------------------------------------------------------------------------------------
Loans 7,020 6,808 NM NM NM NM 7,038 6,815
- ----------------------------------------------------------------------------------------------------
Earnings assets 8,832 8,622 NM NM NM NM 8,902 8,618
- ----------------------------------------------------------------------------------------------------
Deposits 6,898 6,818 NM NM NM NM 6,844 6,774
- ----------------------------------------------------------------------------------------------------
Shareholders'
equity $ 840 832 NM NM NM NM 863 891
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
RATIOS:
- ----------------------------------------------------------------------------------------------------
ROCE 15.98% 10.91% NM NM NM NM 18.44% 11.79%
- ----------------------------------------------------------------------------------------------------
ROA 1.40% 0.97% NM NM NM NM 1.65% 1.12%
- ----------------------------------------------------------------------------------------------------
Efficiency ratio* NM NM NM NM NM NM 49.45% 51.44%
- ----------------------------------------------------------------------------------------------------
</TABLE>
NM = Not Meaningful
* - Adjusted for merger-related and conforming expenses and an extraordinary
item.
Note: 1998 information not presented due to limited average balance and business
line information maintained by certain acquired companies.
<PAGE> 12
The table below presents estimated revenues from external customers, by
product and service group for the 1999 third quarter and year-to-date periods:
- --------------------------------------------------------------------------------
Three months ended September 30, 1999
- --------------------------------------------------------------------------------
(in thousands) Retail Commercial Trust Services Total
- --------------------------------------------------------------------------------
Interest and fees $100,813 90,763 4,636 196,212
- --------------------------------------------------------------------------------
Service charges 11,768 3,736 --- 15,504
- --------------------------------------------------------------------------------
Loan sales/service 2,192 --- --- 2,192
- --------------------------------------------------------------------------------
Totals $114,773 94,499 4,636 213,908
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nine months ended September 30, 1999
- --------------------------------------------------------------------------------
(in thousands) Retail Commercial Trust Services Total
- --------------------------------------------------------------------------------
Interest and fees $293,806 266,525 13,417 573,748
- --------------------------------------------------------------------------------
Service charges 33,377 8,570 --- 41,947
- --------------------------------------------------------------------------------
Loan sales/service 6,055 --- --- 6,055
- --------------------------------------------------------------------------------
Totals $333,238 275,095 13,417 621,750
- --------------------------------------------------------------------------------
4. Earnings per Share - Primary and Diluted earnings per share were calculated
as follows:
- --------------------------------------------------------------------------------
EARNINGS PER SHARE CALCULATION 1999 1998
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30:
- --------------------------------------------------------------------------------
Income before extraordinary charge $39,904 33,855
- --------------------------------------------------------------------------------
Net income 39,904 33,855
- --------------------------------------------------------------------------------
Less: preferred stock dividends -68 -174
- --------------------------------------------------------------------------------
Net income available to common shareholders 39,836 33,681
- --------------------------------------------------------------------------------
Average common shares outstanding 90,087 87,961
- --------------------------------------------------------------------------------
EARNINGS PER BASIC COMMON SHARE 0.44 0.38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income available to common shareholders 39,836 33,681
- --------------------------------------------------------------------------------
Add: preferred stock dividends 68 174
- --------------------------------------------------------------------------------
Add: interest expense on convertible bonds, net 18 128
- --------------------------------------------------------------------------------
Income used in diluted EPS calculation 39,922 33,983
- --------------------------------------------------------------------------------
Average common shares outstanding 90,087 87,961
- --------------------------------------------------------------------------------
Equivalents from stock options* 577 2,837
- --------------------------------------------------------------------------------
Equivalents from convertible debentures 142
- --------------------------------------------------------------------------------
Equivalents from convertible preferred securities 454
- --------------------------------------------------------------------------------
Avg common stock and equivalents outstanding 91,260 90,798
- --------------------------------------------------------------------------------
EARNINGS PER DILUTED COMMON SHARE $ 0.44 0.37
- --------------------------------------------------------------------------------
<PAGE> 13
- --------------------------------------------------------------------------------
EARNINGS PER SHARE CALCULATION 1999 1998
- --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30:
- --------------------------------------------------------------------------------
Income before extraordinary charge $84,155 87,454
- --------------------------------------------------------------------------------
Net income 78,308 87,454
- --------------------------------------------------------------------------------
Less: preferred stock dividends -239 -349
- --------------------------------------------------------------------------------
Net income available to common shareholders 78,069 87,105
- --------------------------------------------------------------------------------
Average common shares outstanding 90,711 85,350
- --------------------------------------------------------------------------------
EARNINGS PER BASIC COMMON SHARE 0.86 1.02
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income available to common shareholders 78,069 87,105
- --------------------------------------------------------------------------------
Add: preferred stock dividends 239 349
- --------------------------------------------------------------------------------
Add: interest expense on convertible bonds, net 57 256
- --------------------------------------------------------------------------------
Income used in diluted share calculation 78,365 87,710
- --------------------------------------------------------------------------------
Average common shares outstanding 90,711 85,350
- --------------------------------------------------------------------------------
Equivalents from stock options* 610 2,122
- --------------------------------------------------------------------------------
Equivalents from convertible debentures 144
- --------------------------------------------------------------------------------
Equivalents from convertible preferred securities 505
- --------------------------------------------------------------------------------
Avg common stock and equivalents outstanding 91,970 87,472
- --------------------------------------------------------------------------------
EARNINGS PER DILUTED COMMON SHARE $ 0.86 1.00
- --------------------------------------------------------------------------------
* - Breakout of stock equivalents was not available for the 1998 periods.
5. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards for derivative instruments and requires an entity to
recognize all derivatives as either assets or liabilities in the Balance Sheet
and measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge to various exposures. The
accounting for changes in the fair value of a derivative (i.e., gains and
losses) depends on the intended use of the derivative and its resulting
designation. This statement was originally to be effective for all fiscal
quarters beginning after June 15, 1999.
In July 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 an amendment of FASB Statement No. 133. The primary
purpose of SFAS 137 was to postpone the implementation date of SFAS 133 by one
year. As a result, the Corporation is required to implement SFAS 133 for the
first quarter 2001.
6. Management believes the interim consolidated financial statements reflect all
adjustments consisting only of normal recurring accruals, necessary for fair
presentation of the September 30, 1999 and 1998 and December 31, 1998 statements
of condition and the results of operations for the quarter and nine-month
periods ended September 30, 1999 and 1998.
7. The Corporation cautions that any forward looking statements contained in
this report, in a report incorporated by reference to this report or made by
management of the Corporation, involve risks and uncertainties and are subject
to change based upon various factors. Actual results could differ materially
from those expressed or implied. Reference is made to the section titled
"Forward-looking Statements" in the Corporation's Form 10-K for the period ended
December 31, 1998.
<PAGE> 14
<TABLE>
<CAPTION>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Average Consolidated Balance Sheet, Fully-tax Equivalent Interest Rates and Interest Differential
(Dollars in thousands)
Three Months ended September 30, Year ended December 31,
--------------------------------------- ---------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------------------------------------- ---------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investment securities $ 1,854,863 27,598 5.90% 1,715,543 109,917 6.41%
Federal funds sold 9,149 102 4.42% 44,878 2,400 5.35%
Loans, net of unearned income 7,038,172 148,652 8.38% 6,131,665 533,732 8.70%
----------- ------- --------- -------
Total earning assets 8,902,184 176,352 7.86% 7,892,086 646,049 8.19%
Allowance for possible loan losses (108,067) - - (80,441) - -
Cash and due from banks 238,835 - - 204,353 - -
Other assets 564,946 - - 504,577 - -
----------- ------- --------- -------
Total assets $ 9,597,898 - 8,520,575 -
=========== ======= ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing $ 1,036,066 - - 1,083,354 - -
Demand-
interest bearing 659,437 998 0.60% 752,096 13,222 1.76%
Savings 1,741,610 9,888 2.25% 1,600,122 44,077 2.75%
Certificates and other time deposits 3,407,053 44,063 5.13% 3,019,637 165,198 5.47%
----------- ------- --------- -------
Total deposits 6,844,166 54,949 3.19% 6,455,209 222,497 3.45%
Federal funds purchased, securities sold
under agreements to repurchase and
other borrowings 1,718,674 22,454 5.18% 1,063,848 63,879 6.00%
Total interest bearing liabilities 7,526,774 77,403 4.08% 6,435,703 286,376 4.45%
Other liabilities 150,905 - 118,417 -
Mandatorily redeemable preferred securities 21,450 - 41,236 -
Shareholders' equity 862,703 - 841,865 -
----------- ------- --------- -------
Total liabilities and shareholders' equity $ 9,597,898 - 8,520,575 -
=========== ======= ========= =======
Net yield on earning assets 98,949 4.41% 359,673 4.56%
======= ===== ======= =====
Interest rate spread 3.78% 3.74%
===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months ended September 30,
--------------------------------
1998
--------------------------------
Average Average
Balance Interest Rate
--------------------------------
ASSETS
<S> <C> <C> <C>
Investment securities 1,829,307 29,636 6.43%
Federal funds sold 3,051 37 4.81%
Loans, net of unearned income 6,337,553 138,476 8.67%
--------- -------
Total earning assets 8,169,911 168,149 8.17%
Allowance for possible loan losses (80,774) - -
Cash and due from banks 260,322 - -
Other assets 520,295 - -
--------- -------
Total assets 8,869,754 -
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing 974,650 - -
Demand-
interest bearing 847,578 1,674 0.78%
Savings 1,784,982 9,435 2.10%
Certificates and other time deposits 3,064,187 47,620 6.17%
--------- -------
Total deposits 6,671,397 58,729 3.49%
Federal funds purchased, securities sold
under agreements to repurchase and
other borrowings 1,107,895 16,797 6.02%
Total interest bearing liabilities 6,804,642 75,526 4.40%
Other liabilities 141,243 -
Mandatorily redeemable preferred securities 50,000 -
Shareholders' equity 899,219 -
--------- -------
Total liabilities and shareholders' equity 8,869,754 -
========= =======
Net yield on earning assets 92,623 4.50%
======= =====
Interest rate spread 3.76%
=====
</TABLE>
*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.
Certain previously reported amounts may have been reclassified to conform to
current reporting practices.
<PAGE> 15
RESULTS OF OPERATIONS
FirstMerit Corporation's 1999 third quarter net income was $39.9
million, a 17.9% increase over 1998 third quarter net income of $33.9 million.
Return on average common equity ("ROCE") for the 1999 quarter was 18.44%
compared to 15.10% last year. Return on average assets ("ROA") for the quarter
was 1.65% compared to 1.51% for 1998.
For the nine-month period ended September 30, 1999, net income was
$78.3 million compared to $87.5 million for the same 1998 period. ROCE and ROA
for the current nine-month period were 11.79% and 1.12%, respectively. These
same ratios for the 1998 period were 14.48% and 1.40%. Excluding 1999
merger-related costs associated with the February 12, 1999 pooling acquisition
of Signal Corp and the after-tax extraordinary item of $5.8 million,
year-to-date net income was $116.4 million, up 26.2% from $92.2 million for 1998
(on a comparable basis). ROCE and ROA on this same adjusted basis for the
year-to-date period were 17.53% and 1.66%, respectively, compared to prior
year's ratios of 15.27% and 1.47%.
The results of CoBancorp, Inc., acquired by the Corporation in a
purchase transaction on May 22, 1998, are included in the entire 1999 quarterly
and nine-month periods and in the 1998 totals from the acquisition date through
September 30, 1998.
Net interest income on a fully tax-equivalent ("FTE") basis was $98.9
million for third quarter 1999, a gain of 6.8% above the $92.6 million reported
last year. Growth in average earning assets was 9.0% since September 30, 1998,
reaching $8.9 billion. The net interest margin for the 1999 third quarter was
4.41%, down 9 basis points from 4.50% last year. For the nine months ended
September 30, 1999, net interest income FTE rose 12.3% from $262.5 million to
$297.7 million. For the same nine-month period, the net interest margin was
4.62% compared to 4.56% in 1998.
Excluding securities gains/losses from each quarter, noninterest income
was $39.2 million compared to $34.9 million the prior year, an improvement of
12.3%. For the year-to-date period, noninterest income was up 7.8% above 1998
levels, accounting for 26.2 % of net revenue in 1999 and 27.0% of net revenue
for the prior year period.
Third quarter 1999 operating expenses were $70.9 million, a decline of
2.6% from the prior year level of $72.8 million. Improvement was reported, most
notably, in bankcard and loan processing costs, which declined 35% largely due
to the discontinuance of an outside servicing contract. Salary and benefit
expense, occupancy expense and amortization of intangibles also declined,
partially offset by an increase in equipment expense consistent with recent
quarters, and reflecting technology upgrades since last year. The third quarter
1999 efficiency ratio was 49.45% compared to 54.85% for the 1998 quarter. The
"lower is better" efficiency ratio
<PAGE> 16
indicates the percentage of each dollar of profit used to cover operating costs.
For the nine months ended September 30, 1999, operating expenses were $249.3
million versus $217.3 in 1998. Excluding merger-related expenses in both
year-to-date periods, operating expenses for the nine months ended September 30,
1999 totaled $215.6 million compared to $210.0 million for 1998. The adjusted
year-to-date efficiency ratios for 1999 and 1998 were 51.44% and 56.19%,
respectively.
Assets totaled $9.9 billion at quarter end, with earning assets
comprising 93% of the total. At September 30, 1999, total loans were $7.1
billion, a gain of 10.7% above 1998 quarter-end levels. On an average basis,
total loans were $7.0 billion, 11.1% above 1998 third quarter levels. Average
commercial loans grew 16.3% to account for 41.6% of the portfolio, up from
39.7%. Meanwhile, mortgage loans declined 21.4% to comprise 19.9% of the
portfolio, down from 28.1%. The Corporation continues to shift its loan mix from
lower-yielding mortgage loans to higher-yielding commercial and consumer
credits.
The provision for loan losses was $6.9 million, an increase of 16.4%
above third quarter 1998, consistent with growth of the portfolio and changes in
loan mix. For the nine-month period, the provision was $33.0 million compared to
$20.2 million the prior year. Excluding a merger-related provision entry of
$10.2 million recorded in the 1999 first quarter, the provision for loan losses
for the nine months ended September 30, 1999 was $22.8 million. The allowance
for loan losses as a percent of period-end loans increased to 1.50% at the end
of the third quarter, compared to 1.23% percent September 30, 1998.
At September 30, 1999, non-performing assets were $29.6 million, or
0.41% of total loans and other real estate, compared to $31.3 million, or 0.48%,
for the same quarter last year. The loan loss allowance (to nonperforming
assets) coverage ratio was 3.6 times at quarter end compared to 2.7 times at
September 30, 1998.
Total deposits at September 30, 1999 and 1998 were $6.9 billion and
$6.6 billion, respectively. Demand, savings and money market accounts comprised
49% of total deposits at September 30, 1999 compared to 55% at September 30,
1998. Certificates and other time deposits ("CDs") made up 51% of total deposits
at September 30, 1999 and 45% at September 30, 1998. Other borrowings at
September 30, 1999 were $2.1 billion, up from $1.2 billion a year ago.
Shareholders' equity totaled $864.9 million at quarter end compared to
$927.6 million at September 30, 1998. Earnings during the year continue to be
paid out in the form of dividends and absorbed by merger-related expenses. Also
decreasing shareholders' equity were treasury stock repurchases and the market
value adjustment of securities. Common stock dividends paid were $18 million in
the third quarter, or $0.20 per share, representing a payout ratio of 45.45%. At
September 30, 1999, there were 89.8 million shares of Common Stock outstanding.
<PAGE> 17
In August 1999, the Board of Directors authorized a new share
repurchase program to repurchase up to 5 million shares, or approximately 5.5%,
of FirstMerit's then outstanding Common Stock. It is contemplated that this
program will be completed within two years. The previous program, authorized in
April 1999 to repurchase 1.65 million shares of Common Stock, has been
fulfilled. These share repurchase programs give the Corporation more
flexibility in managing capital levels allowing any excess capital to be
returned to shareholders.
<PAGE> 18
Diluted earnings per share for the third quarter were $0.44 compared to
last year's quarterly earnings of $0.37. For the nine months ended September 30,
1999, diluted earnings per share were $0.86 compared to $1.00 recorded for the
same 1998 period. Excluding merger-related costs in both year-to-date periods
and the extraordinary charge in the 1999 first quarter, diluted ("core")
earnings per share for 1999 was $1.27 compared to $1.06 for 1998. The components
of change in per share income for the three-month and nine-month periods ended
September 30, 1999 and 1998 and core earnings for the nine-month periods ended
September 30, 1999 and 1998 are summarized in the following table:
<TABLE>
<CAPTION>
CHANGES IN EARNINGS PER
- -----------------------
SHARE Reported Reported CORE EARNINGS
- ----- Three months Nine months Nine months
ended ended ended
September 30, September 30, September 30,
1999/1998 1999/1998 1999/1998
------------------------------------------------------
<S> <C> <C> <C>
Diluted net income/core earnings
per share September 30, 1998 $0.37 1.00 1.06
Increases (decreases) due to:
Net interest income - taxable
equivalent 0.07 0.35 0.35
Provision for possible loan
losses -0.01 -0.14 -0.03
Other income 0.03 0.11 0.11
Other expenses 0.01 -0.34 -0.06
Federal income taxes - taxable
equivalent -0.03 -0.01 -0.10
Extraordinary item -
extinguishment of debt 0.00 -0.06 0.00
Change in share base 0.00 -0.05 -0.06
----------------------------------------------------
Net change in diluted net income
per share 0.07 -0.14 0.21
----------------------------------------------------
Diluted net income per share
September 30, 1999 $0.44 0.86 1.27
====================================================
</TABLE>
<PAGE> 19
NET INTEREST INCOME
Net interest income, the Corporation's principal source of earnings, is
the difference between the interest income generated by earning assets
(primarily loans and investment securities) and the total interest paid on
interest bearing funds (namely deposits and other borrowings). For the purpose
of this discussion, net interest income is presented on a fully-taxable
equivalent ("FTE") basis, to provide a comparison among types of interest
earning assets. That is, interest on tax-free securities and tax-exempt loans
has been restated as if such interest were taxed at the statutory Federal income
tax rate of 35%, adjusted for the non-deductible portion of interest expense
incurred to acquire the tax-free assets.
Net interest income FTE for the quarter ended September 30, 1999 was
$98.9 million compared to $92.6 million for the same period one year ago, an
increase of $6.3 million. The net increase occurred as the rise in interest
income of $8.2 million outpaced the increase in interest expense of $1.9
million. Of the $8.2 million increase in interest income, loan volume accounted
for $14.8 million while unfavorable loan and securities rate variances lowered
interest income by $7.0 million. The net increase in interest expense of $1.9
million occurred as higher borrowing volumes added $6.9 million to interest
expense, while lower rates paid on wholesale debt and to customers lessened
interest costs by $5.0 million.
For the year-to-date period, net interest income FTE increased $32.6
million to $297.7 million. The net increase occurred as interest income rose
$33.7 million and interest expense increased $1.1 million. Higher loan volume
added $49.9 million to interest income, compared to last year's nine-month
period, and lower rates earned on interest-bearing assets lessened interest
income by $18.4 million. Interest expense increased slightly on a net basis as
lower interest rates paid customers lessened interest expense by $13.8 million
but interest paid on higher funding volumes resulted in an increase in interest
expense of $14.9 million.
The following schedule illustrates in more detail the change in net
interest income FTE by rate and volume components for both interest earning
assets and interest bearing liabilities.
<PAGE> 20
CHANGES IN NET INTEREST DIFFERENTIAL -
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Quarters ended Nine Months Ended
September 30, September 30,
1999 and 1998 1999 and 1998
------------- -------------
Increase (Decrease) Increase (Decrease)
Interest Income/Expense Interest Income/Expense
----------------------- -----------------------
Volume Yield Rate Total Volume Yield Rate Total
------- ---------- ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment Securities $ 380 -2,418 -2,038 2,075 -4,932 -2,857
Loans 14,798 -4,622 10,176 49,944 -13,430 36,514
Federal funds sold 68 -3 65 53 -42 11
------- ------ ------ ------ ------- -------
Total interest income $15,246 -7,043 8,203 52,072 -18,404 33,668
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing $ 116 -792 -676 694 -1,561 -867
Savings 1,082 -629 453 5,888 -1,725 4,163
Certificates and other
time deposits -2,314 -1,243 -3,557 -9,198 -3,297 -12,495
Federal Funds Purchased,
REPOs & other borrowings 7,980 -2,323 5,657 17,543 -7,246 10,297
------- ------ ------ ------ ------- -------
Total interest expense $ 6,864 -4,987 1,877 14,927 -13,829 1,098
------- ------ ------ ------ ------- -------
Net interest income $ 8,382 -2,056 6,326 37,145 -4,575 32,570
======= ====== ====== ====== ======= =======
</TABLE>
NET INTEREST MARGIN
The net interest margin, net interest income FTE divided by average
earning assets, is affected by changes in the level of earning assets, the
proportion of earning assets funded by non-interest bearing liabilities, the
interest rate spread, and changes in the corporate tax rates. A meaningful
comparison of the net interest margin requires an adjustment for the changes in
the statutory Federal income tax rate noted above. The following schedule shows
the relationship of the tax equivalent adjustment and the net interest margin.
<PAGE> 21
NET INTEREST MARGIN
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------
1999 1998 1999 1998
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Net interest income per
financial statements $ 97,971 91,493 294,393 262,538
Tax equivalent adjustment 978 1,130 3,288 2,567
---------- --------- --------- ---------
Net interest income - FTE 98,949 92,623 297,681 265,105
========== ========= ========= =========
Adjusted net interest income - FTE 99,637 --- --- ---
========== ========= ========= =========
Average earning assets $8,902,184 8,169,911 8,617,836 7,777,485
========== ========= ========= =========
Net interest margin 4.41% 4.50% 4.62% 4.56%
========== ========= ========= =========
Adjusted net interest margin 4.44% --- --- ---
========== ========= ========= =========
</TABLE>
The CoBancorp, Inc. acquisition was completed on May 22, 1998. As a
result, 1998 results only include CoBancorp balances for the period from May 22,
1998 through September 30, 1998 while CoBancorp balances are included in the
entire 1999 periods. During the third quarter 1999, a reclassification entry
between interest income and other income of $845 thousand was recorded. Of this
amount, $688 thousand was due to activity prior to the third quarter. The
adjusted net interest income FTE and adjusted net interest margin were computed
as if the reclassification entry had been recorded in the prior 1999 quarters.
<PAGE> 22
OTHER INCOME
Other income for the quarter ended September 30, 1999 was $38.5
million, an increase of $1.5 million or 4%, over the $37.0 million earned during
the same period last year. Excluding securities sales, the increase in other
income was $4.3 million, or 11%. For the nine-month period, other income totaled
$113.0 million, up from $103.5 million a year ago.
Trust department income for the third quarter was $4.6 million, up
16.8% from the $4.0 million earned one year ago. Service charges on depositors'
accounts increased 3.6% to $11.2 million from $10.8 million for last year's
third quarter. Credit card fees, including merchant services, increased 27.8%
to $7.0 million for the quarter compared to $5.5 million for the three months
ended September 30, 1998. Other service fees, including Automated Teller
Machine (ATM) revenue, rose from $2.8 million during the 1998 third quarter to
$4.3 million for the same 1999 period. Manufactured housing income was $2.9
million for the quarter compared to $1.1 million last year. Losses on sales of
securities were $662 thousand during the third quarter compared to gains of
$2.1 million in 1998. Because of unfavorable market conditions, loan sales and
servicing income was $2.2 million, down from $6.2 million in 1998. Other
operating income was $7.0 million, consistent with the first and second
quarters of 1999, compared to $4.5 million in 1998.
Three-quarter 1999 results compared to the nine months ended September
30, 1998 were as follows: trust department income increased 16.3%; service
charges on depositors' accounts increased 4.4%; credit card and merchant service
fees increased 36.2%; other service fees, which include ATM revenue, increased
46.5%; manufactured housing income declined from $6.7 million to $5.7 million;
securities gains increased 34.5%; income from loan sales and servicing,
reflecting mortgage market conditions, decreased by more than half of last
year's total to $6.1 million; and other operating income increased 22.4%.
In banking, other income is an important complement to net interest
income as it provides a source of revenues not sensitive to the interest rate
environment.
<PAGE> 23
OTHER EXPENSES
Other expenses were $70.9 million for the third quarter, a decrease of
$1.9 million from the $72.8 million recorded during the same quarter last year.
Excluding merger-related expenses of $33.6 million in the 1999 year-to-date
period, other expenses totaled $215.6 million, compared to $210.0 for 1998, on a
like-basis.
The "lower-is-better" efficiency ratio for the third quarter was 49.45%
compared to 54.85% a year ago. The adjusted efficiency ratios for the nine-month
periods were 51.44% and 56.19% for 1999 and 1998, respectively. The 1999 third
quarter efficiency ratio indicates it took 49.45 cents of operating costs to
generate every dollar of profit. The improvement in the efficiency ratios is a
result of lower or stable operating costs and increased revenues.
Salaries, wages, pension and employee benefits ("salaries and
benefits"), the largest component of other expenses, totaled $33.2 million for
third quarter 1999, down $1.1 million from last year's expense of $34.3 million.
For the nine-month period, salaries and benefits were $106.8 million. Excluding
$7.7 million of personnel merger costs taken in the 1999 first quarter,
nine-month salaries and benefits were $99.1 million, the same amount as recorded
in 1998.
Other operating expenses for the 1999 third quarter were $24.9 million,
down from $25.8 million last year. Year-to-date 1999 other operating expenses
totaled $103.5 million. Excluding merger-related charges recorded during the
first quarter, other operating expenses for the nine months ended September 30,
1999 were $77.7 million compared to $76.9 million for 1998, on a comparable
basis.
<PAGE> 24
FINANCIAL CONDITION
INVESTMENT SECURITIES
All investment securities of the Corporation are classified as
available for sale. The available for sale classification provides the
Corporation with more flexibility to respond, through the portfolio, to changes
in market interest rates, or to increases in loan demand or deposit withdrawals.
The book value and market value of investment securities
classified as available for sale are as follows:
<TABLE>
<CAPTION>
September 30, 1999
------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
Government agency obligations $ 778,399 785 14,158 765,026
Obligations of state and
political subdivisions 126,962 597 1,289 126,270
Mortgage-backed securities 864,561 972 21,375 844,158
Other securities 292,913 661 8,644 284,930
---------- ---------- ---------- ----------
$2,062,835 3,015 45,466 2,020,384
========== ========== ========== ==========
Book Value Market Value
----------- ------------
Due in one year or less $93,922 93,945
Due after one year through five years 374,687 368,310
Due after five years through ten years 435,162 428,675
Due after ten years 1,159,064 1,129,454
---------- ---------
$2,062,835 2,020,384
========== =========
</TABLE>
The book value and market value of investment securities including
mortgage-backed securities and derivatives at September 30, 1999, by contractual
maturity, are shown in the preceding table. Expected maturities will differ from
contractual maturities based on the issuers' right to call or prepay obligations
with or without call or prepayment penalties.
<PAGE> 25
The carrying value of investment securities pledged to secure trust and
public deposits and for purposes required or permitted by law amounted to
approximately $1.7 billion at September 30, 1999 and $1.2 billion at December
31, 1998.
Securities with remaining maturities over five years reflected in the
foregoing schedule consist of mortgage and asset backed securities. These
securities are purchased within an overall strategy to maximize future earnings
taking into account an acceptable level of interest rate risk. While the
maturities of these mortgage and asset backed securities are beyond five years,
these instruments provide periodic principal payments and include securities
with adjustable interest rates, reducing the interest rate risk associated with
longer term investments.
LOANS
Total loans outstanding at September 30, 1999 were $7.140 billion
compared to $6.398 billion at December 31, 1998 and $6.453 billion at September
30, 1998. Average loans outstanding for the quarter ended September 30, 1999
were $7.038 billion, up $700 million or 11.0%, from $6.338 billion for the same
quarter last year.
On an average basis, the most notable increases occurred in commercial
loans, up $410.5 million or 16.3%; manufactured housing loans, up $389.4 million
or 190.5%; installment loans, up $187.1 million or 15.2%; home equity loans up
$82.5 million or 26.7% and credit card outstandings up $7.5 million or 8.0%.
Mortgage loan outstandings declined $380.7 million or 21.4% as the Corporation's
loan mix continues to shift away from lower-yielding mortgage loans and toward
higher-yielding commercial and consumer credits.
Similar to the quarterly growth, 1999 year-to-date average loan
outstandings increased in all categories except mortgage loans. For the
nine-month periods, average loans totaled $6.815 billion for 1999 and $6.024
billion for the prior year. Average outstanding loans for the quarter and
nine-month periods equaled 79.1% and 77.5% of average earning assets,
respectively.
ASSET QUALITY
Total nonperforming assets, defined as nonaccrual loans, restructured
loans and other real estate ("ORE"), totaled $29.6 million at September 30, 1999
or 0.41% of total outstanding loans and ORE. At December 31, 1998, nonperforming
assets totaled $23.2 million or 0.36% of outstanding loans and ORE. At September
30, 1998, nonperforming assets were $31.3 million or 0.48% of outstanding loans
and ORE.
Impaired loans are loans for which, based on current information or
events, it is probable that a creditor will be unable to collect all amounts due
according to the
<PAGE> 26
contractual terms of the loan agreement. Impaired loans must be valued based on
the present value of the loans' expected future cash flows at the loans'
effective interest rates, at the loans' observable market prices, or the fair
value of the underlying collateral. Under the Corporation's credit policies and
practices, and in conjunction with provisions within Statements No. 114 and No.
118, all nonaccrual and restructured commercial, agricultural, construction, and
commercial real estate loans, meet the definition of impaired loans.
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Impaired Loans:
Non-accrual $25,562 10,883 23,559
Restructured 47 85 1,986
- ------------------------------------------------------------------------------------------
Total impaired loans 25,609 10,968 25,545
------------- ------------ -------------
Other Loans:
Non-accrual 2,708 8,456 2,074
Restructured --- --- ---
- ------------------------------------------------------------------------------------------
Total other nonperforming loans 2,708 8,456 2,074
- ------------------------------------------------------------------------------------------
Total nonperforming loans 28,317 19,424 27,619
- ------------------------------------------------------------------------------------------
Other real estate owned (ORE) 1,321 3,789 3,665
------------- ------------ -------------
Total nonperforming assets $29,638 23,213 31,284
==========================================================================================
Loans past due 90 days or more
accruing interest $24,885 18,911 NA
==========================================================================================
Total nonperforming assets as a
percent of total loans and ORE 0.41% 0.36% 0.48%
==========================================================================================
</TABLE>
NA = Not Available
There is no concentration of loans in any particular industry or group of
industries. Most of the Corporation's business activity is with customers
located within the state of Ohio.
<PAGE> 27
ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses at September 30, 1999 totaled
$106.9 million, or 1.50% of total loans outstanding compared to $96.1 million,
or 1.50% and $79.7 million, or 1.23% at December 31, 1998 and September 30,
1998, respectively.
<TABLE>
<CAPTION>
Dollars in thousands Nine months Nine months
ended Year ended ended
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Allowance - beginning of period $ 96,149 67,736 67,736
Acquisition adjustment/other 1,012 8,215 8,215
Loans charged off:
Commercial, financial, agricultural 8,269 3,894 3,431
Installment to individuals 28,322 26,277 19,907
Real estate 473 1,489 961
Lease financing 794 1,274 940
Total charge-offs 37,858 32,934 25,239
Recoveries:
Commercial, financial, agricultural 3,548 1,930 1,172
Installment to individuals 10,462 8,285 6,481
Real estate 26 1,464 735
Lease financing 585 532 344
Total recoveries 14,621 12,211 8,732
Net charge-offs 23,237 20,723 16,507
Provision for possible loan losses 32,968 40,921 20,249
Allowance - end of period 106,892 96,149 79,693
Annualized net charge offs as a
percent of average loans 0.46% 0.34% 0.37%
Allowance for possible
loan losses:
As a percent of loans
outstanding at end of period 1.50% 1.50% 1.23%
As a multiple of annualized net
charge offs 3.44X 4.64X 3.61X
</TABLE>
<PAGE> 28
The Corporation's Credit Quality department manages credit risk by
establishing common credit policies for its subsidiaries, which operate under
the authority of the Corporation's Board of Directors Credit Committee,
participating in approval of larger loans, conducting reviews of loan
portfolios, providing centralized consumer underwriting, collections and loan
operation services, and overseeing loan workouts. The Corporation's objective
is to minimize losses from commercial lending activities and to maintain
consumer losses at levels that are within desired risk parameters and
consistent with growth and profitability objectives.
<PAGE> 29
DEPOSITS
The following schedule illustrates the change in composition of the
average balances of deposits and average rates paid for the noted periods.
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months and year ended
September 30, 1999 December 31, 1998 September 30, 1998
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
---------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest DDA $1,036,066 - 1,083,354 - 974,650 -
Interest-bearing DDA 659,437 0.60% 752,096 1.76% 847,578 0.78%
Savings deposits 1,741,610 2.25% 1,600,122 2.75% 1,784,982 2.10%
CDs and other time 3,407,053 5.13% 3,019,637 5.47% 3,064,187 6.17%
---------- --------- ---------
$6,844,166 3.19% 6,455,209 3.45% 6,671,397 3.49%
========== ========= =========
</TABLE>
Average CDs totaled $3.407 billion for the quarter ended September 30,
1999, up 11.2% from $3.064 billion for the 1998 quarter. On a percentage basis,
average CDs were 45% of total interest bearing funds for the September 30, 1999
and 1998 quarters; average savings deposits, including money market accounts,
were 23% of interest bearing funds during the quarter ended September 30, 1999
and 26% for the same period last year; interest-bearing demand deposits were 9%
of total interest bearing funds during 1999's third quarter and 13% for the
corresponding last year period; and wholesale borrowings increased from 16% of
interest-bearing funds during the three months ended September 30, 1998 to 23%
for the September 30, 1999 quarter. During both third quarter periods, interest
bearing liabilities funded approximately 84% of average earning assets.
The following table summarizes the certificates and other time deposits
in amounts of $100 thousand or more as of September 30, 1999 by time remaining
until maturity.
(Dollars in Thousands) Amount
Maturing in:
Under 3 months $469,803
3 to 12 months 392,834
Over 12 months 149,400
----------
$1,012,037
==========
<PAGE> 30
MARKET RISK
The Corporation is exposed to market risks in the normal course of
business. Changes in market interest rates may result in changes in the fair
market value of the Corporation's financial instruments, cash flows, and net
interest income. The corporation seeks to achieve consistent growth in net
interest income and capital while managing volatility arising from shifts in
market interest rates. The Asset and Liability Committee ("ALCO") oversees
financial risk management, establishing broad policies that govern a variety of
financial risks inherent in the Corporation's operations. ALCO monitors the
Corporation's interest rates and sets limits on allowable risk annually. Market
risk is the potential of loss arising from adverse changes in the fair value of
financial instruments due to changes in interest rates, exchange rates, and
equity prices. The Corporation's market risk is composed primarily of interest
rate risk. Interest rate risk on the Corporation's balance sheet consists of
mismatches of maturity gaps and indices, and options risk. Maturity gap
mismatches result from differences in the maturity or repricing of asset and
liability portfolios. Options risk exists in many of the Corporation's retail
products such as prepayable mortgage loans and demand deposits. Options risk
typically results in higher costs or lower revenue for the Corporation. Index
mismatches occur when asset and liability portfolios are tied to different
market indices which may not move in tandem as market interest rates change.
Interest rate risk is monitored using gap analysis, earnings simulation
and net present value estimations. Combining the results from these separate
risk measurement processes allows a reasonably comprehensive view of short-term
and long-term interest rate risk in the Corporation. Gap analysis measures the
amount of repricing risk in the balance sheet at a point in time. Earnings
simulation involves forecasting net interest earnings under a variety of
scenarios including changes in the level of interest rates, the shape of the
yield curve, and spreads between market interest rates. ALCO also monitors the
net present value of the balance sheet, which is the discounted present value of
all asset and liability cash flows. Interest rate risk is quantified by changing
the interest rates used for discounting cash flows and comparing the net present
value to the original figure.
<PAGE> 31
CAPITAL RESOURCES
Shareholders' equity at September 30, 1999 totaled $864.9 million
compared to $906.7 million at December 31, 1998 and $927.6 million at September
30, 1998.
The following table reflects the various measures of capital:
<TABLE>
<CAPTION>
---------------------- ------------------------
As of As of
September 30, December 31,
1999 1998
---------------------- ------------------------
<S> <C> <C> <C> <C>
(In thousands)
Total equity $864,895 8.71% 906,656 10.04%
Common equity 860,961 8.67% 897,357 9.94%
Tangible common equity (a) 701,009 7.18% 724,247 8.18%
Tier 1 capital (b) 754,651 8.98% 774,303 10.46%
Total risk-based capital (c) 865,806 10.30% 949,229 12.82%
Leverage (d) $754,651 7.99% 774,303 8.91%
</TABLE>
(a) Common equity less all intangibles; computed as a ratio to total assets
less intangible assets.
(b) Shareholders' equity minus net unrealized holding gains on equity
securities, plus or minus net unrealized holding losses or gains on
available for sale debt securities, less goodwill; computed as a ratio
to risk-adjusted assets, as defined in the 1992 risk-based capital
guidelines.
(c) Tier 1 capital plus qualifying loan loss allowance, computed as a ratio
to risk-adjusted assets, as defined in the 1992 risk-based capital
guidelines.
(d) Tier 1 capital; computed as a ratio to the latest quarter's average
assets less goodwill.
The risk-based capital guidelines issued by the Federal Reserve Bank in
1988 require banks to maintain capital equal to 8% of risk-adjusted assets
effective December 31, 1993. At September 30, 1999 the Corporation's risk-based
capital equaled 10.30% of risk adjusted assets, exceeding the minimum
guidelines.
The cash dividend of $0.20 paid in the third quarter has an indicated
annual rate of $0.80 per share.
<PAGE> 32
LIQUIDITY
The Corporation's primary source of liquidity is its strong core
deposit base, raised through its retail branch system, along with a strong
capital base. These funds, along with investment securities, provide the
ability to meet the needs of depositors while funding new loan demand and
existing commitments.
The banking subsidiary maintains sufficient liquidity in the form of
short-term marketable investments with a short-term maturity structure, along
with cash flow from loan repayment. Asset growth is primarily funded by the
growth of core deposits.
Reliance on borrowed funds increased during the quarter as the
investment portfolio grew slightly. During the quarter, the Corporation sold,
for liquidity purposes, approximately $91 million of fixed rate residential real
estate loans. The loan sales improved liquidity while restructuring the balance
sheet to higher yielding assets.
The liquidity needs of the Parent Company, primarily cash dividends
and other corporate purposes, are met through cash, short-term investments and
dividends from the banking subsidiary.
Management is not aware of any trend or event, other than noted above,
which will result in or that is reasonably likely to occur that would result in
a material increase or decrease in the Corporation's liquidity.
YEAR 2000 READINESS
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define an applicable year. Any of a
company's hardware, date-driven automated equipment, or computer programs that
have date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This faulty recognition could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities.
The Corporation has based its plans on regulatory guidelines published
by the Federal Financial Institutions Examination Council (FFIEC). The FFIEC
considers five general phases: Awareness, Assessment, Renovation, Validation and
Implementation. The five phases are explained below along with the status at
September 30, 1999:
Awareness: The Awareness phase defines the Year 2000 problem, gains
executive level support and establishes an overall strategy. The Corporation
began working on the Year 2000 issue in 1996 with identification of major
vendors and their compliance status. Significant progress has been made in the
implementation of the strategy for Year 2000 compliance. Executive Management
has been proactive in the management of the project and contracted with
consultants to assist in performing the assessment and formulating a strategy.
The awareness phase has expanded to include a widespread customer awareness
program to help educate customers on the Year 2000 issue and allow monitoring of
the Corporation's progress. This phase has now been completed and continues with
ongoing monitoring.
Assessment: The Assessment phase defines the size and complexity of the
problem and the magnitude of the effort to address Year 2000 issues. The
Corporation completed the assessment phase for all mainframe and microcomputer
systems during the first quarter of 1998. The Corporation has 82 mainframe
applications of which 30 are considered "mission critical." The majority of the
applications are vendor packages. The "mission critical" applications are given
priority and all 30 are on schedule to be Year 2000 ready by December 31, 1998
or earlier. Significant microcomputer software and hardware upgrades for Year
2000 compliance are substantially completed. The assessment of non-information
systems such as security systems, elevators, etc. was completed during the
second quarter 1998. This phase has now been completed.
Renovation: The purpose of the Renovation phase is to ensure all date
routines have been corrected to properly address Year 2000 dates. The renovation
phase has been completed for 100% of the Corporation's "mission critical"
applications. That is, each mission critical application has been renovated or
the vendor's Year 2000 software release has been installed. A few "non-mission
critical" applications have received recent Year 2000 updates. These
applications are being finalized and are in the validation stage. Renovation of
in-house written lines of computer code is 100% complete.
<PAGE> 33
Validation: The Validation phase consists of significant testing.
Mission critical applications have been tested a number of times and further
testing of these applications will continue throughout 1999. In addition to
testing of mission critical applications, the Corporation has tested both
in-house and vendor written systems as well as the various connections to other
systems (internal and external). Non-information systems such as vaults and
security systems have also been tested. Continued testing during 1999 will
include integrated testing, system interfaces to third parties and non mission
critical applications.
Implementation: During the Implementation phase, systems are certified
as Year 2000 compliant and placed into production. The Corporation has placed
renovated systems into production.
Another area of concern mentioned by the FFIEC is the area of
contingency planning where alternative measures are enacted throughout the
organization in event of a Year 2000-caused problem. All business areas reviewed
departmental Year 2000 risks and finalized their contingency plans. Various
potential Year 2000 scenarios have been identified and plans for each one have
been developed. Contingency plans are complete for all significant banking
areas.
The Corporation continues to work very hard to ensure Year 2000 does
not affect our customers. Substantial testing is occurring throughout 1999. The
Corporation does not anticipate any interruptions in normal business activities.
The Corporation's total Year 2000 readiness project costs and estimates
to complete include the estimated costs and time associated with the impact of a
third party vendor's Year 2000 issues and are based on presently available
information. There can be no guarantees, however, that the systems and
applications of other companies on which the Corporation's systems and
applications rely will be timely converted or that a failure to convert by
another company, or a conversion that is incompatible with the Corporation's
systems and applications, would not have material adverse effect on the
Corporation.
The remaining costs of the Year 2000 readiness project are estimated at
$1.0 million and are being funded through operating cash flows, which will be
expensed as incurred during the fourth quarter 1999 and the first quarter 2000.
These costs are not expected to have a material adverse effect on the
Corporation's results of operations. As of September 30, 1999, the Corporation
has incurred and expensed approximately $5.1 million related to the Year 2000
readiness project. At September 30, 1999, it appears the total cost of the
project will be $6.1 million, approximately $0.4 million more than the $5.7
million reported in the second quarter 1999 Form 10-Q.
<PAGE> 34
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Amended and Restated Articles of Incorporation of FirstMerit
Corporation, as amended (incorporated by reference from
Exhibit 3.1 to the Form 10-K/A filed by the registrant on
April 29, 1999)
3.2 Amended and Restated Code of Regulations of FirstMerit
Corporation (incorporated by reference from Exhibit 3(b) to
the Form 10-K filed by the registrant on April 9, 1998)
4.1 Shareholders Rights Agreement dated October 21, 1993, between
FirstMerit Corporation and FirstMerit Bank, N.A., as amended
and restated May 20, 1998 (incorporated by reference from
Exhibit 4 to the Form 8-A/A filed by the registrant on June
22, 1998)
4.2 Instrument of Assumption of Indenture between FirstMerit
Corporation and NBD Bank, as Trustee, dated October 23, 1998
regarding FirstMerit Corporation's 6 1/4% Convertible
Subordinated Debentures, due May 1, 2008 (incorporated by
reference from Exhibit 4(b) to the Form 10-Q filed by the
registrant on November 13, 1998)
4.3 Supplemental Indenture, dated as of February 12, 1999, between
FirstMerit and Firstar Bank Milwaukee, National Association,
as Trustee relating to the obligations of the FirstMerit
Capital Trust I, fka Signal Capital Trust I (incorporated by
reference from Exhibit 4.3 to the Form 10-K filed by the
registrant on March 22,1999)
4.4 Indenture dated as of February 13, 1998 between Firstar Bank
Milwaukee National Association, as trustee and Signal Corp
(incorporated by reference from Exhibit 41 to the Form S-4,
No. 333-52581-01, filed by FirstMerit Capital Trust I, fka
Signal Capital Trust I, on May 13, 1998)
4.5 Amended and Restated Declaration of Trust of FirstMerit
Capital Trust I, fka Signal Capital Trust I, dated as of
February 13, 1998 (incorporated by reference from Exhibit 4.5
to the Form S-4 No. 333-52581-01, filed by FirstMerit Capital
Trust I, fka Signal Capital Trust I, on May 13, 1998)
4.6 Form Capital Security Certificate (incorporated by reference
from Exhibit 4.6 to the Form S-4 No. 333-52581-01, filed by
FirstMerit Capital Trust I, fka Signal Capital Trust I, on May
13, 1998)
4.7 Series B Capital Securities Guarantee Agreement (incorporated
by reference from Exhibit 4.7 to the Form S-4 No.
333-52581-01, filed by FirstMerit Capital Trust I, fka Signal
Capital Trust I, on May 13, 1998)
4.8 Form of 8.67% Junior Subordinated Deferrable Interest
Debenture, Series B (incorporated by reference from Exhibit
4.7 to the Form S- 4 No. 333-52581-01, filed by FirstMerit
Capital Trust I, fka Signal Capital Trust I, on May 13, 1998)
<PAGE> 35
10.1 1982 Incentive Stock Option Plan of FirstMerit Corporation
(incorporated by reference from Exhibit 4.2 to the Form S-8
(No. 33-7266) filed by the registrant on July 15, 1986)
10.2 Amended and Restated 1992 Stock Option Program of FirstMerit
Corporation (incorporated by reference from Exhibit 10.2 to
the Form 10-K filed by the registrant on February 24, 1998)
10.3 1992 Directors Stock Option Program (incorporated by reference
from Exhibit 10.2 to the Form 10-K filed by the registrant on
February 24, 1998)
10.4 FirstMerit Corporation 1995 Restricted Stock Plan
(incorporated by reference from Exhibit (10)(d) to the Form
10-Q for the fiscal quarter ended March 31, 1995, filed by the
registrant on May 15, 1995)
10.5 1997 Stock Option Program of FirstMerit Corporation
(incorporated by reference from Exhibit 10.5 to the Form 10-K
filed by the registrant on February 24, 1998)
10.6 1985 FirstMerit Corporation Stock Plan (CV) (incorporated by
reference from Exhibit (10)(a) to the Form S-8 (No. 33-57557)
filed by the registrant on February 1, 1995)
10.7 1993 FirstMerit Corporation Stock Plan (CV) (incorporated by
reference from Exhibit (10)(b) to the Form S-8 (No. 33-57557)
filed by the registrant on February 1, 1995)
10.8 Amended and Restated FirstMerit Corporation Executive Deferred
Compensation Plan (incorporated by reference from Exhibit
10(h) to the Form 10-K filed by the registrant on February 25,
1997)
10.9 Amended and Restated FirstMerit Corporation Director Deferred
Compensation Plan (incorporated by reference from Exhibit
10(i) to the Form 10-K filed by the registrant on February 25,
1997)
10.10 FirstMerit Corporation Executive Supplemental Retirement Plan
(incorporated by reference from Exhibit 10(d) to the Form 10-K
filed by the registrant on March 15, 1996)
10.10.1 Amended and Restated Membership Agreement with respect to the
FirstMerit Corporation Executive Supplemental Retirement Plan
(incorporated by reference from Exhibit 1039 to the Form 10-K
filed by the registrant on March 22,1999)
10.11 FirstMerit Corporation Unfunded Supplemental Benefit Plan
(incorporated by reference from Exhibit 10.11 to the Form 10-K
filed by the registrant on February 24, 1998)
10.12 First Amendment to the FirstMerit Corporation Unfunded
Supplemental Benefit Plan (incorporated by reference from
Exhibit 10(v) to the Form 10-K filed by the registrant on
March 2, 1995)
10.13 Supplemental Pension Agreement of John R. Macso (incorporated
by reference from Exhibit 10.13 to the Form 10-K filed by the
registrant on February 24, 1998)
10.13.1 Employment Agreement with John R. Macso dated August 3, 1999
<PAGE> 36
10.13.2 Agreement with John R. Macso dated August 3, 1999
10.13.3 Stock Option Agreement with John R. Macso dated August 3, 1999
10.14 FirstMerit Corporation Executive Committee Life Insurance
Program Summary (incorporated by reference from Exhibit 10(w)
to the Form 10-K filed by the registrant on March 2, 1995)
10.15 Long Term Disability Plan (incorporated by reference from
Exhibit 10(x) to the Form 10-K filed by the registrant on
March 2, 1995)
10.16 Employment Agreement dated October 23, 1998 for Charles F.
Valentine (incorporated by reference from Exhibit 10(a) to the
Form 10-Q filed by the registrant on November 13, 1998)
10.17 SERP Agreement dated October 23, 1998 for Charles F. Valentine
(incorporated by reference from Exhibit 10(b) to the Form 10-Q
filed by the registrant on November 13, 1998)
10.18 Employment Agreement dated October 23, 1998 for Austin J.
Mulhern (incorporated by reference from Exhibit 10(c) to the
Form 10-Q filed by the registrant on November 13, 1998)
10.19 SERP Agreement dated October 23, 1998 for Austin J. Mulhern
(incorporated by reference from Exhibit 10(d) to the Form 10-Q
filed by the registrant on November 13, 1998)
10.20 Employment Agreement of John R. Cochran, dated December 1,
1998 (incorporated by reference from Exhibit 10.20 to the Form
10-K filed by the registrant on March 22,1999)
10.21 Restricted Stock Award Agreement of John R. Cochran dated
March 1, 1995 (incorporated by reference from Exhibit 10(e) to
the Form 10-Q filed by the registrant on May 15, 1995)
10.22 Restricted Stock Award Agreement of John R. Cochran dated
April 9, 1997 (incorporated by reference from Exhibit 10.18 to
the Form 10-K filed by the registrant on February 24, 1998)
10.21.1 First Amendment to Restricted Stock Award Agreement for John
R. Cochran (incorporated by reference from Exhibit 10.38 the
Form 10-K filed by the registrant on March 22,1999)
10.23 Employment Agreement of Sid A. Bostic dated February 1, 1998
(incorporated by reference from Exhibit 10.19 to the Form 10-K
filed by the registrant on February 24, 1998)
10.23.1 First Amendment to Employment Agreement of Sid A. Bostic dated
April 20, 1999 (incorporated by reference from Exhibit 10.23.1
to the Form 10-Q filed by the Registrant on May 14, 1999)
10.24 Restricted Stock Award Agreement of Sid A. Bostic dated
February 1, 1998 (incorporated by reference from Exhibit 10.20
to the Form 10-K filed by the registrant on February 24, 1998)
<PAGE> 37
10.24.1 First Amendment to Restricted Stock Award Agreement of Sid A.
Bostic dated April 20, 1999 (incorporated by reference from
Exhibit 10.24.1 to the Form 10-Q filed by the Registrant on
May 14, 1999)
10.25 Form of FirstMerit Corporation Termination Agreement
(incorporated by reference from Exhibit 10.25 to the Form 10-K
filed by the registrant on March 22,1999)
10.25.1 First Amendment to FirstMerit Corporation Change of Control
Termination Agreement of Sid A. Bostic dated April 20, 1999
(incorporated by reference from Exhibit 10.25.1 to the Form
10-Q filed by the Registrant on May 14, 1999)
10.26 Form of Director and Officer Indemnification Agreement and
Undertaking (incorporated by reference from Exhibit 10(s) to
the Form 8-K/A filed by the registrant on April 27, 1995)
10.27 FirstMerit 1987 Stock Option and Incentive Plan (SF)
(incorporated by reference from Exhibit 4.2 to the Form S-8/A
(No. 333-57439) filed by the registrant on October 26, 1998)
10.28 FirstMerit 1996 Stock Option and Incentive Plan (SF)
(incorporated by reference from Exhibit 4.3 to the Form S-8/A
(No. 333-57439) filed by the registrant on October 26, 1998)
10.29 FirstMerit 1994 Stock Option Plan (SF) (incorporated by
reference from Exhibit 4.4 to the Form S-8/A (No. 333-57439)
filed by the registrant on October 26, 1998)
10.30 FirstMerit 1989 Stock Incentive Plan (SB)(incorporated by
reference from Exhibit 4.6 to the Form S-8/A (No. 333-63797)
filed by the registrant on February 12, 1999)
10.31 FirstMerit Amended and Restated Stock Option and Incentive
Plan (SG) (incorporated by reference from Exhibit 4.2 to the
Form S- 8/A (No. 333-63797) filed by the registrant on
February 12, 1999)
10.32 FirstMerit Non-Employee Director Stock Option Plan (SG)
(incorporated by reference from Exhibit 4.3 to the Form S-8/A
(No. 333-63797) filed by the registrant on February 12, 1999)
10.33 FirstMerit 1997 Omnibus Incentive Plan (SG) (incorporated by
reference from Exhibit 4.4 to the Form S-8/A (No. 333-63797)
filed by the registrant on February 12, 1999)
10.34 FirstMerit 1993 Stock Option Plan (FSB) (incorporated by
reference from Exhibit 4.5 to the Form S-8/A (No. 333-63797)
filed by the registrant on February 12, 1999)
10.35 Independent Contractor Agreement with Gary G. Clark dated
February 12, 1999 (incorporated by reference from Exhibit
10.38 to the Form 10-Q filed by the Registrant on May 14,
1999)
10.36 FirstMerit Corporation 1999 Stock Option Plan (incorporated by
reference from Exhibit 10.39 to the Form S-8 (No. 333-78953)
filed by the registrant on May 21, 1999)
27 Financial Data Schedule
<PAGE> 38
(b) FORM 8-K
On July 15, 1999 FirstMerit Corporation filed a Form
8-K to file the consolidated financial statements,
accompanying notes, and the Report of the Independent
Accountants, which were previously filed by the registrant as
supplemental financial statements in Exhibit 99 of its Form
10-K and Form 10-K/A filed March 22, 1999 and April 29, 1999,
respectively. These consolidated financial statements
represent the historical financial statements of the
registrant. They were re-filed to remove the reference as
being "supplemental." No other substantive changes or
amendments were made thereto.
<PAGE> 39
SIGNATURES
Pursuant to the requirements 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.
FIRSTMERIT CORPORATION
By:/s/TERRENCE E. BICHSEL
----------------------
Terrence E. Bichsel, Executive Vice President
and Chief Financial Officer
DATE: November 12, 1999
<PAGE> 1
EXHIBIT 10.13.1
EMPLOYMENT, CONFIDENTIALITY, NON-SOLICITATION
AND NON-COMPETITION AGREEMENT
This EMPLOYMENT, CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION
AGREEMENT ("Agreement") made as of the 3rd day of August,1999, by and between
John R. Macso ("Mr. Macso" or "Employee"), and FirstMerit Corporation, its
subsidiaries and affiliates ("FirstMerit" or "Employer").
W I T N E S S E T H:
WHEREAS, FirstMerit Corporation is an Ohio corporation, and registered
as a bank holding company under the Bank Holding Company Act of 1956, as
amended;
WHEREAS, prior to February 1, 2000, Mr. Macso was employed by
FirstMerit Corporation as President, Services Company and Chief Technology
Officer;
WHEREAS, Mr. Macso requested of FirstMerit permission to voluntarily
relinquish his prior position effective January 31, 2000, and has negotiated and
executed a Reassignment Agreement and Release in conjunction with his decision;
and
WHEREAS, FirstMerit and Mr. Macso desire to enter into a relationship
whereby Mr. Macso will remain employed by FirstMerit under the terms of this
Agreement.
WHEREAS, as a condition of continued employment, FirstMerit has
required that Mr. Macso agree to refrain from competing with FirstMerit or
disseminating or improperly using confidential information of FirstMerit and Mr.
Macso is willing to make such a commitment, in accordance with the provisions of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, covenants and agreements set forth in this Agreement, and other good
and valuable consideration, the receipt of which is hereby acknowledged by Mr.
Macso, the parties agree as follows:
1. EMPLOYMENT. FirstMerit agrees to employ Mr. Macso as Chairman
of Mobile Consultants, Inc. ("MCI") and Mr. Macso accepts
employment according to the terms and conditions set forth in
this Agreement, to perform those duties and assume those
duties and responsibilities as reasonably assigned from time
to time by the Chairman and Chief Executive Officer.
<PAGE> 2
2. TERM OF AGREEMENT.
a. The term of this Agreement shall commence as of
February 1, 2000, and shall terminate January 31,
2002 unless terminated earlier as provided herein.
Mr. Macso and FirstMerit agree that Mr. Macso's
retirement shall become effective on February 1,
2002.
b. Should Employee exercise his right to revoke
and/or cancel the Reassignment Agreement and Release
executed contemporaneously with this Agreement
pursuant to paragraph 18 of said Reassignment
Agreement and Release, then upon such revocation
and/or cancellation, this Employment,
Confidentiality, Non-Solicitation, and
Non-Competition Agreement shall also be revoked and
canceled and all parties shall be released of all
obligations imposed upon each other under the terms
of this Agreement.
3. TERMINATION OF EMPLOYMENT.
3.1 TERMINATION BY THE FIRSTMERIT FOR JUST CAUSE.
The Employer may terminate the employment of the Employee
under the Agreement without notice for Just Cause.
Notwithstanding anything to the contrary contained herein, it
shall be considered Just Cause to terminate the Employee's
employment upon the happening of any of the following:
a. The retirement or death of the Employee;
b. Felonious criminal activity whether or not
affecting the Employer;
c. Disclosure to unauthorized persons of
Employer information which is considered by
FirstMerit to be confidential;
d. Breach of any contract with, or violation
of any legal obligation to, the Employer or
dishonesty; or
e. Gross negligence or insubordination in the
performance of duties of the position held
by the Employee.
3.2 EFFECT OF TERMINATION UPON COMPENSATION.
In the event of termination by the Employer for Just Cause,
the Employee shall not be entitled to receive salary or other
benefits beyond the date of termination. However, in the event
that Mr. Macso engages in conduct identified in paragraph
3.1(e), then termination of employment will not ensue if Mr.
Macso cures the
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<PAGE> 3
condition within fourteen (14) days after notice has been
given by FirstMerit. In the event of termination by the
Employer for reasons other than Just Cause or expiration of
the term, all of the Unvested Options pursuant to the Stock
Option Agreement dated August 3, 1999 shall vest on the
effective date of the termination.
4. DUTIES. Mr. Macso shall serve FirstMerit, under the direction
of the Chairman and Chief Executive Officer as set forth in
Schedule A.
5. TOTAL COMPENSATION. While employed under the Agreement, the
Employee shall receive as his sole and total compensation for
the performance of his duties and obligations under this
Agreement the following amounts:
a. SALARY. During the term of this Agreement, Mr. Macso
shall receive a salary of Three Hundred Ten Thousand
Dollars ($310,000.00) per year. Compensation payable
to Employee shall be subject to standard payroll
deductions and paid in semi- monthly or more frequent
installments as may be agreed upon by FirstMerit and
Mr. Macso.
b. BONUS. Mr. Macso shall not be eligible for any bonus
or other incentive compensation.
c. BENEFIT PACKAGE. During the term of this agreement,
Mr. Macso shall be entitled to participate in such
medical and health benefit plans as maintained for
executive officers from time to time, may participate
in FirstMerit's 401(k) Plan, and shall earn pension
credits.
d. EXECUTIVE LIFE INSURANCE. If Mr. Macso elects to
continue as a participant in the Executive Life
Insurance Program, the Employer will, until such time
as the premium obligations have been fulfilled,
continue payment of the premium plus an additional
forty percent (40%) of the premium, providing life
insurance in the amount of $500,000 on the life of
Mr. Macso (Mr. Macso shall be personally obligated to
pay any and all taxes associated with this life
insurance benefit).
e. COUNTRY CLUB DUES. During the term of this Agreement,
FirstMerit shall reimburse Mr. Macso for monthly dues
to Fairlawn Country Club and shall designate Mr.
Macso as the company representative at Sharon Country
Club. Mr. Macso shall be responsible for the payment
of any assessments and charges associated with
personal use. FirstMerit agrees to reimburse Mr.
Macso for approved charges incurred for the purposes
of FirstMerit.
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<PAGE> 4
f. EXPENSES. FirstMerit agrees to reimburse Mr. Macso
for approved expenses incurred by Macso for the
purposes of FirstMerit and in performance of Macso's
duties.
g. NO OTHER COMPENSATION OR REMUNERATION. Other than Mr.
Macso's pension rights and any stock option rights
which he may have, Mr. Macso acknowledges and agrees
that he is not entitled to any other compensation or
remuneration pursuant to the employment relationship,
policies, or practices. Futher, Mr. Macso
acknowledges and agrees that he is not entitled to
any severance pay under the terms of any FirstMerit
agreement, policy, practice, or plan.
6. COVENANT NOT TO COMPETE AND NON-SOLICITATION.
a. During the term of this Agreement and for a period of
two (2) years thereafter, Mr. Macso shall not, on his
own behalf or with others, directly or indirectly, as
a shareholder, partner, director, officer, employee,
agent or otherwise, manage, operate, control, own,
provide services to, participate in, consult with or
be connected in manner with any corporation,
partnership, proprietorship or other business entity
that engages in any business activity in which
FirstMerit is now engaged or otherwise provides
banking, financial or related services in locations
identified in Section 7, "Geographic Region".
Further, Mr. Macso is prohibited from engaging in the
above activities for entities located outside of the
Geographic Region, if that entity conducts business
within the Geographic Region. However, this shall not
prevent Mr. Macso from moving his own personal
accounts from FirstMerit and placing them with a
competitor.
b. Mr. Macso hereby further agrees and covenants that
during the aforementioned period, he shall not,
directly or indirectly, on his own behalf or with
others (i) induce or attempt to induce any employee
of FirstMerit to leave the employ of FirstMerit, or
in any way interfere with the relationship between
FirstMerit and any employee, (ii) knowingly hire any
such employee of FirstMerit, or (iii) induce or
attempt to induce any referral source, customer, or
other business relation of FirstMerit not to do
business with FirstMerit, or to cease doing business
with FirstMerit, or in any way interfere with the
relationship between any such referral source,
customer, or business relation and FirstMerit.
7. GEOGRAPHIC REGION. As for FirstMerit's banking and financial
business, the Covenant Not to Compete and Non-Solicitation
provisions contained in Section 6 of this Agreement shall be
in force and binding upon Mr. Macso in all counties in the
state of Ohio in which FirstMerit currently has offices, and
in Lawrence County,
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<PAGE> 5
Pennsylvania. As for the manufactured housing business, the
Covenant Not to Compete and Non-Solicitation Agreement
provisions contained in Section 6 shall be binding upon Mr.
Macso in all states where MCI currently does business
("Geographic Region").
8. TRADE SECRETS AND CONFIDENTIAL INFORMATION. Mr. Macso
acknowledges that, as President, Services Company, he has had
extensive access to and has acquired various confidential
information relating to the Business, including, but not
limited to, financial and business records, customer lists and
records, business plans, corporate strategies, information
disclosed or discussed during any exit conference, employee
information, wage information, and related information and
other confidential information (collectively, the
"Confidential Information"). Mr. Macso also acknowledges and
agrees that the facts relevant to his reassignment, the
existence of the Reassignment Agreement and Release dated
August 3, 1999(the "Release") and the terms contained in the
Release are Confidential Information. Mr. Macso agrees that
the Confidential Information is and will be of special and
unique value to FirstMerit. Mr. Macso further acknowledges and
covenants that, at all times, the Confidential Information is
the sole property of FirstMerit and will constitute trade
secrets and confidential information of FirstMerit, and that
his knowledge of the Confidential Information will enable him
to compete with FirstMerit in a manner likely to cause
FirstMerit irreparable harm upon the use or disclosure of such
matters. Therefore, Mr. Macso hereby irrevocably covenants
that he shall not, at any time after the date of this
Agreement, use or disclose to any third party, directly or
indirectly, any of the Confidential Information, except as
permitted by this Agreement. This paragraph shall not be
limited by the time periods contained in Section 6 of this
Agreement. Excluded from the definition of Confidential
Information is (a) information which is publicly available,
other than as a result of actions by Mr. Macso in breach of
this Agreement; and (b) information which is disclosed by
FirstMerit to third parties on a non-confidential basis.
9. PERMITTED DISCLOSURES. In the event Mr. Macso becomes legally
compelled (by oral questions, interrogatories, requests for
information or documents, subpoena, investigative demand or
similar process) to disclose any of the Confidential
Information, Mr. Macso will provide the FirstMerit with prompt
written notice thereof so that FirstMerit may seek a
protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. In the event
that such protective order or other remedy is not obtained, or
that FirstMerit waives compliance with the provisions of this
Agreement, Mr. Macso covenants to furnish only that portion of
the Confidential Information which he is legally required to
disclose and will exercise his best efforts to obtain reliable
assurance that confidential treatment will be accorded the
Confidential Information. In addition, Mr. Macso may
communicate information relating to the Reassignment Agreement
and Release only to his attorney and accountant, provided
however, that he first obtain reliable assurance that
confidential treatment will be accorded by such individuals.
-5-
<PAGE> 6
10. PAYMENT OF CONSIDERATION. Mr. Macso agrees that the
compensation set forth in Section 5 above shall constitute
consideration of the covenants and agreements hereunder and
employment is conditioned upon Mr. Macso's continued
compliance with the terms and conditions contained in this
Agreement.
11. BREACH AND CURE PERIOD. In the event that Mr. Macso violates
any provision of this Agreement or otherwise fails to fulfill
any of the covenants herein, FirstMerit shall provide Mr.
Macso of written notice of such breach. Mr. Macso shall then
have fourteen (14) days to provide FirstMerit with written
explanation that the breach has been cured ("Cure Period"). If
the breach is not cured to FirstMerit's satisfaction after the
expiration of fourteen (14) days after the receipt of
FirstMerit's written notice by any person identified in
Section 24 of this Agreement, then FirstMerit may exercise any
and all of its rights at law and equity to enforce this
Agreement.
The parties acknowledge that subject to the above Cure Period,
any material breach by Mr. Macso of any of the provisions of
Sections 6 through 9 of this Agreement shall discharge
FirstMerit from any obligation to make payments under Section
5 of this Agreement. The parties further agree that whether a
breach is "material," so as to discharge FirstMerit from is
obligation to make any payment after the date of the breach,
will be abjudicated by a court of competent jurisdiction.
FirstMerit's right to discontinue payments after the date of
material breach shall not limit FirstMerit from seeking any
other damages to which it is entitled as a result of any
breach by Mr. Macso. Further, the parties acknowledge that a
breach by Mr. Macso of any of the provisions of Sections 6
through 9 of this Agreement shall cause irreparable damage to
FirstMerit, the extent of which may be difficult to ascertain,
and that the award of damages for such a breach shall not be
adequate relief. Consequently, Mr. Macso covenants that a
breach or threatened breach by Mr. Macso, may entitle
FirstMerit to injunctive relief to prevent or end such breach,
that Mr. Macso shall waive the defense as to irreparable harm
and adequate remedy at law. Such a remedy is not exclusive,
but shall be in addition to any other remedies available to
FirstMerit at law or in equity. In the event that either party
hereto files a lawsuit to enforce the terms of this Agreement,
the successful party shall, in addition to the other remedies,
be entitled to all costs of litigation, including reasonable
attorneys' fees.
12. EXTENSION OF TERM. In the event of the violation of any of the
covenants contained in Section 6 by Mr. Macso, Mr. Macso
agrees that the term of the covenants shall be automatically
extended for a period equal to the duration of the violation.
The extension of term provided for in this Section 12 shall be
in addition to, and not in lieu of, any other remedies
available to FirstMerit at law or in equity.
13. REPRESENTATIONS; PRIOR AGREEMENTS. Each party hereby
represents and warrants that (i) the execution, delivery and
performance of this Agreement does not and will not conflict
with, breach, violate or cause a default under any contract,
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<PAGE> 7
agreement, instrument, order, judgment or decree to which any
party is bound, (ii) upon the execution and delivery of this
Agreement, this Agreement shall be the valid and binding
obligation of the parties, enforceable in accordance with its
terms, and (iii) all parties are familiar with restrictive
covenants, fully understands the obligations imposed on him by
this Agreement, and has been represented by and has consulted
with legal counsel in connection with the preparation and
execution of this Agreement.
14. REASONABLENESS OF PROVISIONS. Each party acknowledges that the
terms of this Agreement are reasonable, fair and just and are
necessary for the protection of the legitimate interests of
the parties. In the event that any provision of this Agreement
is determined by any court of competent jurisdiction to be
unenforceable by reason of it being extended over too great a
period of time or too large a geographic area or range of
activities, it shall be interpreted to extend only over the
maximum period of time, geographic area, or range of
activities deemed reasonable under the circumstances.
15. WAIVER OF BREACH. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach of the same or any other
provision of this Agreement.
16. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the heirs, legal representatives,
successors and permitted assigns of the parties.
17. ASSIGNMENT. No assignment or transfer of this Agreement by Mr.
Macso, including assignment or transfer by operation of law,
shall be valid without the prior written consent of
FirstMerit. FirstMerit may freely assign this Agreement
without Mr. Macso's consent.
18. COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein, and other documents of even date herewith
contain the entire agreement of the parties and supersede any
prior understandings, agreements or representations which may
be related to the subject matter hereof in any way.
19. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule
in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any
other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been
contained herein.
-7-
<PAGE> 8
20. AMENDMENTS. No amendment or variation of the provisions of
this Agreement shall be valid unless the same is in writing
and signed by both parties to this Agreement.
21. AFFILIATES DEFINED. For purposes of this Agreement, an
"affiliate" is defined as any business entity which, directly
or indirectly is owned or controlled by, or is under common
ownership or control with, FirstMerit.
22. CHOICE OF LAW AND JURISDICTION. This Agreement is made and
entered into in the state of Ohio, and shall in all respects
be interpreted, enforced and governed under the laws of said
state notwithstanding its conflict of laws rules. In the event
of any dispute or controversy arising under or in connection
with this Agreement, the parties consent to the jurisdiction
of the Common Pleas Court of the State of Ohio (Summit County)
or The United States District Court for the Northern District
of Ohio, Eastern Division.
23. COMMUNICATION AND NOTICES. All communications or notices
required or permitted by this Agreement shall be in writing
and shall be deemed to have been given at the earlier of the
date when actual delivery to a party by personal delivery or
when deposited in the United States mail, postage prepaid, and
the addressees and addresses are as follows, unless and until
any such party notifies the other of a change of addressee and
address:
To: Terry E. Patton, Esq.
Executive Vice President, Corporate Secretary, and
Chief Legal Counsel
FirstMerit Corporation
III Cascade Plaza
Akron, Ohio 44308
To: John R. Macso
At: 970 Robinwood Hills Drive
Akron, Ohio 44333
-8-
<PAGE> 9
25. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
August 5, 1999 /s/ John R. Macso
- ------------------------ -------------------------------
Date John R. Macso
FIRSTMERIT CORPORATION
AUGUST 5, 1999 By: /s/ Christopher J. Maurer
- ------------------ ------------------------------------------
Date Its: Executive Vice President of Human
Resources
-9-
<PAGE> 1
EXHIBIT 10.13.2
REASSIGNMENT AGREEMENT AND RELEASE
THIS Reassignment Agreement and Release (the "Agreement") dated August
3, 1999, is hereby made by and between John R. Macso ("Mr. Macso"), and
FirstMerit Corporation, its subsidiaries and affiliates ("FirstMerit" or
"Employer").
WITNESSETH:
WHEREAS, Mr. Macso is now and has been employed by FirstMerit
Corporation as the President, Services Division and Chief Technology Officer,
and is a director of FirstMerit Bank, N.A.; and
WHEREAS, FirstMerit Corporation is an Ohio Corporation and registered
as a bank holding company under the Bank Holding Company Act of 1956, as
amended; and
WHEREAS, Mr. Macso has agreed to voluntarily relinquish his current
position and become reassigned as Chairman of Mobile Consultants Inc. ("MCI"),
effective February 1, 2000; and
WHEREAS, Mr. Macso acknowledges that he has been paid all wages,
incentives, bonuses, vacation pay, and other benefits owed to him in
consideration of and as compensation for his services as an employee earned
prior to the Effective Date of this Agreement; and
WHEREAS, Mr. Macso has various rights pursuant to federal, state and
local laws including, but not limited to, rights and claims he may have under
the Age Discrimination in Employment Act, 29 U.S.C. Section 621, ET SEQ.; and
WHEREAS, the Employer denies any and all liability whatsoever to Mr.
Macso and make no concessions as to the validity of any claims or disputes which
Mr. Macso may claim to have; and
WHEREAS, Mr. Macso and the Employer desire to resolve fully and finally
any and all claims and/or disputes arising from or relating to Mr. Macso's
employment by the Employer and the modifications to Mr. Macso's employment
relationship with the Employer, the reassignment, and Mr. Macso's relationship
with the Employer in an amicable manner without the difficulties and expenses
involved in litigation.
NOW, THEREFORE, in consideration of the premises and promises contained
herein, Mr. Macso and the Employer agree as follows:
1. CONSIDERATION: In consideration of the promises contained
in this Agreement, Employer and Mr. Macso agree to the
following:
<PAGE> 2
(a) FirstMerit and Mr. Macso agree to enter into an
Employment Agreement ("Employment Agreement") as
attached hereto as Exhibit "A."
(b) The Employer will pay Mr. Macso the sum of One
Thousand Dollars ($1,000.00)(less legal deductions)
upon the Effective Date.
(c) Mr. Macso acknowledges that, except as expressly set
forth herein and in the Employment Agreement, he is
not otherwise entitled to the payment set forth in
subsection (b) above (the "Payment") pursuant to the
employment relationship, policies, or practices, and
the Payment is being provided solely in exchange for
his promises contained in this Agreement. Mr. Macso
further acknowledges that he is not entitled to any
additional severance pay under the terms of any
FirstMerit agreement, policy, practice or plan.
2. RELEASE: In consideration of receipt of the benefits set forth
above, Mr. Macso does hereby fully and forever surrender, release,
acquit and discharge the Employer, and its principals, stockholders,
directors, officers, agents, administrators, insurers, subsidiaries,
affiliates, employees, successors, assigns, related entities, and legal
representatives, personally and in their representative capacities, and
each of them, of and from any and all claims, charges, actions, causes
of action, demands, rights, damages, debts, contracts, claims for costs
or attorneys' fees, expenses, compensation, and all losses, demands and
damage of whatsoever nature or kind in law or in equity, whether known
or unknown, including without limitation those claims arising out of,
under, or by reason of Mr. Macso's employment with the Employer, Mr.
Macso's relationship with the Employer and/or the modification of Mr.
Macso's employment relationship and any and all claims which were or
could have been asserted in any Charge, Complaint, or related lawsuit.
Without limiting the generality of the foregoing, Mr. Macso
specifically releases and discharges, but not by way of limitation, any
obligation, claim, demand or cause of action based on, or arising out
of, any alleged wrongful termination, breach of employment contract,
breach of implied covenants of good faith and fair dealing, defamation,
fraud, promissory estoppel, intentional or negligent infliction of
emotional distress, discrimination based on age, pain and suffering,
personal injury, punitive damages, and any and all claims arising from
any alleged violation by the Employer of any federal, state, or local
statutes, ordinances or common laws, including but not limited to the
Ohio Civil Rights Act, including all provisions of the Ohio Revised
Code concerning discrimination on the basis of age, the Age
Discrimination in Employment Act of 1967, Title VII of the Civil Rights
of 1964, the Americans With Disabilities Act or the Employee Retirement
Income Security Act of 1974. This release of rights is knowing and
voluntary. The Employer acknowledges that Mr. Macso does not release
herein any rights or claims which may arise after the Effective Date of
this Agreement nor any rights he may have regarding the enforcement of
this Agreement.
2
<PAGE> 3
3. WAIVER OF RIGHT TO SUE. Mr. Macso further agrees, promises and
covenants that neither he, nor any person, organization, or any other
entity acting on his behalf will file, charge, claim, sue or cause or
permit to be filed, charged or claimed, any action for damages or other
relief (including injunctive, declaratory, monetary relief or other)
against the Employer, involving any matter occurring in the past up to
the date of this Agreement or involving any continuing effects of
actions or practices which arose prior to the date of this Agreement,
or involving and based upon any claims, demands, causes of action,
obligations, damages or liabilities which are the subject of this
Agreement.
4. NO ASSIGNMENT OF CLAIMS. As further consideration for the Payment
and release, Mr. Macso represents and warrants that he has not assigned
or sold, or in any way disposed of his claims hereby released, or any
part thereof, to anyone and that he will save and hold harmless the
Employer of and from any claims, actions, causes of action, demands,
rights, damages, costs and expenses, including reasonable attorneys'
fees, arising from a complete or partial assignment of the claims
hereby released.
5. REASSIGNMENT AND RETIREMENT. Mr. Macso shall be reassigned from his
position as President, Services Division and Chief Technology Officer,
effective February 1, 2000, and FirstMerit and Mr. Macso have mutually
agreed that Mr. Macso's retirement will be effective on February 1,
2002. Mr. Macso shall execute an Employment Agreement in a form
substantially similar to that attached as Exhibit "A." Further, on or
before January 31, 2000, Mr. Macso shall voluntarily resign his
position as a director of FirstMerit Bank, N.A.
6. WAIVER OF REINSTATEMENT. As further consideration for this Agreement
and the Payment subsequent to retirement Mr. Macso forever waives any
claim of reinstatement of future employment with the Employer or any of
its subsidiaries or affiliates, and agrees that he will not seek
employment with the Employer or any subsidiaries or affiliates.
7. PAST COMPENSATION - FUTURE BENEFITS. Except as specifically set
forth below, Mr. Macso represents and covenants that he has received
all compensation, wages, incentives, and benefits earned by him prior
to the Effective Date in consideration of and as compensation for his
services as an employee including but not limited to any and all
vacation pay, bonuses, and severance pay. Notwithstanding the
foregoing, Mr. Macso is eligible to participate in the 1999 Individual
Incentive Plan which will be paid, if earned, during the first quarter
of the year 2000. Further, the parties agree that Mr. Macso is entitled
to certain retirement benefits. The actual retirement benefits are
governed by plan documents and a Supplemental Pension Agreement dated
June 10, 1991 ("SERP Agreement"). Additionally, the parties agree that
such benefits shall be provided to Mr. Macso in accordance with plan
provisions, as may be amended from time to time.
8. STOCK OPTIONS. Mr. Macso has been granted certain unvested stock
options ("Unvested Options") pursuant to the Stock Option Agreement
dated August 3, 1999. (Exhibit "B") Mr. Macso and FirstMerit agree that
of the Unvested Options granted on
3
<PAGE> 4
February 18, 1999, 16,000 shares will vest on February 18, 2000, and
16,000 shares will vest on February 18, 2001. An additional 16,000
shares of Unvested Options (the "Final Third") will vest on February
18, 2002 if, and only if, MCI achieves a target net operating income
("NOI") as determined by FirstMerit in each of the years 2000 and 2001.
In the event that MCI attains the target NOI for either 2000 or 2001,
but not both, then only 5,000 of the Final Third will vest. If MCI does
not attain the target NOI in either year 2000 or 2001, then none of the
Final Third will vest and the stock options, with respect to the Final
Third, will be forfeited. In the event that MCI fails to achieve the
NOI in any given year due solely to extraordinary events, then the
Chairman and CEO of FirstMerit may, in his sole discretion, vest any or
all of the Unvested Options. Further, Mr. Macso forfeits, surrenders,
and forever waives all rights to any of the 24,000 Performance Vested
Stock Options which he was previously granted on February 18, 1999.
9. OLDER WORKERS' BENEFIT PROTECTION ACT WAIVER. In connection with the
waivers in Paragraph 2 of any and all claims or disputes that Mr. Macso
has or may have on the date hereof, Mr. Macso makes the following
acknowledgments:
(a) By signing this Agreement, Mr. Macso waives all claims
against the Employer, and its principals, stockholders,
directors, officers, agents, administrators, insurers,
subsidiaries, affiliates, employees, successors, assigns,
related entities, and legal representatives, personally and in
their representative capacities, and each of them, for
discrimination based on age, including without limitation, any
claim which arises under or by reason of a violation of the
Age Discrimination in Employment Act, as amended, 29 U.S.C.
621 ET SEQ.
(b) In consideration of the waivers and covenants made by Mr.
Macso under this Agreement, Mr. Macso will be receiving the
settlement payments in the amounts and manner described in
Paragraph 1 of this Agreement.
(c) Mr. Macso has consulted with an attorney prior to
executing this Agreement and Mr. Macso has been given a period
of at least twenty-one (21) days within which to consider
whether or not to enter into the Agreement.
10. NO ADMISSION OF LIABILITY OF EMPLOYER. Mr. Macso and the Employer
understand and agree that this Agreement and Release is the compromise
of a disputed claim, and that the settlement is not to be construed as
an admission of liability on the part of the Employer and the Employer
denies liability and intends merely to avoid costs and litigation. It
is further understood that Mr. Macso shall not in any legal sense be
considered a "prevailing party" in connection with the allegation which
could have been raised.
11. NO OTHER AGREEMENTS. Except for the Employment, Confidentiality,
Non-solicitation and Non-competition Agreement, dated August 3, 1999,
SERP Agreement, any stock option plans (as amended herein), life
insurance benefit plans, medical insurance plans, and the
4
<PAGE> 5
Indemnification Agreement dated April 28, 1995 (collectively the
"Continued Agreements"), Mr. Macso and the Employer agree that there
are no other agreements, promises or undertakings on the part of Mr.
Macso or the Employer. This Agreement supercedes all agreements other
than the Continued Agreements including, but not limited to, The
FirstMerit Termination Agreement dated September 1, 1998, rendering all
agreements other than the Continued Agreements null and void. This
Agreement shall not be modified except in writing signed by all parties
hereto.
12. REPRESENTATIONS. The parties represent and acknowledge that in
executing this Agreement they do not rely, and have not relied, upon
any representation or statement made by either party or by any of their
agents, representatives or attorneys with regard to the subject matter,
basis or effect of this Agreement or otherwise. Notwithstanding the
foregoing, Macso acknowledges that he has received a copy of the April
6, 1999, Hewit correspondence ("Hewit Correspondence", attached as
Exhibit C.) However, the parties agree that any pension plans will be
govrened by the plan documents only and not by the Hewitt
Correspondence.
13. CONFIDENTIALITY. Mr. Macso covenants and agrees that he will keep
the terms and amount of the agreement set forth in this Agreement
completely confidential, and that Mr. Macso will not hereafter disclose
any information concerning this Agreement to any person other than his
attorney or accountant provided, however, that he first obtains
reliable assurance that confidential treatment will be accorded by such
individuals.
14. BINDING AGREEMENT. This Agreement shall be binding upon Mr. Macso
and his heirs, administrators, executors, successors and assigns, and
shall inure to the benefit of the Employer and its principals,
stockholders, directors, officers, agents, administrators, insurers,
subsidiaries, affiliates, employees, successors, assigns, related
entities, and legal representatives, personally and in their
representative capacities, and each of them.
15. CHOICE OF LAW AND JURISDICTION. This Agreement is made and entered
into in the state of Ohio, and shall in all respects be interpreted,
enforced and governed under the laws of said state notwithstanding its
conflict of laws rules. In the event of any dispute or controversy
arising under or in connection with this Agreement, the parties consent
to the jurisdiction of the Common Pleas Court of the State of Ohio
(Summit County) or The United States District Court for the Northern
District of Ohio, Eastern Division.
16. VALIDITY OF AGREEMENT. Should any provision of this Agreement be
declared or be determined by any court to be illegal or invalid, the
validity of the remaining parts, terms or provisions shall not be
affected thereby and said illegal or invalid part, term or provision
shall be deemed not to be a part of this Agreement.
5
<PAGE> 6
17. BREACH AND CURE PERIOD. Should Mr. Macso violate any provision of
this Agreement or fail to fulfill any of the covenants contained
herein, Employer shall provide Mr. Macso with written notice of such
breach. Mr. Macso shall then have fourteen (14) calendar days to
provide the Employer with written notice with an explanation that the
breach has been cured ("Cure Period"). If the breach is not cured to
the Employer's satisfaction, after the expiration of fourteen (14)
calendar days, after receipt of written notice by any person listed in
Section 19 of this Agreement, the Employer may exercise any and all of
its rights at law and equity to enforce this Agreement. Further, in the
event that either party files a lawsuit to enforce the terms of this
Agreement, the successful party shall, in addition to the other
remedies, be entitled to all costs of litigation, including reasonable
attorneys' fees.
18. EFFECTIVE DATE. This Agreement shall become effective on January
31, 2000, provided that the Agreement is executed by FirstMerit and Mr.
Macso at least seven (7) days prior to January 31, 2000("Effective
Date"). Prior to January 31, 2000, Mr. Macso has the right to revoke
and/or cancel this Agreement by the delivery of notice in writing of
revocation and/or cancellation to the Employer. In the event that Mr.
Macso does not revoke and/or cancel this Agreement before January 31,
2000, this Agreement shall become effective on that date. In the event
that Mr. Macso revokes this Agreement, continued employment and current
compensation will not be guaranteed.
19. NOTICE AND COMMUNICATION. All communications or notices required or
permitted by this Agreement shall be in writing and shall be deemed to
have been given at the earlier of the date when actual delivery to a
party by personal delivery or when deposited in the United States mail,
postage prepaid, to the following addressees at the following
addresses, unless and until any such party notifies the other of a
change of addressee and address:
To: Terry E. Patton, Esq.
Executive Vice President, Corporate Secretary and
Chief Legal Counsel
FirstMerit Corporation
III Cascade Plaza
Akron, Ohio 44308
To: John R. Macso
At: 970 Robinwood Hills Drive
Akron, Ohio 44333
6
<PAGE> 7
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE BY MR. MACSO
OF ALL KNOWN AND UNKNOWN CLAIMS.
August 5, 1999 /s/ John R. Macso
- -------------- ---------------------------------------
Date John R. Macso
FIRSTMERIT CORPORATION
August 5, 1999 By: /s/ Christopher J. Maurer
- -------------- ---------------------------------------
Date Its: Executive Vice President of Human
Resources
7
<PAGE> 8
WAIVER OF TWENTY-ONE DAYS TO CONSIDER AGREEMENT
RELATING TO REASSIGNMENT OF EMPLOYMENT
AND RELEASE OF CLAIMS
On August 3, 1999, I received a Reassignment Agreement and Release (the
"Agreement") dated August 3, 1999.
I understand and acknowledge, and as listed in Section 9 of the
Agreement, that I have the legal entitlement for twenty-one (21) days of whether
or not I want to sign the Agreement and that I have also been advised to seek
the advice of an attorney before signing the Agreement and have obtained the
advice of an attorney. Understanding those rights, I have determined to sign the
Agreement and have done so effective this 5th day of August, 1999.
I recognize that only two (2) days have transpired since I received the
Agreement, but I have determined, with the assistance of my legal counsel, that
since I have made the decision to sign the Agreement, it is not necessary to
wait the entire twenty-one (21) day period to which I am entitled, and I hereby
freely and knowingly waive that statutory right.
I understand that the parties to the Agreement are relying upon my
representations in this Agreement and I agree that they have a right to so rely.
I understand that those parties have agreed to pay me the amount stated in the
Agreement on January 31, 2000, instead of a later date which would be after the
twenty-one (21) day period, based on my representations contained herein.
Dated: August 5, 1999 /s/ John R. Macso
---------------------------------------
John R. Macso
/s/ Christopher J. Maurer
---------------------------------------
Witness
<PAGE> 1
EXHIBIT 10.13.3
MULTI-YEAR NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT made and entered into this 5th day of August, 1999, by and
between FIRSTMERIT CORPORATION, (the "Company"), and John R. Macso, (the
"Optionee").
WITNESSETH, THAT:
WHEREAS, the Company on the 9th day of April, 1997, by action of its
shareholders, adopted and approved the 1997 Stock Option Program ("Plan"); and
WHEREAS, the purpose of said Plan is to enable selected and key employees of the
Company and its subsidiaries to acquire a proprietary interest in the Company
through such Plan, and to provide such employees with a more direct stake in the
future and welfare of the Company and its subsidiaries and to encourage them to
remain with the Company or its subsidiaries.
NOW THEREFORE, the Company and Optionee agree as follows:
1. Amount of Stock Subject to Option.
a. The Company hereby grants to Optionee the right to
purchase 48,000 shares of authorized and unissued
common stock of the Company, which stock is to be
issued by the Company upon the exercise of this
option as hereinafter set forth.
b. The Company also hereby grants to Optionee one
Dividend Unit with respect to each share of stock for
which this option has been granted.
2. Purchase Price.
The purchase price per share shall be twenty-six dollars
($26.00) (not less than 100% of the fair market value of the
stock at the time the option is granted).
3. Period of Option.
a. Shares granted as part of this option may not be
purchased until such time as they become exercisable.
Once such shares become exercisable, all or any part
of such shares may be purchased at any time within
ten (10) years of the date hereof, except as
otherwise provided in Section 8 of this Agreement.
<PAGE> 2
b. One-third of this option, 16,000 shares, shall become
exercisable on February 18, 2000 and one-third of
this option, 16,000 shares, shall become exercisable
on February 18, 2001. If the net operating income
("NOI") of Mobile Consultants, Inc. ("MCI"), a
wholly-owned subsidiary of the Company, equals or
exceeds the targeted NOI established for MCI by the
Company for both calendar year 2000 and calendar year
2001, then the final one-third of this option, 16,000
shares, shall become exercisable on February 18,
2002. If the NOI of MCI equals or exceeds the
targeted NOI established for MCI by the Company for
either calendar year 2000 or calendar year 2001, but
not both such calendar years, then this option shall
become exercisable on February 18, 2002 with respect
to only 5,000 of the final 16,000 shares that are
subject to this option and the Optionee's option to
purchase the remaining 11,000 shares shall be
forfeited and become null and void as of February 18,
2002. If the NOI of MCI is less than the targeted NOI
established for MCI by the Company for both calendar
year 2000 and calendar year 2001, then the Optionee's
option to purchase the final 16,000 shares that are
subject to this option shall be forfeited and become
null and void as of February 18, 2002.
Notwithstanding the foregoing, if the Chairman and
CEO of the Company determines, in his sole
discretion, that the failure of MCI to equal or
exceed its targeted NOI in calendar year 2000 or
calendar year 2001 is due to extraordinary
circumstances, then the Chairman and CEO of the
Company may, in his sole discretion, grant to the
Optionee the right to exercise this option with
respect to any of all of the final 16,000 shares that
are subject to this option. NOI shall be determined
in accordance with generally accepted accounting
principles applied consistently with the Company's
past practices.
c. The terms of the Dividend Units granted herein shall
be ten (10) years from the date of grant hereof,
provided that the Dividend Units will accrue
dividends only for the first five (5) years of that
period.
4. General Terms and Conditions.
This option is subject to the terms and conditions of the
Plan, a copy of which is attached hereto and incorporated by
reference herein.
5. Exercise of Option.
In order to exercise this option or any part thereof, Optionee
shall give notice in writing to the Company of his or her
intention to purchase all or part of the shares subject to
this option, and in said notice shall be set forth the number
of shares as to which he or she desires to exercise this
option. Optionee shall pay for said shares in full at the time
of exercise in cash, by check, bank draft or money order
payable to the Company, or through the delivery of shares of
stock of the Company having an
2
<PAGE> 3
aggregate fair market value as determined on the date of
exercise equal to the option price. No shares shall be issued
until final payment for said shares has been made, and
Optionee shall have none of the rights of a shareholder until
said shares are issued. Said notice to exercise this option
shall set forth that it is Optionee's present intention to
acquire said shares for investment, and not with a view to, or
for sale in connection with any distribution thereof, if in
the opinion of counsel for the Company it is necessary or
desirable.
6. Payment and Valuation of Dividend Units.
a. The amount payable to Optionee in respect of each
Dividend Unit awarded herein shall be equal to the
aggregate dividends actually paid on one share of the
common stock of the Company, to the extent Optionee
held such Dividend Unit on the record date
established for payment of such dividends.
b. Except as otherwise provided herein, the amount
payable to Optionee in respect of a Dividend Unit
shall be paid to Optionee only at the exercise of
this option with respect to the share of stock to
which the Dividend Unit is attached.
c. A Dividend Unit shall have no further force or effect
upon payment in respect thereof.
7. Transferability of Option.
This option is transferable in accordance with the terms of
the Plan.
8. Termination of Employment and Death of Optionee.
a. If Optionee shall cease to be employed by the Company
or one of its subsidiaries for any reason other than
death, disability (as defined in the Plan), or
retirement (as defined in the Plan), all rights to
purchase shares pursuant to this option which have
not been exercised shall be immediately canceled,
except that if the termination is by the Company or
any of its subsidiaries for any reason other than
misconduct or misfeasance, Optionee shall have thirty
(30) days thereafter within which to exercise this
option to the extent that this option was otherwise
exercisable immediately prior to such termination,
and further if such termination is attributable to a
change of control of the Company (as defined in the
Plan), the option shall not be canceled but shall
continue as though Optionee remained in the employ of
the Company or any of its subsidiaries during the
remaining term of the option.
3
<PAGE> 4
b. In the event of termination of employment due to
death, or disability (as defined in the Plan) of
Optionee, this option shall become immediately
exercisable and be exercisable for a period equal to
the lesser of five (5) years or the remaining option
term.
c. In the event of termination due to Retirement (as
defined in the Plan) of Optionee, this option shall
become exercisable as specified in Section 3 of this
Agreement and be exercisable for a period equal to
the lesser of five (5) years or the remaining option
term.
d. In the event of termination of employment, each
Dividend Unit granted herein shall remain outstanding
for the duration of this option until paid upon
exercise, but shall terminate upon termination,
cancellation or expiration of this option.
9. Changes in Capital.
If, prior to the expiration of this option, there shall be any
changes in the capitalization of the Company by reason of
stock dividends, stock splits, recapitalizations,
combinations, exchanges of shares, spin-off's, liquidations,
reclassifications or other similar events, then the number of
shares available for purchase hereunder and the option price
shall be adjusted proportionally by the Board of Directors of
the Company as in its sole discretion shall deem equitable.
10. The Right to Terminate Employment.
This option shall not confer upon Optionee any right to
continue in the employ of Company or its subsidiaries or to
interfere with or restrict in any way with the rights of the
Company or its subsidiaries to discharge Optionee at any time,
for any reason, with or without cause.
11. Listing, Registration, Qualification.
This option is subject to the requirement and condition that
if the Board of Directors shall determine that the listing,
registration or qualification upon any securities exchange
under any state or federal law, or the approval or consent of
any governmental body is necessary or desirable as a condition
to the issuance or purchase of any shares subject to this
option, then this option may not be exercised in whole or in
part unless or until such listing, registration, qualification
or approval has been obtained, free of any conditions which
are not acceptable to the Board of Directors of the Company,
and the sale and delivery of stock hereunder is also subject
to the above requirements and conditions.
4
<PAGE> 5
12. Withholding.
The Company may require a payment from Optionee under the
exercise of this option to cover applicable withholding for
income and employment taxes. The Company reserves the right to
offset such tax payment from any funds which may be due
Optionee by the Company.
13. Reload Stock Option.
If this option is exercised while the Optionee is employed by
the Company or one of its subsidiaries and the Optionee pays
for the shares subject to option through the delivery of
shares of stock of the Company having an aggregate fair market
value as determined on the date of exercise equal to the
option price, Optionee is hereby granted a non-qualified stock
option on the date of such exercise (Reload Stock Option). The
grant equals the number of whole shares of stock of the
Company used to pay the purchase price, and the exercise price
of the Reload Stock Option is equal to the fair market value
of the stock of the Company on the date of grant. If the
Company withholds shares of stock of the Company to cover
applicable income and employment taxes related to the exercise
of this option, then the grant equals the number of whole
shares of stock of the Company used to pay the purchase price
less the number of shares withheld.
Subject to the provisions of the Plan, the Reload Stock Option
may be exercised between its date of grant and the date of
expiration of this option. This Reload Stock Option shall be
evidenced by an Agreement containing such other terms and
conditions as the Committee approves. No Reload Stock Option
shall be granted if this option is exercised after the
Optionee's retirement, permanent disability, death, or other
termination of employment.
If the option was exercised before accruing Dividend Units for
the number of years specified by the Committee at the time of
grant of the option, the Reload Stock Option is hereby granted
with Dividend Units that will accrue for the number of years
specified by the Committee at the time of grant of the option,
less the number of years Dividend Units actually accrued on
the option.
[The balance of this page is intentionally blank.]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have hereto set their hands to
duplicates here of, the 5th day of August, 1999.
Signed in the presence of: FIRSTMERIT CORPORATION
/s/ Tonia L. Bush By: /s/ Christopher J. Maurer
- ----------------- --------------------------------------
Its: Executive Vice President of Human
Resources
OPTIONEE
/s/ Tonia L. Bush By: /s/ John R. Macso
- ------------------ -------------------------------------
Print Name:John R. Macso
6
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000354869
<NAME> FIRST MERIT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 295,008
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<TOTAL-ASSETS> 9,925,963
<DEPOSITS> 6,868,763
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21,450
3,934
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<LOAN-LOSSES> 6,913
<SECURITIES-GAINS> (662)
<EXPENSE-OTHER> 70,908
<INCOME-PRETAX> 58,684
<INCOME-PRE-EXTRAORDINARY> 39,904
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,904
<EPS-BASIC> .44
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<YIELD-ACTUAL> 4.41
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