<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
MARCH 31, 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
MARCH 31, 1999
91,080,526
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 March 31, 1999, December 31, 1998
and March 31, 1998
Consolidated Statements of Income and Comprehensive Income for the
three-months ended March 31, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
year ended December 31, 1998 and for the three months ended March 31,
1999
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998
Notes to Consolidated Financial Statements as of March 31, 1999,
December 31, 1998, and March 31, 1998
Management's Discussion and Analysis of Financial Conditions as of
March 31, 1999, December 31, 1998 and March 31, 1998 and Results of
Operations for the quarters ended March 31, 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)
-------------------------------------
March 31 December 31 March 31
-------- ----------- --------
1999 1998 1998
- ----------------------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
ASSETS
Investment securities $ 1,788,540 1,878,266 1,725,947
Federal funds sold 964 31,739 3,496
Commercial loans 2,757,242 2,613,838 2,171,294
Mortgage loans 1,649,123 1,648,346 1,824,611
Installment loans 1,227,716 1,270,014 1,127,762
Home equity loans 376,072 306,358 290,762
Credit card loans 99,107 99,541 90,867
Manufactured housing loans 362,875 289,308 109,928
Leases 173,903 171,040 140,710
-----------------------------------------
Total loans 6,646,038 6,398,445 5,755,934
Less allowance for possible loan losses 102,359 96,149 70,839
-----------------------------------------
Net loans 6,543,679 6,302,296 5,685,095
Cash and due from banks 277,514 327,997 219,759
Premises and equipment, net 138,670 140,841 109,094
Intangible assets 166,529 169,725 49,170
Accrued interest receivable and other assets 259,282 175,160 184,547
-----------------------------------------
$ 9,175,178 9,026,024 7,977,108
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest bearing $ 1,009,876 1,026,377 759,846
Demand-interest bearing 687,056 917,765 520,269
Savings 1,866,706 1,810,340 1,384,982
Certificates and other time deposits 3,154,918 3,091,496 3,363,230
-----------------------------------------
Total deposits 6,718,556 6,845,978 6,028,327
Securities sold under agreements to repurchase
and other borrowings 1,372,625 1,123,204 1,032,526
-----------------------------------------
Total funds 8,091,181 7,969,182 7,060,853
Accrued taxes, expenses, and other liabilities 174,770 117,714 133,142
-----------------------------------------
Total liabilities 8,265,951 8,086,896 7,193,995
Mandatorily redeemable preferred securities 22,997 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; 214,474, 403,232 and 428,842 shares outstanding
at March 31, 1999, December 31, 1998 and March 31, 1998,
respectively 4,960 9,299 9,917
Common stock, without par value: 127,939 122,387 121,180
authorized 300 million shares; issued 92,054,156
91,161,362 and 90,915,671 shares, respectively
Capital surplus 119,459 117,845 82,331
Accumulated other comprehensive income (3,270) 5,858 2,795
Retained earnings 651,368 668,837 659,958
Treasury stock, at cost, 973,630, 1,166,604 and 8,015,875
shares, respectively (14,226) (17,570) (143,068)
-----------------------------------------
Total shareholders' equity 886,230 906,656 733,113
-----------------------------------------
$ 9,175,178 9,026,024 7,977,108
=========================================
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FIRSTMERIT CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS Unaudited
----------------
LAST FIVE QUARTERS
- ----------------------------------- ---------- ------------------------------------------------
(Dollars in thousands) 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1999 1998 1998 1998 1998
- -------------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities $1,818,974 1,641,187 1,811,104 1,780,512 1,629,368
Federal funds sold 5,426 143,103 21,254 10,048 5,107
Commercial loans 2,648,284 2,625,360 2,518,575 2,317,242 2,111,203
Mortgage loans 1,707,232 1,714,004 1,782,600 1,804,012 1,815,504
Installment loans 1,368,905 1,260,757 1,231,310 1,171,196 1,131,813
Home Equity loans 348,220 309,130 308,763 298,695 273,976
Credit card loans 102,080 96,694 93,272 91,769 96,613
Manufactured housing loans 168,503 266,759 204,376 138,999 125,138
Leases 170,352 187,638 198,657 167,068 185,536
---------- ------------------------------------------------
Loans less unearned income 6,513,576 6,460,342 6,337,553 5,988,981 5,739,783
Less allowance for possible
loan losses 101,788 95,211 80,774 76,033 69,745
---------- ------------------------------------------------
Net loans 6,411,788 6,365,131 6,256,779 5,912,948 5,670,038
Cash and due from banks 285,589 172,315 260,322 246,362 218,412
Premises and equipment, net 140,149 140,872 144,844 129,135 131,129
Accrued interest receivable
and other assets 402,371 405,167 375,451 303,586 193,122
---------- ------------------------------------------------
Total Assets $9,064,297 8,867,775 8,869,754 8,382,591 7,847,176
========== ================================================
LIABILITIES
Deposits:
Demand-non-interest bearing $1,066,573 1,000,358 951,559 869,547 821,952
Demand-interest bearing 659,189 671,672 582,894 556,069 507,749
Savings 1,878,596 1,674,459 1,550,975 1,476,348 1,368,705
Certificates and other time
deposits 3,111,321 3,247,273 3,585,969 3,459,774 3,300,531
---------- ------------------------------------------------
Total deposits 6,715,679 6,593,762 6,671,397 6,361,738 5,998,937
Securities sold under agreements to
repurchase and other borrowings 1,239,299 1,163,821 1,107,895 1,028,093 955,582
---------- ------------------------------------------------
Total funds 7,954,978 7,757,583 7,779,292 7,389,831 6,954,519
Accrued taxes, expenses and
other liabilities 172,874 151,472 141,243 140,770 130,951
---------- ------------------------------------------------
Total liabilities 8,127,852 7,909,055 7,920,535 7,530,601 7,085,470
Mandatorily redeemable preferred securities 22,997 41,676 50,000 50,000 12,500
SHAREHOLDERS' EQUITY 913,448 917,044 899,219 801,990 749,206
---------- ------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY $9,064,297 8,867,775 8,869,754 8,382,591 7,847,176
========== ================================================
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
=============================================================================================
FIRSTMERIT CORPORATION AND SUBSIDIARIES Quarters ended March 31,
- ---------------------------------------------------------------------------------------------
----------------------
(Unaudited and in thousands except share data) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 135,995 124,466
Interest on securities and other funds 29,299 25,908
- ---------------------------------------------------------------------------------------------
Total interest income 165,294 150,374
- ---------------------------------------------------------------------------------------------
Interest expense:
Demand-interest bearing 1,098 1,435
Savings 10,355 8,022
Certificates and other time deposits 40,144 43,273
Interest on repurchase agreements and other borrowings 19,250 14,364
- ---------------------------------------------------------------------------------------------
Total interest expense 70,847 67,094
- ---------------------------------------------------------------------------------------------
Net interest income 94,447 83,280
Provision for possible loan losses 16,398 6,164
- ---------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 78,049 77,116
- ---------------------------------------------------------------------------------------------
Other income:
Trust department 4,186 3,415
Service charges on deposits 9,095 9,050
Credit card fees 5,619 4,009
Service fees - other 3,229 2,038
Manufactured housing income 1,431 3,094
Investment securities gains, net 5,541 1,569
Loan sales and servicing 2,008 3,429
Other operating income 6,940 5,977
- ---------------------------------------------------------------------------------------------
Total other income 38,049 32,581
- ---------------------------------------------------------------------------------------------
Other expenses:
Salaries, wages, pension and benefits 42,271 31,605
Net occupancy expense 6,101 5,952
Equipment expense 4,514 3,307
Amortization of intangibles 2,713 1,258
Other operating expenses 49,817 24,727
- ---------------------------------------------------------------------------------------------
Total other expenses 105,416 66,849
- ---------------------------------------------------------------------------------------------
Income before federal income taxes and extraordinary item 10,682 42,848
Federal income taxes 5,339 13,475
- ---------------------------------------------------------------------------------------------
Income before extraordinary item 5,343 29,373
Extraordinary item - extinguishment of debt (net of taxes of $3,148) (5,847) --
- ---------------------------------------------------------------------------------------------
Net income (loss) ($504) 29,373
=============================================================================================
Other comprehensive income (loss), net of taxes:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period (5,526) (347)
Less: reclassification for gains realized in net income 3,602 1,020
- ---------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of taxes (9,128) (1,367)
- ---------------------------------------------------------------------------------------------
Comprehensive income (loss) ($9,632) 28,006
=============================================================================================
Net income (loss) applicable to common shares ($3,225) 29,198
=============================================================================================
Weighted-average common shares outstanding - basic 91,007 83,383
=============================================================================================
Weighted-average common shares outstanding - diluted 92,597 85,209
=============================================================================================
Basic net income per share:
Income before extraordinary charge $ 0.06 0.35
Extraordinary item - extinguishment of debt, net of taxes (0.06) 0.00
- ---------------------------------------------------------------------------------------------
Basic net income (loss) per share ($0.00) 0.35
=============================================================================================
Diluted net income (loss) per share:
Income (loss) before extraordinary item $ 0.06 0.35
Extraordinary item (0.06) 0.00
- ---------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ 0.00 0.35
=============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
====================================================================================================================
FIRSTMERIT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------
(In thousands except per share data)
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 and Accumulated
year 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 11,736 --
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 ($0.18 per share) -- -- -- --
Cash dividends - preferred stock -- -- -- --
Stock options exercised/debentures or preferred stock converted (4,339) 5,597 1,614 --
Market adjustment investment securities -- -- -- (9,128)
Other -- (45) -- --
- --------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $ 4,960 127,938 119,459 (3,270)
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
========================================================================================================
FIRSTMERIT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------
(In thousands except per share data)
- --------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 and
year 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 (loss) (504) -- (504)
Cash dividends - common stock ($0.18 per share) (16,412) -- (16,412)
Cash dividends - preferred stock (87) -- (87)
Stock options exercised/debentures or preferred stock converted -- 2,556 5,428
Market adjustment investment securities -- -- (9,128)
Other (466) 788 277
- --------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 651,368 (14,226) 886,230
========================================================================================================
</TABLE>
<PAGE> 7
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
---------------------
1999 1998
---------------------
<S> <C> <C>
Operating Activities
- --------------------
Net income ($504) 29,373
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 16,398 6,164
Provision for depreciation and amortization 4,847 4,984
Amortization of investment securities premiums, net 685 347
Amortization of income for lease financing (11,360) (2,603)
Gains on sales of investment securities, net (5,541) (1,569)
Deferred federal income taxes (2,122) (821)
Increase in interest receivable (13,603) (1,170)
Increase in interest payable 12,038 890
Amortization of values ascribed to acquired intangibles 2,713 1,258
Other increases (16,276) (27,402)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (12,725) 9,451
-------- --------
Investing Activities
- --------------------
Dispositions of investment securities:
Available-for-sale - sales 302,898 233,625
Available-for-sale - maturities 110,706 72,302
Purchases of investment securities available-for-sale (334,493) (477,346)
Net decrease in federal funds sold 30,775 65,795
Net increase in loans and leases, except sales (246,421) (166,452)
Sales of loans - 143,674
Purchases of premises and equipment (6,172) (5,510)
Sales of premises and equipment 3,496 20,804
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (139,211) (113,108)
-------- --------
Financing Activities
- --------------------
Net decrease in demand, NOW and savings deposits (190,844) (479,944)
Net increase in time deposits 63,422 488,007
Net increase in securities sold under repurchase agreements and
other borrowings 249,421 90,696
Proceeds from mandatorily redeemable preferred securities - 50,000
Repayment of mandatorily redeemable preferred securities (9,475) -
Cash dividends (16,499) (12,029)
Purchase of treasury shares - (24,875)
Proceeds from exercise of stock options 5,428 423
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 101,453 112,278
-------- --------
Increase (decrease) in cash and cash equivalents (50,483) 8,621
Cash and cash equivalents at beginning of year 327,997 211,138
-------- --------
Cash and cash equivalents at end of year $277,514 219,759
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
- --------------------------------------------------
Cash paid during the year for:
Interest, net of amounts capitalized $31,125 48,129
Income taxes $10,565 7,768
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999, December 31, 1998 and March 31, 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, Signal 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>
- ----------------------------------------------------------------------------------
Pro Forma
FirstMerit CoBancorp Adjustments Combined
- ----------------------------------------------------------------------------------
Three months ended March
31, 1998:
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 150,374 11,942 354 162,670
- ----------------------------------------------------------------------------------
Net interest income 83,280 7,295 -1,151 89,424
- ----------------------------------------------------------------------------------
Net income 29,373 1,307 -1,913 28,767
- ----------------------------------------------------------------------------------
Weighted average diluted
shares 85,208,834 3,483,304 89,463,689
- ----------------------------------------------------------------------------------
Earnings per diluted share $ 0.35 0.38 0.32
- ----------------------------------------------------------------------------------
</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
and March 31, 1999 are shown in the following table. The remaining liability at
March 31, 1999 is expected to be paid during 1999 and is not expected to have
any adverse effect on liquidity.
Dollars in thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Costs
Description of Cost Accrued Remaining Liability Remaining Liability
in 1998 December 31, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salary, wages and benefits $ 1,689 50 42
- -----------------------------------------------------------------------------------------------
Occupancy and equipment expense 552 511 482
- -----------------------------------------------------------------------------------------------
Loan conversion expense 1,516 1,031 844
- -----------------------------------------------------------------------------------------------
Professional services 4,450 1,467 -
- -----------------------------------------------------------------------------------------------
Other operating expenses 1,576 1,196 1,417
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 9,783 4,255 2,785
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Reduction of other operating income 89 - -
- -----------------------------------------------------------------------------------------------
Provision for loan losses conforming
entry 7,300 - -
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Totals $17,172 4,255 2,785
</TABLE>
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. Pro forma information for
the separate entities and for the combined entity from January 1, 1999 through
the February 12, 1999 acquisition date is not presented due to immateriality.
<PAGE> 10
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 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>
- -------------------------------------------------------------------------------------------
Description Costs
of Cost Accrued Remaining Liability
1st Qtr 1999 March 31, 1999
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Salary, wages and benefits $7,736 1,555
- -------------------------------------------------------------------------------------------
Loan conversion expense. 7,016 1,663
- -------------------------------------------------------------------------------------------
Professional services 8,856 295
- -------------------------------------------------------------------------------------------
Other operating expenses 10,014 6,483
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 33,622 9,996
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Provision for loan losses conforming entry 10,200
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Totals $43,822 9,996
- -------------------------------------------------------------------------------------------
</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 months
ended March 31, 1999:
(in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Super-
community Adjustments/ FirstMerit
Banking Parent/Others eliminations Consolidated
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
- ---------------------------------------------------------------------------------------------
Net interest income $ 95,872 -1,425 94,447
- ---------------------------------------------------------------------------------------------
Provision for possible
loan losses 16,218 180 16,398
- ---------------------------------------------------------------------------------------------
Other income 36,848 2,940 -1,739 38,049
- ---------------------------------------------------------------------------------------------
Other expenses 105,433 1,722 -1,739 105,416
- ---------------------------------------------------------------------------------------------
Income before
extraordinary charge 6,349 -1,006 5,343
- ---------------------------------------------------------------------------------------------
Net income (loss) 502 -1,006 0 -504
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
AVERAGES:
- ---------------------------------------------------------------------------------------------
Assets $9,061,556 2,741 9,064,297
- ---------------------------------------------------------------------------------------------
Loans 6,504,795 8,781 6,513,576
- ---------------------------------------------------------------------------------------------
Earnings assets 8,379,858 -41,882 8,337,976
- ---------------------------------------------------------------------------------------------
Deposits 6,781,125 -65,446 6,715,679
- ---------------------------------------------------------------------------------------------
Shareholders' equity $ 828,580 84,868 913,448
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
RATIOS:
- ---------------------------------------------------------------------------------------------
ROE 0.24% NM NM -0.22%
- ---------------------------------------------------------------------------------------------
ROA -0.02% NM NM -0.02%
- ---------------------------------------------------------------------------------------------
Efficiency ratio* NM NM NM 53.92%
- ---------------------------------------------------------------------------------------------
</TABLE>
NM - Not Meaningful
* - Adjusted for merger-related and conforming expenses and extraordinary item
The table below presents estimated revenues from external customers, by
product and service group for the 1999 first quarter:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) Retail Commercial Trust Total
Services
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and fees $98,099 86,726 4,186 189,011
- --------------------------------------------------------------------------------
Service charges 9,883 2,441 12,324
- --------------------------------------------------------------------------------
Loan sales/service 2,008 2,008
- --------------------------------------------------------------------------------
Totals $109,990 89,167 4,186 203,343
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
4. Earnings per Share - The reconciliation of the numerator and denominator of
basic earnings per share ("EPS") with that of diluted EPS is presented as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) Common shares Per common
(numerator) (denominator) share amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999:
- ---------------------------------------------------------------------------------------------------------------------
Income before extraordinary charge $5,343
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) -504
- ---------------------------------------------------------------------------------------------------------------------
Less: preferred stock dividends -87
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common
shareholders -$591
- ---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 91,006,738
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS PER BASIC COMMON SHARE $0.00
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common
shareholders -$591
- ---------------------------------------------------------------------------------------------------------------------
Add: preferred stock dividends 87
- ---------------------------------------------------------------------------------------------------------------------
Add: interest expense on convertible bonds, net 21
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) available to common shareholders -$483
- ---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 91,006,738
- ---------------------------------------------------------------------------------------------------------------------
Equivalents from stock options 844,940
- ---------------------------------------------------------------------------------------------------------------------
Equivalents from convertible debentures 149,659
- ---------------------------------------------------------------------------------------------------------------------
Equivalents from convertible preferred securities 594,947
- ---------------------------------------------------------------------------------------------------------------------
Avg common stock and equivalents outstanding 92,596,284
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS PER DILUTED COMMON SHARE $0.00
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998:
- ---------------------------------------------------------------------------------------------------------------------
Net income $29,373
- ---------------------------------------------------------------------------------------------------------------------
Less: preferred stock dividends -175
- ---------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $29,198
- ---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 83,383,205
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS PER BASIC COMMON SHARE $0.35
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $29,198
- ---------------------------------------------------------------------------------------------------------------------
Add: preferred stock dividends 175
- ---------------------------------------------------------------------------------------------------------------------
Add: interest expense on convertible bonds, net 77
- ---------------------------------------------------------------------------------------------------------------------
Income available to common shareholders $29,450
- ---------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 83,383,205
- ---------------------------------------------------------------------------------------------------------------------
Common stock equivalents* 1,825,629
- ---------------------------------------------------------------------------------------------------------------------
Avg common stock and equivalents outstanding 85,208,834
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS PER DILUTED COMMON SHARE $0.35
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* - For the three months ended March 31, 1998 breakout of stock equivalents not
available.
<PAGE> 13
5. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 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 will be effective for all fiscal quarters beginning
after June 15, 1999 (third quarter 1999 for the Corporation).
6. Management believes the interim consolidated financial statements reflect all
adjustments consisting only of normal recurring accruals, necessary for fair
presentation of the March 31, 1999 and 1998 and December 31, 1998 statements of
condition and the results of operations for the quarters ended March 31, 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>
AVERAGE CONSOLIDATED BALANCE SHEETS
FULLY-TAX EQUIVALENT INTEREST RATES AND INTEREST DIFFERENTIAL
============================================================================================================================
FIRSTMERIT CORPORATION AND SUBSIDIARIES Three months ended Year ended
- ------------------------------------------------------ -------------------------------------- ----------------------------
(Dollars in thousands) March 31, 1999 December 31, 1998
- ------------------------------------------------------ -------------------------------------- ----------------------------
Average Average Average
Balance Interest Rate Balance Interest
- ------------------------------------------------------ -------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities:
U.S. Treasury securities and U.S.
Government agency obligations
(taxable) $1,406,055 21,215 6.12% 1,466,525 92,646
Obligations of states and
political subdivisions
(tax-exempt) 131,407 2,845 8.78% 98,457 7,767
Other securities 281,512 6,275 9.04% 150,561 9,504
- ------------------------------------------------------ -------------------------------------- ----------------------------
Total investment securities 1,818,974 30,335 6.76% 1,715,543 109,917
Federal funds sold & other interest-earning assets 5,426 66 4.93% 44,878 2,400
Loans 6,513,576 136,067 8.47% 6,131,665 533,732
Total earning assets 8,337,976 166,468 8.10% 7,892,086 646,049
Allowance for possible loan losses (101,788) (80,441)
Cash and due from banks 285,589 204,353
Other assets 542,520 504,577
- ------------------------------------------------------ -------------------------------------- ----------------------------
Total assets $9,064,297 8,520,575
====================================================== ====================================== ============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing 1,066,573 -- -- 1,083,354 --
Demand-
interest bearing 659,189 1,098 0.68% 752,096 13,222
Savings 1,878,596 10,355 2.24% 1,600,122 44,077
Certificates and other time deposits 3,111,321 40,144 5.23% 3,019,637 165,198
- ------------------------------------------------------ -------------------------------------- ----------------------------
Total deposits 6,715,679 51,597 3.12% 6,455,209 222,497
Federal funds purchased, securities sold
under agreements to repurchase and
other borrowings 1,239,299 19,250 6.30% 1,063,848 63,879
- ------------------------------------------------------ -------------------------------------- ----------------------------
Total interest bearing liabilities 6,888,405 70,847 4.17% 6,435,703 286,376
Other liabilities 172,874 143,417
Mandatorily redeemable preferred securities 22,997 16,236
Shareholders' equity 913,448 841,865
- ------------------------------------------------------ -------------------------------------- ----------------------------
Total liabilities and shareholders'
equity 9,064,297 8,520,575
====================================================== ====================================== ============================
Net yield on earning assets 8,337,976 95,621 4.65% 7,892,086 359,673
====================================================== ====================================== ============================
Interest rate spread 3.93%
====================================================== ====================================== ============================
</TABLE>
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED BALANCE SHEETS
FULLY-TAX EQUIVALENT INTEREST RATES AND INTEREST DIFFERENTIAL
===================================================================================================================
FIRSTMERIT CORPORATION AND SUBSIDIARIES Year Ended Three months ended
- ------------------------------------------------------ ------------- --------------------------------------------
(Dollars in thousands) December 31, 1998 March 31, 1998
- ------------------------------------------------------ ------------- --------------------------------------------
Average Average Average
Rate Balance Interest Rate
- ------------------------------------------------------ ------------- --------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment securities:
U.S. Treasury securities and U.S.
Government agency obligations
(taxable) 6.32% 1,433,844 23,324 6.60%
Obligations of states and
political subdivisions
(tax-exempt) 7.89% 81,468 986 4.91%
Other securities 6.31% 114,056 2,236 7.95%
- ------------------------------------------------------ ------------- --------------------------------------------
Total investment securities 6.41% 1,629,368 26,546 6.61%
Federal funds sold & other interest-earning assets 5.35% 5,107 79 6.27%
Loans 8.70% 5,739,783 124,466 8.79%
Total earning assets 8.19% 7,374,258 151,091 8.31%
Allowance for possible loan losses (69,745)
Cash and due from banks 218,412
Other assets 324,251
- ------------------------------------------------------ ------------- --------------------------------------------
Total assets $7,847,176
====================================================== ============= ============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing -- 821,952 -- --
Demand-
interest bearing 1.76% 507,749 1,435 1.15%
Savings 2.75% 1,368,705 8,022 2.38%
Certificates and other time deposits 5.47% 3,300,531 43,273 5.32%
- ------------------------------------------------------ ------------- --------------------------------------------
Total deposits 3.45% 5,998,937 52,730 3.56%
Federal funds purchased, securities sold
under agreements to repurchase and
other borrowings 6.00% 955,582 14,364 6.10%
- ------------------------------------------------------ ------------- --------------------------------------------
Total interest bearing liabilities 4.45% 6,132,567 67,094 4.44%
Other liabilities 130,951
Mandatorily redeemable preferred securities 12,500
Shareholders' equity 749,206
- ------------------------------------------------------ ------------- --------------------------------------------
Total liabilities and shareholders'
equity 7,847,176
====================================================== ============= ============================================
Net yield on earning assets 4.56% 7,374,258 83,997 4.62%
====================================================== ============= ============================================
Interest rate spread 3.74% 3.87%
====================================================== ============= ============================================
</TABLE>
Notes: Interest income on tax-exempt securities and loans have been adjusted to
a fully-taxable equivalent basis. Non-accrual loans have been included
in the average balances.
<PAGE> 15
RESULTS OF OPERATIONS
FirstMerit Corporation's first quarter 1999 loss totaled $504 thousand,
or less than one cent per share. If merger-related expenses and an extraordinary
charge related to extinguishment of debt are excluded, earnings were $37.6
million, or $0.41 per common share, a 28% increase in earnings and 18% increase
in earnings per share compared to the same period one year ago.
These results reflect the restatement of both quarters' financial
information to account for the acquisition of Signal Corp on February 12, 1999
on a pooling-of-interests basis. Additionally, first quarter 1999 results
include the assets and earnings of CoBancorp, which was accounted for as a
purchase and merged with and into FirstMerit on May 22, 1998.
Adjusted to exclude merger-related charges and the extraordinary item,
ROE for the first quarter was 16.7% compared with 15.9% the prior year first
quarter. ROA, on an adjusted basis, was 1.68% compared with 1.52% last year.
First quarter 1999 net interest income on a fully tax-equivalent basis
(FTE) was $95.6 million compared to $84.0 million for the prior year period, an
increase of 13.8%. The rise was primarily due to higher earning assets, as
opposed to yield. A portion of the increase in earning assets is due to
CoBancorp results being included in the 1999 quarter but not the 1998 quarter.
Specifically, average earning assets increased 13.1% quarter-over-quarter and
the net interest margin rose 3 basis points from 4.62% to 4.65% during the same
period.
Adjusted net revenue, defined as net interest income FTE plus other
income less gains from the sales of securities, for the first quarter of 1999
was $128.1 million, an 11.4% gain above the first quarter 1998 level of $115.0
million. An indeterminable portion of the fee increase was due to the
contribution of CoBancorp. Excluding gains from the sale of securities,
non-interest income was $32.5 million in 1999 compared with $31.0 million for
the prior year quarter, an increase of 4.8%. Income from manufactured housing
activity and from loan sales and servicing was less than 1998's first quarter
but was more than offset by the improvement in trust, credit card and other
service fees. Other income less securities gains as a percentage of net revenues
was 25.4% in the first quarter of 1999 and 27.0% for the 1998 period.
Other expenses for the quarter were $105.4 million. Excluding the $33.6
million charge related to the Signal Corp merger, other expenses totaled $71.8
million, 7.4% higher than the comparable 1998 period. As mentioned previously, a
portion of the increase is due to the inclusion of CoBancorp in the first
quarter of 1999. With the exception of intangible amortization expense, which
was up $1.5 million due to added Goodwill from the CoBancorp purchase, other
expense categories as a percentage of total expenses were consistent in both
periods. On an adjusted basis, first quarter efficiency ratios were 53.9% in
1999 and 57.0% in 1998.
<PAGE> 16
Quarter-end assets for 1999 were $9.2 billion, an increase of 15.0%
above the $8.0 billion reported for the 1998 quarter. Earning assets at March
31, 1999 were $8.4 billion compared with $7.5 billion for the 1998 quarter, a
gain of 12.7%. At period end, total loans, net of unearned interest, were $6.6
billion, up 15.5% from March 31, 1998. Commercial loans continue to outpace
overall portfolio growth, up 27.0 % above the prior year, while mortgage loans,
down 9.6 % from year earlier levels, continue to be securitized and sold as
gains are recognized and proceeds reinvested in higher-yielding commercial and
installment loans. The March 31, 1998 asset totals for CoBancorp were as
follows: quarter-end assets $644 million, earning assets $579 million, and total
loans $412 million.
The provision for loan losses of $16.4 million in the first quarter of
1999 includes a merger-related increase of $10.2 million. If the merger charge
is excluded, the provision was $6.2 million, the same amount recorded during the
three months ended March 31, 1998. Net charge-offs as a percentage of average
loans outstanding were 0.72% for first quarter 1999 and the allowance as a
percentage of outstanding loans was 1.54% compared with 1.23% at the end of the
prior year quarter. If charge-offs recorded during the first quarter related to
the Signal acquisition are excluded, the net first quarter 1999 charge-off ratio
would have approximated FirstMerit historical levels.
Total deposits grew 11.4%, ending the period at $6.7 billion compared
to $6.0 billion for the prior year quarter. Certificates and other time deposits
declined 6.2%, but were strongly offset by 33.7% growth in aggregate demand
deposits and savings accounts. Deposits as a funding source remained unchanged
at approximately 80% of earning assets for both periods. CoBancorp deposits at
March 31, 1998 were $560.0 million.
Shareholders' equity ended the quarter at $886.2 million, an increase
of 20.9%, or $153.1 million, above the prior year level of $733.1 million.
Earnings, treasury shares reissued as part of a secondary offering and in
connection with the acquisitions of Security First and Signal Corp, as well as
the exclusion of CoBancorp's equity from 1998 totals accounted for the increase.
Dividends paid were $16.5 million in the quarter and common shares outstanding
totaled approximately 91 million at March 31, 1999.
On April 26, 1999, the Corporation announced a new share repurchase
program to repurchase up to 1.65 million of Firstmerit's common stock. The
Corporation anticipates the repurchases will be made periodically throughout the
next two years. The shares may be repurchased in the open market or in privately
negotiated transactions. The reacquired common shares will be held in treasury
for reissue for various corporate purposes, including employee stock option
plans.
<PAGE> 17
The components of change in per share income for the quarters ended
March 31, 1999 and 1998 were as follows:
CHANGES IN EARNINGS PER SHARE
-----------------------------
<TABLE>
<CAPTION>
Three months ended Three months ended
Core* As Repoted
March 31, March 31,
1999/1998 1999/1998
----------------------------------------------------------
<S> <C> <C>
Diluted net income per share March 31, 1998
$0.35 0.35
Increases (decreases) due to:
Net interest income - taxable equivalent 0.12 0.12
Provision for possible loan losses -- -0.11
Other income 0.04 0.04
Other expenses -0.04 -0.41
Federal income taxes - taxable equivalent
-0.03 0.07
Extraordinary item-extinguishment of debt
-- -0.06
Change in share base -0.03 --
----------------------------------------------------------
Net change in diluted net income per share
0.06 -0.35
----------------------------------------------------------
Diluted net income per share March 31, 1999
$0.41 0.00
==========================================================
</TABLE>
* - The term "core" is defined as excluding merger-related and conforming
accounting expenses associated with the Signal acquisition and the extraordinary
charge from extinguishment of debt. See Note 2 to the Consolidated Financial
Statements for more information.
<PAGE> 18
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 March 31, 1999 was $95.6
million compared to $84.0 million for the same period one year ago, an increase
of $11.6 million. The 1998 results do not include the activity from the purchase
acquisition of CoBancorp on May 22, 1998. CoBancorp's separately reported net
interest income for the 1998 quarter was $7.3 million. The increase in net
interest income FTE occurred because interest income from higher average earning
assets outpaced the additional interest expense incurred to fund the growth. An
analysis of changes in individual components of interest income and interest
expense follows and is also illustrated in the table covering this subject.
The single greatest contributor to higher interest income during the
quarter was an increase in average loan outstandings from $5.7 billion to $6.5
billion which created $16.2 million of additional loan income compared to first
quarter 1998. This increase was offset by declining yields, 8.47% in 1999 and
8.79% in 1998, reducing interest income for the first quarter 1999 by $4.6
million. The net effect of the changes in loan volume and rates was an increase
in interest income of $11.6 million, the same as the change in total net
interest income between the two periods.
The increase in interest expense was entirely volume driven. Higher
average balances in customer deposit and wholesale borrowings increased interest
expense by $5.0 million. Lower rates paid on these funds, however, decreased
interest expense by $1.3 million compared to the same quarter last year.
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> 19
CHANGES IN NET INTEREST DIFFERENTIAL -
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
(DOLLARS IN THOUSANDS)
Quarters ended
March 31,
1999 and 1998
Increase (Decrease)
Interest Income/Expense
-----------------------
<TABLE>
<CAPTION>
Volume Yield Rate Total
--------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Investment Securities $3,269 520 3,789
Loans 16,164 -4,563 11,601
Federal funds sold 4 -17 -13
--------------------------------------
Total interest income $19,437 -4,060 15,377
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing $252 -589 -337
Savings 2,811 -478 2,333
Certificates and other
time deposits -2,441 -688 -3,129
Federal Funds Purchased,
REPOs & other borrowings 4,407 479 4,886
--------------------------------------
Total interest expense 5,029 -1,276 3,753
--------------------------------------
Net interest income $14,408 -2,784 11,624
======================================
</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 schedule below shows the
relationship of the tax equivalent adjustment and the net interest margin.
<PAGE> 20
NET INTEREST MARGIN
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Quarters Ended
March 31,
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Net interest income per
financial statements $94,447 83,280
Tax equivalent adjustment 1,174 717
---------------------------------
Net interest income - FTE $95,621 83,997
=================================
Average earning assets $8,337,976 7,374,258
=================================
Net interest margin 4.65% 4.62%
=================================
</TABLE>
Average loans outstanding for the quarter ended March 31, 1999 were
$6.514 billion, up $773.8 million or 13.5%, from $5.740 billion for the same
quarter last year. Outstanding loans of CoBancorp at the acquisition date of May
22, 1998 approximated $400 million. The most notable increases occurred in
commercial loans, up $537.1 million or 25.4%; installment loans, up $237.1
million or 20.9%; home equity loans up $74.2 million or 27.1% and manufactured
housing loans up $43.4 million or 34.7%. Average outstanding loans for the 1999
and 1998 first quarters equaled 78.1% and 77.8% of average earning assets,
respectively.
Average deposits were $6.716 billion during the 1999 first quarter, up
$716.7 million over the same period last year. Outstanding deposits of CoBancorp
at the acquisition date were approximately $560 million. The mix of deposits and
borrowed funds changed little from first quarter 1998, with savings balances (at
the expense of CDs) making up a greater percentage of total borrowings during
the first quarter 1999. During both first quarter periods, interest bearing
liabilities funded approximately 83% of average earning assets.
In summary, on a percentage basis, loan growth over the past year
continues to occur mainly in higher yielding consumer and commercial credits
resulting in a lower concentration of mortgage loan outstandings. Some of the
decline in mortgage balances is also attributable to the Corporation's practice
of securitizing and selling mortgage loans when favorable conditions exist. The
funding mix feeding the loan growth, has remained constant between borrowing
categories.
<PAGE> 21
OTHER INCOME
Other income for the quarter ended March 31, 1999 was $38.0 million, an
increase of $5.5 million, or 16.8%, over the $32.6 million earned during the
same period last year. Excluding securities sales, the increase in other income
was $1.5 million, or 4.8%. The securities sold during the quarter included
mortgage-backed securities (MBS'), with a relatively high yield, where
prepayments were occurring at a rapid pace. The MBS' were sold for gains and the
proceeds reinvested in higher yielding commercial and non-mortgage consumer
credits, which traditionally exhibit slower prepayment rates. Though not
included in the Corporation's 1998 results, CoBancorp separately reported other
income of $1.7 million during the 1998 quarter, $16 thousand of which
represented gains from the sale of securities. Fee income, defined as other
income less income from the sale of securities, as a percentage of net revenue
during the quarter was 25.37% versus 26.96% a year ago. Net revenue is defined
as net interest income on a fully-taxable equivalent basis plus fee income.
Trust department income for the first quarter was $4.2 million, up $0.8
million from the $3.4 million earned one year ago. Service charges on
depositors' accounts totaled $9.1 million for both first quarter periods. Credit
card fees, including merchant services, increased 40.2% to $5.6 million for the
quarter compared to $4.0 million for the three months ended March 31, 1998.
Other service fees, including Automated Teller Machine (ATM) revenue, rose from
$2.0 million recorded during 1998's first quarter to $3.2 million for same 1999
period. Manufactured housing income was $1.4 million during the quarter compared
to $3.1 million last year. A portion of the decline in manufactured housing
income was the result of the Corporation's more conservative revenue recognition
policies concerning these credits and asset-backed securities.
The Corporation recognizes the importance of other income (fee income)
as an important complement to net interest income as it provides a source of
revenues not sensitive to the interest rate environment. Consequently, the
Corporation is constantly analyzing new opportunities for noninterest income.
OTHER EXPENSES
Other expenses totaled $105.4 million for the first quarter, or $71.8
million when merger-related costs are excluded. Details of the merger-related
expenses are contained within Note 2 to the consolidated financial statements.
Other expenses for the 1998 first quarter were $66.8 million. Although not
included in FirstMerit's 1998 quarter, CoBancorp's separately reported other
expenses totaled $7.0 million.
The "lower-is-better" efficiency ratio for the quarter, excluding
merger-related expenses, was 53.92% compared to 57.03% a year ago. The first
quarter efficiency ratio indicates that 53.92 cents in operating costs were
spent to make one dollar's profit.
<PAGE> 22
Adjusted salaries, wages, pension and employee benefits, the largest
component of other expenses, increased 9.3% during the quarter to $34.5 million.
If the separate results of CoBancorp were considered ($2.9 million), 1998 first
quarter salaries, wages, pension and employee benefits would have also totaled
$34.5 million.
Aggregate net occupancy and equipment expenses for the quarter were
$10.6 million compared to $9.3 million for the same 1998 quarter. If CoBancorp's
separately reported expenses of $1.1 million are considered, the increase since
last year is minimal.
Other quarter-to-quarter differences include increases in other taxes
expense; stationary, supplies and postage costs; telephone charges; and
intangible amortization expense; and lower other operating costs. Again, the
increases were impacted by the exclusion of CoBancorp results from the 1998
period. The increase in intangible amortization expense in the 1999 first
quarter was due to the May 22, 1998 purchase acquisition of CoBancorp.
<PAGE> 23
FINANCIAL CONDITIONS
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>
March 31, 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 $790,973 1,616 6,519 786,070
Obligations of state and
political subdivisions 140,475 2,117 90 142,502
Mortgage-backed securities 550,721 1,913 4,250 548,384
Other securities 312,848 1,881 3,145 311,584
---------------- ---------------- ---------------- ----------------
$1,795,017 7,527 14,004 1,788,540
================ ================ ================ ================
Book Value Market Value
---------------- ----------------
Due in one year or less $114,945 115,140
Due after one year through five
years
368,430 367,024
Due after five years through ten
years
319,517 318,007
Due after ten years 992,125 988,369
---------------- ----------------
$1,795,017 1,788,540
================ ================
</TABLE>
The book value and market value of investment securities including
mortgage-backed securities and derivatives at March 31, 1999, by contractual
maturity, were included in the previous table. Expected maturities will differ
from contractual
<PAGE> 24
maturities based on the issuers' right to call or prepay obligations with or
without call or prepayment penalties.
The carrying value of investment securities pledged to secure trust and
public deposits and for purposes required or permitted by law amounted to
approximately $1,326.2 million at March 31, 1999 and $1,180.126 million 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 March 31, 1999 equaled $6.646 billion
compared to $6.398 billion at December 31, 1998 and $5.756 billion at March 31,
1998. Not included in the March 31, 1998 totals are $411.7 million of loans
acquired through the purchase of CoBancorp on May 22, 1998. At quarter-end, the
Corporation's commercial loans were $2.757 billion, or 27.0% higher than the
March 31, 1998 balance of $2.171 billion; mortgage loans were $1.649 billion,
down 9.6%; manufactured housing loans totaled $362.9 million, up from $109.9
million last year; and installment, home equity, bankcard, and leases (on a
combined basis) were $1.877 billion, up 13.7%. Through securitization and sales
of single-family mortgages, the Corporation continues to change its loan mix
from lower yielding mortgage loans to higher earning commercial and non-mortgage
consumer credits.
ASSET QUALITY
Total nonperforming assets (non-accrual loans, restructured loans, and
other real estate) totaled $18.9 million at March 31, 1999 or 0.28% of
period-end loans and other real estate. At December 31, 1998, nonperforming
assets totaled $23.2 million or 0.36% of outstanding loans and other real estate
compared to $18.8 million or 0.33% of outstanding loans and other real estate at
March 31, 1998. 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 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.
<PAGE> 25
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)
March 31, December 31, March 31,
1999 1998 1998
------------- ----------------- --------------
<S> <C> <C> <C>
Impaired Loans:
Non-accrual $14,683 10,883 8,436
Restructured 83 85 90
------------------------------------------------------------------------------------------------
Total impaired loans 14,766 10,968 8,526
------------- ----------------- --------------
Other Loans:
Non-accrual 2,503 8,456 9,530
Restructured 0 0 0
------------------------------------------------------------------------------------------------
Total other nonperforming loans 2,503 8,456 9,530
------------------------------------------------------------------------------------------------
Total nonperforming loans 17,269 19,424 18,056
------------------------------------------------------------------------------------------------
Other real estate (ORE) 1,643 3,789 773
------------- ----------------- --------------
Total nonperforming assets 18,912 23,213 18,829
================================================================================================
Loans past due 90 days or more
accruing interest $17,296 18,911 8,641
================================================================================================
Total nonperforming assets as a
percent of total loans and ORE 0.28% 0.36% 0.33%
================================================================================================
</TABLE>
N/A = 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> 26
ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses at March 31, 1999 totaled $102.4
million, or 1.54% of total loans outstanding compared to $96.1 million, or 1.50%
and $66.9 million, or 1.23% at December 31, 1998 and March 31, 1998,
respectively. The annualized net charge-off percentage shown below for the first
quarter 1999 was higher than historical levels due to charge-offs associated
with the Signal acquisition.
<TABLE>
<CAPTION>
Three months Three months
Dollars in thousands ended Year ended ended
March 31, December 31, March 31,
1999 1998 1998
------------------ ------------------- ------------------
<S> <C> <C> <C>
Allowance - beginning of period $96,149 67,736 67,736
Acquisition adjustment/other 1,312 8,215 1,758
Loans charged off:
Commercial, financial, agricultural 6,967 3,894 259
Installment to individuals 7,807 26,277 5,458
Real estate 55 1,489 1,494
Lease financing 261 1,274 183
Total charge-offs 15,090 32,934 7,394
Recoveries:
Commercial, financial, agricultural 1,356 1,930 372
Installment to individuals 2,113 8,285 1,966
Real estate 0 1,464 342
Lease financing 121 532 56
Total recoveries 3,590 12,211 2,736
Net charge-offs 11,500 20,723 3,220
Provision for possible loan losses 16,398 40,921 6,003
------------------ ------------------- ------------------
Allowance - end of period $102,359 96,149 70,839
================== =================== ==================
Annualized net charge offs as
percent of average loans 0.72% 0.34% 0.30%
Allowance for possible
loan losses:
As a % of loans outstanding at end of
period 1.54% 1.50% 1.23%
As a multiple of annualized net
charge offs 2.19X 4.64X 5.42X
</TABLE>
<PAGE> 27
The Corporation's Credit Policy Division manages credit risk by
establishing common credit policies for its subsidiary banks, participating in
approval of their largest loans, conducting reviews of their loan portfolios,
providing them with centralized consumer underwriting, collections and loan
operation services, and overseeing their loan workouts. The Corporation's
objective is to minimize losses from its commercial lending activities and to
maintain consumer losses at acceptable levels that are stable and consistent
with growth and profitability objectives.
<PAGE> 28
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)
Three months and year ended
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998 March 31, 1998
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits -
non-interest bearing $1,066,573 - 1,083,354 - 821,952 -
Demand Deposits -
interest bearing 659,189 0.68% 752,096 1.76% 507,749 1.15%
Savings Deposits 1,878,596 2.24% 1,600,122 2.75% 1,368,705 2.38%
Certificates and other
time deposits 3,111,321 5.23% 3,019,637 5.47% 3,300,531 5.32%
--------------- -------------- --------------
$6,715,679 3.12% 6,455,209 3.45% 5,998,937 3.56%
=============== ============== ==============
</TABLE>
The following table summarizes the certificates and other time deposits
in amounts of $100 thousand or more as of March 31, 1999 by time remaining until
maturity.
(Dollars in Thousands) Amount
Maturing in:
Under 3 months $508,595
3 to 12 months 252,096
Over 12 months 158,981
--------------
$919,672
==============
<PAGE> 29
CAPITAL RESOURCES
Shareholders' equity at March 31, 1999 totaled $886.2 million compared
to $906.7 million at December 31, 1998 and $733.1 million at March 31, 1998. The
decline since year end was mainly due to the net loss incurred during the first
quarter, a reduction in the market value of investment securities available for
sale and the quarterly dividend payment to shareholders.
The following table reflects the various measures of capital:
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
1999 1998
(In thousands)
<S> <C> <C> <C> <C>
Total equity $886,230 9.65% 906,656 10.04%
Common equity 876,931 9.55% 897,357 9.94%
Tangible common equity (a) 711,879 7.90% 724,247 8.18%
Tier 1 capital (b) 723,566 9.55% 774,303 10.46%
Total risk-based capital (c) 824,653 10.88% 949,229 12.82%
Leverage (d) 723,566 8.11% 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 March 31, 1999, the Corporation's risk-based
capital equaled 10.88% of risk adjusted assets, exceeding minimum guidelines.
The cash dividend of $0.18 paid in the first quarter has an indicated
annual rate of $0.72 per share.
<PAGE> 30
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 Corporation's
status at March 31, 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. Renovation and
vendor software implementation remains in process for "non-mission critical"
applications. These applications are less important and not required to be
operational by January 1, 2000. Even though, the
<PAGE> 31
Corporation intends to renovate the remaining non-mission critical applications
by June 30, 1999.
Validation: The Validation phase consists of significant testing. The
Corporation's 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 the 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 been
placing systems, once renovated and validated, 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. Business areas have
reviewed departmental Year 2000 risks and are incorporating changes to their
contingency plans. Different potential Year 2000 scenarios have been identified
and plans to each one are being developed. Contingency planning is expected to
be completed by June 30, 1999.
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 total remaining cost of the Year 2000 readiness project is
estimated at $2.5 million and is being funded through operating cash flows,
which will be expensed as incurred over the remainder of 1999, and is not
expected to have a material adverse effect on the Corporation's results of
operations. As of March 31, 1999, the Corporation has incurred and expensed
approximately $3.6 million related to the Year 2000 readiness project.
<PAGE> 32
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
EXHIBIT
NUMBER
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 4.1 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)
<PAGE> 33
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)
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 10.39 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
<PAGE> 34
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)
10.14 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 to
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
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)
10.24.1 First Amendment to Restricted Stock Award Agreement of Sid A.Bostic
dated April 20, 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
10.26 Form of Director and Officer Indemnification Agreement and
<PAGE> 35
Undertaking (incorporated by reference from Exhibit 10(s) to the Form
8-K/A filed by the registrant on April 27, 1995)
10.27 Distribution Agreement, by and among FirstMerit Corporation,
FirstMerit Bank, N.A. and the Agents (incorporated by reference from
Exhibit (10)(ii) to the Form 8-K/A filed by the registrant on April
27, 1995)
10.28 Form of FirstMerit Bank, N.A. Global Bank Note (Fixed Rate)
(incorporated by reference from Exhibit (10)(iii) to the Form 8-K/A
filed by the registrant on April 27, 1995)
10.29 Form of FirstMerit Bank, N.A. Global Bank Note (Floating Rate)
(incorporated by reference from Exhibit (10)(iv) to the Form 8-K/A
filed by the registrant on April 27, 1995)
10.30 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)
10.31 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)
10.32 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)
10.33 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)
10.34 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)
10.35 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)
10.36 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)
10.37 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)
10.38 Independent Contractor Agreement with Gary G. Clark dated February 12,
1999
25.1 Form T-1 Statement of Eligibility of Firstar Trust Company to act as
Property Trustee under the Amended and Restated Declaration of Trust
of FirstMerit Capital Trust I, fka Signal Capital Trust I
(incorporated by reference from Exhibit 26.1 to the Form S-4 No.
333-52581-01, filed by FirstMerit Capital Trust I, fka Signal Capital
Trust I, on May 13, 1998)
25.2 Form T-1 Statement of Eligibility of Firstar Trust Company to act as
Debenture Trustee under the FirstMerit Capital Trust I, fka Signal
Capital Trust I, Indenture (incorporated by reference from Exhibit
26.1 to the Form S-4 No.
<PAGE> 36
333-52581-01, filed by FirstMerit Capital Trust I, fka Signal Capital
Trust I, on May 13, 1998)
21 Subsidiaries of FirstMerit Corporation
27 Financial Data Schedule
(b) Form 8-K
1 Form 8-K filed March 5, 1999, regarding the completion of
the merger between FirstMerit Corporation and Signal Corp.
<PAGE> 37
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/AUSTIN J. MULHERN
----------------------------------------
Austin J. Mulhern, Senior Vice President
and Chief Financial Officer
DATE: May 14, 1999
<PAGE> 1
EXHIBIT 10.23.1
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "First Amendment"),
effective as of the 18th day of March, 1999, among FirstMerit Corporation, an
Ohio Corporation ("FirstMerit"), FirstMerit Bank, N.A., a national banking
association ("FirstMerit Bank"), and Sid A. Bostic (the "Executive").
R E C I T A L S:
A. FirstMerit, FirstMerit Bank and the Executive entered into an
Employment Agreement, dated as of February 1, 1998, (the "Employment Agreement")
concerning the Executive's employment with FirstMerit and FirstMerit Bank.
Capitalized terms used herein shall have the meanings ascribed to them in the
Employment Agreement unless otherwise specifically indicated in this First
Amendment.
B. FirstMerit, FirstMerit Bank and the Executive desire to amend the
Employment Agreement to change the limitation on the compensation and benefits
that may become payable to the Executive under the Employment Agreement as the
result of the occurrence of a Change of Control and the application of Section
280G of the Internal Revenue Code of 1986 (the "Code").
IN CONSIDERATION OF THE FOREGOING and good and valuable consideration,
the receipt of which is hereby acknowledged by all of FirstMerit, FirstMerit
Bank and the Employee, FirstMerit, FirstMerit Bank and the Executive mutually
agree that the Employment Agreement is hereby amended, effective as of March 18,
1999, as follows:
1. The third sentence of Section 5.2 is amended and replaced by the
following:
"The Change of Control Termination Agreement will also provide that if
any compensation or benefits payable under such Agreement, alone or in
conjunction with other compensation or benefits received by Executive,
constitute "parachute payments," within the meaning of Section 280G of
the Internal Revenue Code (the "Code") or the regulations adopted or
proposed thereunder, then the compensation and benefits payable under
the Agreement will be reduced if, and only to the extent that, a
reduction will allow the Executive to receive a greater benefit, net
after taxes, than the Executive would receive absent a reduction."
2. The second sentence of Section 7.5(A) is amended and replaced by the
following:
"Notwithstanding the preceding sentence, if a termination of employment
under this Section 7.5(A) occurs following a Change of Control and if
the compensation and benefits provided under this Section 7.5(A),
either alone or with other compensation and benefits received by the
Executive from FirstMerit, constitute Parachute Payments, then the
compensation and benefits payable pursuant to this Section
<PAGE> 2
7.5(A), and under any other employment agreement to which the Executive
is party or employee benefit plan or program in which the Executive is
participating, shall be reduced if, and only to the extent that, a
reduction will allow the Executive to receive a greater Net After Tax
Amount than the Executive would receive absent a reduction. The
following steps shall be followed in implementing the provisions of
this paragraph 7.5(A):
(i) The Accountant shall first determine the total amount
of the Parachute Payments and the Net After Tax Amount of such
Parachute Payments.
(ii) Next, the Accountant shall determine the amount of
the Executive's Reduced Parachute Payments and the Net After
Tax Amount of such Reduced Parachute Payments.
(iii) If the Accountant determines that the Net After Tax
Amount of the Reduced Parachute Payments is greater than the
Net After Tax Amount of the total Parachute Payments, the
Executive shall receive the Reduced Parachute Payments. If the
Accountant determines that the Net After Tax Amount of the
total Parachute Payments is greater than or equal to the Net
After Tax Amount of the Reduced Parachute Payments, the
Executive shall receive the total Parachute Payments. If the
Accountant determines that the Executive's Parachute Payments
should be reduced to an amount equal to the Reduced Parachute
Payments, FirstMerit shall give prompt notice to that effect to
the Executive with a copy of the Accountant's calculations. The
Executive may then elect, in his sole discretion, within ten
(10) days after his receipt of such notice, which and how much
of the Parachute Payments, including without limitation the
compensation and benefits payable pursuant to this Section
7.5(A), shall be eliminated or reduced to arrive at the amount
of the Reduced Parachute Payments. If the Executive does not
make an election within such ten-day period, FirstMerit shall,
in its sole discretion, make the election to reduce the
Parachute Payments to arrive at the amount of the Reduced
Parachute Payments and shall notify the Executive promptly
thereof. All determinations made by the Accountant pursuant to
this Section 7.5(A) shall be binding upon FirstMerit and the
Executive and shall be made within sixty (60)days after the
occurrence of an event which triggers the payment of benefits
under this Section 7.5(A).
(iv) The following definitions shall apply for purposes of
this Section 7.5(A):
2
<PAGE> 3
(a) "Accountant" means the accounting firm
approved by FirstMerit's shareholders as FirstMerit's
independent auditor immediately prior to the
occurrence of an event which triggers the payment of
compensation or benefits under this Section 7.5(A).
(b) "Parachute Payment" means a payment that is
described in Code Section 280G(b)(2) (without regard
to whether the aggregate present value of such payment
exceeds the limit prescribed in Code Section
280G(b)(2)(A)(ii)). The amount of any Parachute
Payment shall be determined in accordance with Code
Section 280G and the regulations promulgated
thereunder, or, in the absence of final regulations,
the proposed regulations promulgated under Code
Section 280G.
(c) "Net After Tax Amount" means the amount of any
Parachute Payments or Reduced Parachute Payments, as
applicable, net of the taxes imposed under Code
Sections 1, 3101(b) and 4999 and any state or local
income taxes applicable to the Executive as in effect
on the date of the payment under this Section 7.5(A).
The determination of the Net After Tax Amount shall be
made using the highest combined effective rates of the
taxes described in the preceding sentence imposed on
income of the same character as the Parachute Payments
or Reduced Parachute Payments, as applicable, in
effect for the year for which the determination is
made.
(d) "Reduced Parachute Payments" means the largest
amount of Parachute Payments that may be paid to the
Executive without liability for any excise tax under
Code Section 4999.
3. Except as expressly modified by the provisions of this First
Amendment, the other provisions of the Employment Agreement shall remain in full
force and effect.
3
<PAGE> 4
IN WITNESS WHEREOF, FirstMerit, FirstMerit Bank and the Executive have
duly executed this First Amendment this 20th day of April, 1999.
FIRSTMERIT CORPORATION
By: /s/ John R. Cochran
---------------------------
Its: Chairman
---------------------------
FIRSTMERIT BANK, N.A.
By: /s/ Christopher J. Maurer
---------------------------
Its: Senior Vice President
---------------------------
/s/ Sid A. Bostic
------------------------------
Sid A. Bostic
4
<PAGE> 1
EXHIBIT 10.24.1
FIRST AMENDMENT TO
RESTRICTED STOCK AWARD AGREEMENT
--------------------------------
FIRST AMENDMENT TO RESTRICTED STOCK AWARD AGREEMENT (the "First
Amendment"), effective as of the 18th day of March, 1999, between FirstMerit
Corporation, an Ohio Corporation (the "Company"), and Sid A. Bostic (the
"Grantee").
R E C I T A L S:
A. The Company and the Grantee entered into a Restricted Stock Award
Agreement, dated as of February 1, 1998, (the "Award Agreement") concerning the
issuance to Grantee of a restricted stock award of the Company's common stock,
no par value ("Common Stock") pursuant to the provisions of the FirstMerit
Corporation 1997 Stock Plan (the "Plan"). Capitalized terms used herein shall
have the meanings ascribed to them in the Award Agreement and the Plan unless
otherwise specifically indicated in this First Amendment.
B. Paragraph O of Article IV of the Plan provides that the Company may
amend the terms of any Award previously granted under the Plan, regardless of
whether such amendment is prospective or retrospective.
C. The Company desires to amend the Award Agreement to change the
limitation on the number of Award Shares that may become unrestricted as the
result of the occurrence of a Change of Control and the application of Section
280G of the Internal Revenue Code of 1986 (the "Code").
IN CONSIDERATION OF THE FOREGOING and good and valuable consideration,
the receipt of which is hereby acknowledged by both the Company and the Grantee,
the Company and Grantee mutually agree that the Award Agreement is hereby
amended, effective as of March 18, 1999, as follows:
1. The following Section 11 is added to the Award
Agreement:
11. LIMITATION ON BENEFITS. Notwithstanding any
provision of this Agreement or the Plan to the contrary, if the
compensation and benefits provided to the Grantee pursuant to this
Agreement, either alone or with other compensation and benefits
received by the Grantee from the Company, constitute Parachute
Payments, then the compensation and benefits payable to the Grantee
pursuant to this Agreement, and under any other employment agreement to
which the Grantee is party or employee benefit plan or program in which
the Grantee is participating, shall be reduced if, and only to the
extent that, a reduction will allow the Grantee to receive a greater
Net After Tax Amount than the Grantee would receive absent a
reduction. The following steps shall be followed in implementing the
provisions of this Section 11:
1
<PAGE> 2
(a) The Accountant shall first determine the total amount of
the Parachute Payments and the Net After Tax Amount of such Parachute
Payments.
(b) Next, the Accountant shall determine the amount of the
Grantee's Reduced Parachute Payments and the Net After Tax Amount of
such Reduced Parachute Payments.
(c) If the Accountant determines that the Net After Tax Amount
of the Reduced Parachute Payments is greater than the Net After Tax
Amount of the total Parachute Payments, the Grantee shall receive the
Reduced Parachute Payments. If the Accountant determines that the Net
After Tax Amount of the total Parachute Payments is greater than or
equal to the Net After Tax Amount of the Reduced Parachute Payments,
the Grantee shall receive the total Parachute Payments. If the
Accountant determines that the Grantee's Parachute Payments should be
reduced to an amount equal to the Reduced Parachute Payments, the
Company shall give prompt notice to that effect to the Grantee with a
copy of the Accountant's calculations. The Grantee may then elect, in
his sole discretion, within ten (10) days after his receipt of such
notice, which and how much of the Parachute Payments, including without
limitation Award Shares granted to the Grantee pursuant to this
Agreement, shall be eliminated or reduced to arrive at the amount of
the Reduced Parachute Payments. If the Grantee does not make an
election within such ten-day period, the Company shall, in its sole
discretion, make the election to reduce the Parachute Payments,
including the Award Shares granted to the Grantee pursuant to this
Agreement, to arrive at the amount of the Reduced Parachute Payments
and shall notify the Grantee promptly thereof. All determinations made
by the Accountant pursuant to this Section 11 shall be binding upon the
Company and the Grantee and shall be made within sixty (60)days after
the occurrence of a Change of Control.
(d) The following definitions shall apply for purposes of this
Section 11:
(1) "Accountant" means the accounting firm approved
by the Company's shareholders as the Company's independent
auditor
2
<PAGE> 3
immediately prior to the occurrence of a Change of Control.
(2) "Parachute Payment" means a payment that is
described in Code Section 280G(b)(2) (without regard to
whether the aggregate present value of such payment exceeds
the limit prescribed in Code Section 280G(b)(2)(A)(ii)). The
amount of any Parachute Payment shall be determined in
accordance with Code Section 280G and the regulations
promulgated thereunder, or, in the absence of final
regulations, the proposed regulations promulgated under Code
Section 280G.
(3) "Net After Tax Amount" means the amount of any
Parachute Payments or Reduced Parachute Payments, as
applicable, net of the taxes imposed under Code Sections 1,
3101(b) and 4999 and any state or local income taxes
applicable to the Grantee as in effect on the date of the
occurrence of a Change of Control. The determination of the
Net After Tax Amount shall be made using the highest combined
effective rates of the taxes described in the preceding
sentence imposed on income of the same character as the
Parachute Payments or Reduced Parachute Payments, as
applicable, in effect for the year for which the determination
is made.
(4) "Reduced Parachute Payments" means the largest
amount of Parachute Payments that may be paid to the Grantee
without liability for any excise tax under Code Section 4999.
2. Except as expressly modified by the provisions of this First
Amendment, the other provisions of the Award Agreement shall remain in full
force and effect.
3
<PAGE> 4
[Signature page follows]
4
<PAGE> 5
IN WITNESS WHEREOF, the Company and the Grantee have duly executed this
First Amendment this 20th day of April, 1999.
FIRSTMERIT CORPORATION
By: /s/ John R. Cochran
--------------------------------
Its: Chairman
-------------------------------
/s/ Sid A. Bostic
-----------------------------------
Sid A. Bostic
5
<PAGE> 1
EXHIBIT 10.25.1
FIRST AMENDMENT TO
CHANGE OF CONTROL TERMINATION AGREEMENT
---------------------------------------
FIRST AMENDMENT TO CHANGE OF CONTROL TERMINATION AGREEMENT (the "First
Amendment"), effective as of the 18th day of March, 1999, between FirstMerit
Corporation, an Ohio Corporation (the "Company"), and Sid A. Bostic (the
"Employee").
R E C I T A L S:
A. The Company and the Employee entered into a Change of Control
Termination Agreement, dated as of February 1, 1998, (the "Termination
Agreement") concerning the payment of certain benefits to the Employee upon the
occurrence of a Change of Control with respect to the Company. Capitalized terms
used herein shall have the meanings ascribed to them in the Termination
Agreement unless otherwise specifically indicated in this First Amendment.
B. Paragraph 12 of the Termination Agreement provides that the Company
and the Employee may modify the provisions of the Termination Agreement provided
such modifications are contained in a writing signed by the Employee and a duly
authorized representative of the Company.
C. The Company and the Employee desire to amend the Termination
Agreement to the change the limitation on benefits that may become payable to
the Employee under the Termination Agreement as the result of the occurrence of
a Change of Control and the application of Section 280G of the Internal Revenue
Code of 1986 (the "Code").
IN CONSIDERATION OF THE FOREGOING and good and valuable consideration,
the receipt of which is hereby acknowledged by both the Company and the
Employee, the Company and Employee mutually agree that the Termination Agreement
is hereby amended, effective as of March 18, 1999, as follows:
1. Paragraph 7 of the Termination Agreement is hereby amended in its
entirety to read as follows:
7. LIMITATION ON BENEFITS. Notwithstanding any
provision of this Agreement to the contrary, if the compensation and
benefits provided to the Employee pursuant to this Agreement, either
alone or with other compensation and benefits received by the Employee
from the Company, constitute Parachute Payments, then the compensation
and benefits payable pursuant to this Agreement, and under any other
employment agreement to which the Employee is party or employee benefit
plan or program in which the Employee is participating, shall be
reduced if, and only to the extent that, a reduction will allow the
Employee to receive a greater Net After Tax Amount than the Employee
would receive absent a reduction. The following steps shall be followed
in implementing the provisions of this paragraph 7:
<PAGE> 2
(a) The Accountant shall first determine the total amount of
the Parachute Payments and the Net After Tax Amount of such Parachute
Payments.
(b) Next, the Accountant shall determine the amount of the
Employee's Reduced Parachute Payments and the Net After Tax Amount of
such Reduced Parachute Payments.
(c) If the Accountant determines that the Net After Tax Amount
of the Reduced Parachute Payments is greater than the Net After Tax
Amount of the total Parachute Payments, the Employee shall receive the
Reduced Parachute Payments. If the Accountant determines that the Net
After Tax Amount of the total Parachute Payments is greater than or
equal to the Net After Tax Amount of the Reduced Parachute Payments,
the Employee shall receive the total Parachute Payments. If the
Accountant determines that the Employee's Parachute Payments should be
reduced to an amount equal to the Reduced Parachute Payments, the
Company shall give prompt notice to that effect to the Employee with a
copy of the Accountant's calculations. The Employee may then elect, in
his sole discretion, within ten (10) days after his receipt of such
notice, which and how much of the Parachute Payments, including without
limitation the compensation and benefits payable pursuant to this
Agreement, shall be eliminated or reduced to arrive at the amount of
the Reduced Parachute Payments. If the Employee does not make an
election within such ten-day period, the Company shall, in its sole
discretion, make the election to reduce the Parachute Payments to
arrive at the amount of the Reduced Parachute Payments and shall notify
the Employee promptly thereof. All determinations made by the
Accountant pursuant to this paragraph 7 shall be binding upon the
Company and the Employee and shall be made within sixty (60)days after
the occurrence of an event which triggers the payment of benefits under
paragraph 6 of this Agreement.
(d) The following definitions shall apply for purposes of this
paragraph 7:
(1) "Accountant" means the accounting firm approved
by the Company's shareholders as the Company's independent
auditor immediately prior to the occurrence of an event which
triggers the payment of compensation or benefits under
paragraph 6 of this Agreement.
2
<PAGE> 3
(2) "Parachute Payment" means a payment that is
described in Code Section 280G(b)(2) (without regard to
whether the aggregate present value of such payment exceeds
the limit prescribed in Code Section 280G(b)(2)(A)(ii)). The
amount of any Parachute Payment shall be determined in
accordance with Code Section 280G and the regulations
promulgated thereunder, or, in the absence of final
regulations, the proposed regulations promulgated under Code
Section 280G.
(3) "Net After Tax Amount" means the amount of any
Parachute Payments or Reduced Parachute Payments, as
applicable, net of the taxes imposed under Code Sections 1,
3101(b) and 4999 and any state or local income taxes
applicable to the Employee as in effect on the date of the
payment under paragraph 6 of this Agreement. The determination
of the Net After Tax Amount shall be made using the highest
combined effective rates of the taxes described in the
preceding sentence imposed on income of the same character as
the Parachute Payments or Reduced Parachute Payments, as
applicable, in effect for the year for which the determination
is made.
(4) "Reduced Parachute Payments" means the largest
amount of Parachute Payments that may be paid to the Employee
without liability for any excise tax under Code Section 4999.
(e) As a result of uncertainty in the application of Code
Sections 280G and 4999 at the time that the Accountant makes its
determination under this paragraph 7, it is possible that amounts will
have been paid or distributed to the Employee under this paragraph 7
that should not have been paid or distributed ("Overpayments") or that
additional amounts should be paid or distributed to Employee under this
paragraph 7 ("Underpayments"). If the Accountant determines, based on
controlling precedent, substantial authority or the assertion of a
deficiency by the Internal Revenue Service against the Employee or the
Company, which assertion the Accountant believes has a high probability
of success, that Overpayments have been made, the Employee shall have
an obligation to pay to the Company, upon demand, an amount equal to
the sum of the
3
<PAGE> 4
Overpayments plus interest on such Overpayments, at the prime rate of
FirstMerit Bank, N.A. (or its successor) as such prime rate shall
change from time to time (or, if higher, the rate provided in Code
Section 7872(f)(2)), from the date of the Employee's receipt of such
Overpayments until the date of repayment; provided, however, that
Employee shall be obligated to repay such Overpayments if, and only to
extent that, the repayment would either reduce the amount on which
Employee is subject to tax under Code Section 4999 or generate a refund
of tax imposed under Section 4999. If the Accountant determines, based
upon controlling precedent or substantial authority, that Underpayments
have occurred, the Company will pay to the Employee the amount of such
Underpayments, with interest calculated on such Underpayments, at the
prime rate of FirstMerit Bank, N.A. (or its successor) as such prime
rate shall change from time to time (or, if higher, the rate provided
in Code Section 7872(f)(2)), from the date such Underpayments should
have been paid until actual payment.
2. Except as expressly modified by the provisions of this First
Amendment, the other provisions of the Termination Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the Company and the Employee have duly executed
this First Amendment this 20th day of April, 1999.
FIRSTMERIT CORPORATION
By: /s/ John R. Cochran
-------------------------------------
Its: Chairman
------------------------------------
/s/ Sid A. Bostic
----------------------------------------
Sid A. Bostic
4
<PAGE> 1
EXHIBIT 10.38
INDEPENDENT CONTRACTOR AGREEMENT
This Agreement has been entered into this 12th day of February, 1999,
by and between FirstMerit Corporation ("FirstMerit") and Gary Clark
("Contractor").
WITNESSETH:
WHEREAS, FirstMerit seeks to engage Contractor to provide services as
necessary as an Independent Contractor. Contractor agrees to provide services as
necessary for FirstMerit as an Independent Contractor; and,
WHEREAS, the purpose of this Agreement is to establish the terms and
conditions under which Contractor will provide the above services for
FirstMerit.
NOW THEREFORE, in consideration of the premises and promises contained
in this Agreement and intending to be legally bound, the parties agree as
follows:
SECTION 1. TERM OF THIS AGREEMENT. This Agreement's Term shall begin on
February 13, 1999, and shall remain in full force until August 13, 1999, unless
terminated earlier by FirstMerit as a result of Contractor's death, Contractor's
incapacitation, Contractor's failure to perform services satisfactorily, or by
Contractor upon 30 day written notice. Written notice of termination must be
hand delivered to the other party.
SECTION 2. INDEPENDENT CONTRACTOR. Contractor expressly acknowledges
that he is acting as an independent contractor and not as an employee of
FirstMerit for all purposes, including Social Security, withholding and other
taxes provided for under the Internal Revenue Code. Further, Contractor is not
authorized to bind FirstMerit or make any representations on FirstMerit's
behalf, except such representations concerning the below-described consulting
services and as may be expressly authorized from time to time by FirstMerit in
writing. Contractor shall not obligate FirstMerit in any manner to a third party
or entity and shall hold FirstMerit completely harmless from damages and
liabilities arising out of any conduct and communication of this paragraph or
any misrepresentation of her services made to said third party.
SECTION 3. SERVICES. Contractor agrees to provide the following
services:
Contractor will help oversee the transition from Signal Corporation to
FirstMerit and such other tasks as FirstMerit shall assign him from time to
time.
From time to time, if and when requested to do so by FirstMerit,
Contractor shall provide FirstMerit with whatever written documentation it
requires and be available to representatives of FirstMerit for consultation with
respect to the services which Contractor provides.
Contractor's services shall be performed at times and places as shall
be mutually convenient for FirstMerit and Contractor.
<PAGE> 2
SECTION 4. COMPENSATION. Contractor shall be compensated for his
consulting services at a rate of Nine Thousand Three Hundred Seventy-five
Dollars ($9,375) semi-monthly. Scheduling of services will be determined by the
mutual agreement of FirstMerit and Contractor. Contractor will be reimbursed for
travel expenses in accordance with FirstMerit's policy.
Contractor agrees that the above-referenced sum constitutes a total
compensation for which he is entitled from FirstMerit. Contractor further agrees
that he will not be entitled to any other compensation or participation in any
other benefit or welfare plan sponsored by FirstMerit of whatever type or
description.
SECTION 5. CONFIDENTIALITY. Contractor shall not, during the Term of
this Agreement or anytime thereafter, disclose any administrative or financial
records or other confidential, proprietary information. Contractor agrees that
all records, whether administrative or financial, are and shall remain the
exclusive property of FirstMerit. At the end of the Term of this Agreement,
Contractor shall return to FirstMerit, without making any copies, all such
written confidential information. Contractor agrees that this provision survives
the Term of this Agreement.
SECTION 6. ASSIGNMENT. This is a contract for personal services by
Contractor and may not be assigned without FirstMerit's prior written consent.
SECTION 7. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement among the parties relating to this engagement and supersedes all prior
agreements or understandings between Contractor and FirstMerit. No promises or
oral or written statements upon which Contractor has been told to rely have been
made to him other than those specifically set forth in this Independent
Contractor Agreement.
SECTION 8. SEPARABILITY. If any provision, paragraph or subparagraph of
this Agreement is adjudicated by any court of law to be void or unenforceable,
in whole or in part, the adjudication shall not be deemed to affect the validity
of the remainder of the Agreement, including any other provision, paragraph, or
subparagraph. Each provision, paragraph, or subparagraph of this Agreement is
declared to be separable from every other provision, paragraph and subparagraph
and constitutes a separate and distinct covenant.
2
<PAGE> 3
SECTION 9. GOVERNING LAW. This Agreement shall be governed and
interpreted in accordance with the laws of the state of Ohio.
FIRSTMERIT CORPORATION
Date:2/12/99 By: /s/ Christopher J. Maurer
----------------------------------
Its: Senior Vice President
----------------------------------
Date:2/12/99 /s/ Gary G. Clark
--------------------------------------
Gary G. Clark
3
<PAGE> 1
EXHIBIT 21
DIRECT AND INDIRECT SUBSIDIARIES OF FIRSTMERIT CORPORATION
Citizens Investment Corporation
Citizens Savings Corporation of Stark County
FirstMerit Bank, N.A.
- Abell & Associates, Inc.
- Alpha Equipment Group, Inc.
- FirstMerit Insurance Agency, Inc.
- FirstMerit Commercial Insurance Agency, Inc.
- FirstMerit Leasing Company
- FirstMerit Mortgage Corporation
- FirstMerit Securities, Inc.
- Home Financial Services Corp.
- OPN, Inc.
- NB 5 Financial Services, Inc.
- Professional Appraisal Services Corp.
- Signal Finance Company
- Signal R. Corp. (Delaware)
- Signal Securitization Corp. (Delaware)
- Tri-State Service Corporation
FirstMerit Community Development Corporation
FirstMerit Credit Life Insurance Company
Mobile Consultants, Inc.
SF Development Corp.
- Richwood Development (50%)
- Rushmore Subdivision Ltd. (50%)
- Courts of Weymouth Development, Ltd. (33%)
Signal Capital Trust I (Delaware)
All entities formed under the laws of the State of Ohio unless
otherwise indicated.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000354869
<NAME> FIRSTMERIT CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 277,514
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 964
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,788,540
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 1,788,540
<LOANS> 6,646,038
<ALLOWANCE> 102,359
<TOTAL-ASSETS> 9,175,178
<DEPOSITS> 6,718,556
<SHORT-TERM> 1,372,625
<LIABILITIES-OTHER> 174,770
<LONG-TERM> 0
22,997
9,299
<COMMON> 123,600
<OTHER-SE> 753,331
<TOTAL-LIABILITIES-AND-EQUITY> 9,175,178
<INTEREST-LOAN> 135,995
<INTEREST-INVEST> 29,233
<INTEREST-OTHER> 66
<INTEREST-TOTAL> 165,294
<INTEREST-DEPOSIT> 51,597
<INTEREST-EXPENSE> 70,847
<INTEREST-INCOME-NET> 94,447
<LOAN-LOSSES> 16,398
<SECURITIES-GAINS> 5,541
<EXPENSE-OTHER> 105,416
<INCOME-PRETAX> 10,682
<INCOME-PRE-EXTRAORDINARY> 5,343
<EXTRAORDINARY> (5,847)
<CHANGES> 0
<NET-INCOME> (504)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<YIELD-ACTUAL> 4.65
<LOANS-NON> 17,186
<LOANS-PAST> 17,296
<LOANS-TROUBLED> 83
<LOANS-PROBLEM> 65,121
<ALLOWANCE-OPEN> 97,461
<CHARGE-OFFS> 15,090
<RECOVERIES> 3,590
<ALLOWANCE-CLOSE> 102,359
<ALLOWANCE-DOMESTIC> 102,359
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
