FirstMerit (FMER) 10-Q 2000 Q1 Quarterly report

TABLE OF CONTENTS

PART I — FINANCIAL STATEMENTS
	ITEM 1. FINANCIAL STATEMENTS
	RESULTS OF OPERATIONS
	FINANCIAL CONDITIONS
PART II. — OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
	SIGNATURES

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, 2000

COMMISSION FILE NUMBER 0-10161

FIRSTMERIT CORPORATION
(Exact name of registrant as specified in its charter)

OHIO
(State or other jurisdiction of
incorporation or organization) 34-1339938
(IRS Employer Identification
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, 2000
88,400,555

      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

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, 2000, December 31, 1999 and March 31, 1999

Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2000 and 1999

Consolidated Statements of Changes in Shareholders’ Equity for the year ended December 31, 1999 and for the three months ended March 31, 2000

Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999

Notes to Consolidated Financial Statements as of March 31, 2000, December 31, 1999, and March 31, 1999

Management’s Discussion and Analysis of Financial Conditions as of March 31, 2000, December 31, 1999 and March 31, 1999 and Results of Operations for the quarters ended March 31, 2000 and 1999 and for the year ended December 31, 1999

FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(in thousands)
(Unaudited, except December 31, 1999)			March 31			December 31			March 31
			2000			1999			1999
ASSETS
Investment securities			$	2,301,363			2,394,034			1,788,540
Federal funds sold & other investments				18,100			25,100			964
Loans held for sale				52,025			46,005			—
Commercial loans				3,244,664			3,122,520			2,757,242
Mortgage loans				890,812			878,323			1,649,123
Installment loans				1,485,105			1,471,149			1,227,716
Home equity loans				413,485			408,343			376,072
Credit card loans				106,633			108,163			99,107
Manufactured housing loans				808,613			753,254			362,875
Leases				293,634			272,429			173,903
Total loans				7,242,946			7,014,181			6,646,038
Less allowance for possible loan losses				108,291			104,897			102,359
		Net loans		7,134,655			6,909,284			6,543,679
Cash and due from banks				285,462			215,071			277,514
Premises and equipment, net				134,804			132,219			138,670
Intangible assets				159,258			162,374			166,529
Accrued interest receivable and other assets				289,421			231,390			259,282
			$	10,375,088			10,115,477			9,175,178
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
	Demand-non-interest bearing		$	1,047,209			1,016,535			1,009,876
	Demand-interest bearing			665,349			661,961			687,056
	Savings and Money Market			1,801,746			1,687,983			1,866,706
	Certificates and other time deposits			3,688,042			3,493,668			3,154,915
		Total deposits		7,202,346			6,860,147			6,718,556
Securities sold under agreements to repurchase and other borrowings				2,175,946			2,281,243			1,372,625
		Total funds		9,378,292			9,141,390			8,091,181
Accrued taxes, expenses, and other liabilities				130,925			119,062			174,770
		Total liabilities		9,509,217			9,260,452			8,265,951
Mandatorily redeemable preferred securities				21,450			21,450			22,997
Shareholders’ equity:
	Preferred Stock, without par value: authorized 7,000,000 shares
	Preferred Stock, Series A, without par value: designated 800,000 shares; none outstanding
	Cumulative convertible preferred stock, Series B, without par value: designated 220,000 shares; 158,708, 163,534 and 214,474 shares outstanding at March 31, 1000, December 31, 1999 and March 31, 1999, respectively			3,818			3,878			4,960
	Common stock			127,937			127,937			127,939
	Capital surplus			116,471			116,930			119,459
	Accumulated other comprehensive income			(56,154	)		(45,082	)		(3,720	)
	Retained earnings			741,623			719,811			651,368
	Treasury stock			(89,274	)		(89,899	)		(14,226	)
		Total shareholders’ equity		844,421			833,575			886,230
			$	10,375,088			10,115,477			9,175,178

See notes to accompanying consolidated financial statements.

FIRSTMERIT CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS

			Unaudited
			1st Qtr		4th Qtr		3rd Qtr		2nd Qtr		1st Qtr
(Dollars in thousands)			2000		1999		1999		1999		1999
ASSETS
Investment securities & federal funds sold			$	2,356,628		2,165,952		1,864,012		1,719,273		1,824,400
Loans held for sale				58,033		25,091		—		—		—
Commercial loans				3,198,639		3,028,292		2,929,115		2,821,088		2,648,284
Mortgage loans				898,918		1,176,400		1,401,899		1,675,442		1,707,232
Installment loans				1,474,474		1,462,200		1,418,423		1,330,759		1,168,905
Home Equity loans				411,928		403,086		391,277		380,361		348,220
Credit card loans				105,573		102,926		100,756		100,290		102,080
Manufactured housing loans				768,027		711,697		593,752		415,032		368,503
Leases				287,020		240,809		202,950		180,729		170,352
Loans less unearned income				7,144,579		7,125,410		7,038,172		6,903,701		6,513,576
Less allowance for possible loan losses				107,351		108,833		108,067		104,875		101,788
		Net loans		7,037,228		7,016,577		6,930,105		6,798,826		6,411,788
Cash and due from banks				242,223		252,291		238,835		272,025		285,589
Premises and equipment, net				133,584		134,932		136,448		139,026		140,149
Accrued interest receivable and other assets				434,254		399,693		428,498		400,547		402,371
Total Assets			$	10,261,950		9,994,536		9,597,898		9,329,697		9,064,297
LIABILITIES
Deposits:
	Demand-non-interest bearing		$	1,020,384		1,034,130		1,036,066		1,080,078		1,066,573
	Demand-interest bearing			643,842		656,777		659,437		694,590		659,189
	Savings and money market			1,747,456		1,711,288		1,741,610		1,836,459		1,878,596
	Certificates and other time deposits			3,566,289		3,504,583		3,407,053		3,109,435		3,111,321
		Total deposits		6,977,971		6,906,778		6,844,166		6,720,562		6,715,679
Securities sold under agreements to repurchase and other borrowings				2,287,852		2,099,156		1,718,674		1,538,493		1,239,299
		Total funds		9,265,823		9,005,934		8,562,840		8,259,055		7,954,978
Accrued taxes, expenses and other liabilities				142,220		116,435		150,905		154,059		172,874
		Total liabilities		9,408,043		9,122,369		8,713,745		8,413,114		8,127,852
Mandatorily redeemable preferred securities				21,450		21,450		21,450		21,450		22,997
SHAREHOLDERS’ EQUITY				832,457		850,717		862,703		895,133		913,448
LIABILITIES AND SHAREHOLDERS’
EQUITY			$	10,261,950		9,994,536		9,597,898		9,329,697		9,064,297

See notes to accompanying consolidated financial statements.

Consolidated Statements of Income and Comprehensive Income
FIRSTMERIT CORPORATION AND SUBSIDIARIES

			(Unaudited)
(In thousands except per share data)			1Q 2000			1Q 1999
Interest and fees on loans			$	152,106			135,995
Interest and dividends on securities				37,940			29,299
		Total interest income		190,046			165,294
Interest on deposits:
	Demand-interest bearing			852			1,098
	Savings and money market			11,335			10,355
	Certificates and other time deposits			48,068			40,144
Interest on securities sold under agreements to repurchase and other borrowings				33,340			19,250
		Total interest expense		93,595			70,847
	Net interest income			96,451			94,447
Provision for possible loan losses				11,714			16,398
	Net interest income after provision for possible loan losses			84,737			78,049
Other income:
	Trust department			5,060			4,186
	Service charges on deposits			11,012			9,095
	Credit card fees			7,234			5,619
	Service fees — other			3,501			3,229
	Manufactured housing income			651			1,431
	Investment securities gains (losses), net			(714	)		5,541
	Loan sales and servicing			2,780			2,008
	Other operating income			9,364			6,940
		Total other income		38,888			38,049
Other expenses:
	Salaries, wages, pension and benefits			32,379			42,271
	Net occupancy expense			5,748			6,102
	Equipment expense			4,426			4,513
	Amortization of intangibles			2,688			2,714
	Other operating expenses			20,848			49,816
		Total other expenses		66,089			105,416
	Income before taxes and extraordinary item			57,536			10,682
Federal income taxes				17,837			5,339
	Income before extraordinary item			39,699			5,343
Extraordinary item — (net of taxes of $3,148)				—			(5,847	)
	Net income (loss)		$	39,699			(504	)
Other comprehensive income (loss), net of tax				(11,072	)		(9,128	)
	Comprehensive income (loss)		$	28,627			(9,632	)
Net income (loss) applicable to common shares			$	39,634			(591	)
Adjusted net income (loss) used in diluted EPS calculation			$	39,715			(570	)
Wtd-avg common shares outstanding — basic				88,388			91,007
Wtd-avg common shares outstanding — diluted				89,147			92,597
Per share data based on average number of shares outstanding:
Basic net income per share:
Income (loss) before extraordinary item			$	0.45			0.06
Extraordinary item				0.00			(0.06	)
Basic net income (loss) per share			$	0.45			0.00
Diluted net income per share:
Income (loss) before extraordinary item			$	0.45			0.06
Extraordinary item				0.00			(0.06	)
Diluted net income per share			$	0.45			0.00

See notes to accompanying consolidated financial statements.

Consolidated Statements of Changes in Shareholders’ Equity
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands except per share data)

(2000 amounts are Unaudited)											Accumulated
											Other									Total
		Preferred			Common			Capital			Comprehensive			Retained			Treasury			Shareholders'
		Stock			Stock			Surplus			Income			Earnings			Stock			Equity
Balance at Year Ended 1997		$	9,917			119,893			80,297			4,603			651,907			(118,940	)		747,677
	Net income		—			—			—			—			72,517			—			72,517
	Cash dividends — common stock ($0.66 per share) & preferred stock		—			—			—			—			(50,525	)		—			(50,525	)
	Acquisition adjustment of fiscal year		—			—			—			—			(1,857	)		—			(1,857	)
	Stock options exercised/debentures or preferred stock converted		(618	)		400			3,717			—			(2,607	)		12,111			13,003
	Treasury shares purchased		—			—			—			—			—			(25,703	)		(25,703	)
	Treasury shares reissued — acquisition		—			—			25,919			—			—			89,286			115,205
	Treasury shares reissued — public offering		—			—			6,518			—			—			20,806			27,324
	Stock dividends		—			1,929			(1,929	)		—			—			—			—
	Market adjustment investment securities		—			—			—			1,255			—			—			1,255
	Other		—			165			3,323			—			(598	)		4,870			7,760
Balance at December 31, 1998			9,299			122,387			117,845			5,858			668,837			(17,570	)		906,656
	Net income (loss)		—			—			—			—			119,871			—			119,871
	Cash dividends — common stock ($0.76 per share)		—			—			—			—			(68,627	)		—			(68,627	)
	Cash dividends — preferred stock		—			—			—						(305	)		—			(305	)
	Stock options exercised/debentures or preferred stock converted		(5,421	)		5,596			(915	)		—			—			12,549			11,809
	Treasury shares purchased		—			—			—			—			—			(85,666	)		(85,666	)
	Market adjustment investment securities		—			—			—			(50,940	)		—			—			(50,940	)
	Other		—			(46	)		—			—			35			788			777
Balance at December 31, 1999			3,878			127,937			116,930			(45,082	)		719,811			(89,899	)		833,575
	Net income (loss)		—			—			—			—			39,699			—			39,699
	Cash dividends — common stock ($0.20 per share)		—			—			—			—			(17,678	)		—			(17,678	)
	Cash dividends — preferred stock		—			—			—			—			(65	)		—			(65	)
	Stock options exercised/debentures or preferred stock converted		(60	)		—			(459	)		—			—			625			106
	Market adjustment investment securities		—			—			—			(11,072	)		—			—			(11,072	)
	Other		—			—			—			—			(144	)		—			(144	)
Balance at March 31, 2000		$	3,818			127,937			116,471			(56,154	)		741,623			(89,274	)		844,421

See notes to accompanying consolidated financial statements.

FIRSTMERIT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999

(In thousands)

		Unaudited
		2000			1999
Operating Activities
Net income		$	39,699			(504	)
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for loan losses		11,714			16,398
	Provision for depreciation and amortization		4,020			4,847
	Amortization of investment securities premiums, net		257			685
	Amortization of income for lease financing		(3,535	)		(11,360	)
	Gains on sales of investment securities, net		714			(5,541	)
	Deferred federal income taxes		2,977			(2,122	)
	Increase in interest receivable		(4,849	)		(13,603	)
	Increase in interest payable		12,234			12,038
	Amortization of values ascribed to acquired intangibles		2,688			2,713
	Other decreases		(51,464	)		(16,276	)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES			14,455			(12,725	)
Investing Activities
Dispositions of investment securities:
Available-for-sale — sales			111,020			302,898
Available-for-sale — maturities			83,381			110,706
Purchases of investment securities available-for-sale			(118,555	)		(334,493	)
Net decrease in federal funds sold			7,000			30,775
Net increase in loans and leases, except sales			(239,570	)		(246,421	)
Purchases of premises and equipment			(9,780	)		(6,172	)
Sales of premises and equipment			3,175			3,496
NET CASH USED BY INVESTING ACTIVITIES			(163,329	)		(139,211	)
Financing Activities
Net increase (decrease) in demand, NOW and savings deposits			147,825			(190,844	)
Net increase in time deposits			194,374			63,422
Net increase (decrease) in securities sold under repurchase agreements and other borrowings			(105,297	)		249,421
Repayment of mandatorily redeemable preferred securities			—			(9,475	)
Cash dividends			(17,743	)		(16,499	)
Proceeds from exercise of stock options			106			5,428
NET CASH PROVIDED BY FINANCING ACTIVITIES			219,265			101,453
Increase (decrease) in cash and cash equivalents			70,391			(50,483	)
Cash and cash equivalents at beginning of year			215,071			327,997
Cash and cash equivalents at end of year		$	285,462			277,514
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
	Interest, net of amounts capitalized	$	50,572			31,125
	Income taxes	$	23,910			10,565

See notes to accompanying consolidated financial statements.

FirstMerit Corporation and Subsidiaries

Notes to Consolidated Financial Statements
March 31, 2000, December 31, 1999 and March 31, 1999

1. Organization — FirstMerit Corporation (“Corporation”), is a bank holding company whose principal assets are the common stock of its wholly owned subsidiary, FirstMerit Bank, N. A. In addition FirstMerit Corporation owns all of the common stock of Citizens Investment Corporation, Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FirstMerit Credit Life Insurance Company, and SF Development Corp.

2. Acquisitions and Merger-related Costs — On October 23, 1998, the Corporation completed the acquisition of Security First Corp. (“Security First”), a $771.1million 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, related notes 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, 1999 and March 31, 2000 are shown in the following table. The remaining liability at March 31, 2000 is expected to be paid during 2000 and is not expected to have any adverse effect on liquidity.

      In conjunction with the Security First acquisition, 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.

(Dollars in thousands)			Estimated
			Liability		Remaining Liability		Remaining Liability
Description of Cost			at Acquisition		December 31, 1999		March 31, 2000
Salary, wages and benefits			$	1,689		11		6
Occupancy and equipment expense				552		40		34
Loan conversion expense				1,516		154		127
Professional services				4,450		—		—
Other operating expenses				1,576		1,148		1,058
	Total Other Expenses			9,783		1,353		1,225
Reduction of other operating income				89		—		—
Provision for loan losses conforming entry				7,300		—		—
		Totals	$	17,172		1,353		1,225

      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 related notes 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.

      In conjunction with the Signal acquisition, the Corporation incurred merger-related and conforming accounting expenses of approximately $52.8 million, before taxes, or $38.1 million after taxes. The components of these costs and the remaining unpaid amounts at March 31, 2000 are shown in the following table. The unpaid liability at March 31, 2000 is expected to be paid during the remainder of 2000 and is not expected to have a material impact on liquidity.

(Dollars in thousands)
			Estimated Liability		Remaining Liability		Remaining Liability
Description of Cost			at Acquisition		at December 31, 1999		March 31, 2000
Salary, wages and benefits			$	7,736		—		—
Loan conversion expense				7,016		12		17
Professional services				8,856		—		—
Other operating expenses				10,014		1,120		996
	Total Other Expenses			33,622		1,132		1,013
Provision for loan losses conforming entry				10,200		—		—
		Totals	$	43,822		1,132		1,013

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, 2000:

				Parent Co.
	Supercommunity			Other Subsidiaries			FirstMerit
(Dollars in thousands)	Banking			Eliminations			Consolidated
OPERATIONS:
Net interest income	$	97,064			(613	)		96,451
Provision for possible loan losses		11,617			97			11,714
Other income		36,291			2,597			38,888
Other expenses		66,352			(263	)		66,089
Income before extraordinary charge		37,683			2,016			39,699
Net income	$	37,683			2,016			39,699
AVERAGES:
Assets	$	10,211,965						10,261,950
Loans		7,142,700						7,144,579
Earnings assets		9,548,665						9,559,240
Deposits		6,993,274						6,977,971
Shareholders’ equity	$	845,829						832,457
RATIOS:
ROE		17.87	%					19.27	%
ROA		1.48	%					1.56	%
Core efficiency ratio		49.02	%					46.26	%

      The table below presents estimated revenues from external customers, by product and service group for the 2000 and 1999 first quarters:

(Dollars in thousands)
						Trust
2000		Retail		Commercial		Services		Total
Interest and fees		$	97,277		109,304		5,060		211,641
Service charges			12,083		2,430				14,513
Loan sales/service			2,780						2,780
	Totals	$	112,140		111,734		5,060		228,934

(Dollars in thousands)
						Trust
1999		Retail		Commercial		Services		Total
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

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:

	Income (loss)			Common shares		Per common share
	(numerator)			(denominator)		amount
Three months ended March 31, 2000:
Income before extraordinary charge	$	39,699
Net income		39,699
Less: preferred stock dividends		(65	)
Net income available to common shareholders	$	39,634
Average common shares outstanding					88,388,002
Earnings per basic common share						$	0.45
Net income available to common shareholders	$	39,634
Add: preferred stock dividends		65
Add: interest expense on convertible bonds, net		16
Income  used in diluted EPS calculation	$	39,715
Average common shares outstanding					88,388,002
Equivalents from stock options					199,625
Equivalents from convertible debentures					119,581
Equivalents from convertible preferred securities					440,253
Avg common stock and equivalents outstanding					89,147,461
Earnings per diluted common share						$	0.45
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

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 was originally to be effective for all fiscal quarters beginning after June 15, 1999. In July 1999, the FASB issued Statement No. 137 which delayed implementation of Statement No. 133 until the first quarter 2001. The Corporation does not anticipate the adoption of FAS 133 will have a material effect on its earnings or financial condition.

6. On March 16, 2000, the Corporation issued $150 million of subordinated bank notes under a previously disclosed debt agreement. The notes bear interest at 8.625% and mature on April 1, 2010. Under the agreement, the aggregate principal outstanding at any one time may not exceed $1.0 billion. The notes were offered only to institutional investors.

7. Management believes the interim unaudited consolidated financial statements reflect all adjustments consisting only of normal recurring accruals and reclassifications, necessary for fair presentation of the March 31, 2000 and 1999 and December 31, 1999 statements of condition and the results of operations for the quarters ended March 31, 2000 and 1999. These results have been determined on the basis of generally accepted accounting principles.

8. 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, 1999.

AVERAGE CONSOLIDATED BALANCE SHEETS
Fully-tax Equivalent Interest Rates and Interest Differential

FIRSTMERIT CORPORATION
AND SUBSIDIARIES			Three months ended								Year ended								Three months ended
(Dollars in thousands)			March 31, 2000								December 31, 1999								March 31, 1999
			Average					Average			Average					Average			Average					Average
			Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
ASSETS
Investment securities:
	U.S. Treasury securities and U.S Government agency obligations (taxable)		$	1,931,823			30,765		6.41	%		1,444,591			87,238		6.04	%		1,406,055			21,215		6.12	%
	Obligations of states and political subdivisions (tax-exempt)			122,357			2,497		8.21	%		130,416			10,618		8.14	%		131,407			2,845		8.78	%
	Other securities			297,052			5,584		7.56	%		317,799			19,275		6.07	%		281,512			6,275		9.04	%
		Total investment securities		2,351,232			38,846		6.64	%		1,892,806			117,131		6.19	%		1,818,974			30,335		6.76	%
Federal funds sold & other interest-earning assets				5,396			41		3.06	%		5,041			204		4.05	%		5,426			66		4.93	%
Loans held for sale				58,033			1,667					34,418			4,635
Loans				7,144,579			150,502		8.47	%		6,865,330			567,132		8.26	%		6,513,576			136,067		8.47	%
		Total earning assets		9,559,240			191,056		8.04	%		8,797,595			689,102		7.83	%		8,337,976			166,468		8.10	%
Allowance for possible loan losses				(107,351	)							(105,918	)							(101,788	)
Cash and due from banks				242,223								266,935								285,589
Other assets				567,838								534,435								542,520
	Total assets		$	10,261,950								9,493,047								9,064,297
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Deposits:
	Demand- non-interest bearing			1,020,384			—		—			1,055,306			—		—			1,066,573			—		—
	Demand- interest bearing			643,842			852		0.53	%		667,469			4,774		0.72	%		659,189			1,098		0.68	%
	Savings			1,747,456			11,335		2.61	%		1,791,390			40,327		2.25	%		1,878,596			10,355		2.24	%
	Certificates and other time deposits			3,566,289			48,068		5.42	%		3,284,516			169,783		5.17	%		3,111,321			40,144		5.23	%
		Total deposits		6,977,971			60,255		3.47	%		6,798,681			214,884		3.16	%		6,715,679			51,597		3.12	%
Federal funds purchased, securities sold under agreements to repurchase and other borrowings				2,287,852			33,340		5.86	%		1,666,025			85,981		5.16	%		1,239,299			19,250		6.30	%
		Total interest bearing liabilities		8,245,439			93,595		4.57	%		7,409,400			300,865		4.06	%		6,888,405			70,847		4.17	%
Other liabilities				142,220								126,767								172,874
Mandatorily redeemable preferred securities				21,450								21,450								22,997
Shareholders’ equity				832,457								880,124								913,448
	Total liabilities and shareholders’ equity			10,261,950								9,493,047								9,064,297
Net yield on earning assets				9,559,240			97,461		4.10	%		8,797,595			388,237		4.41	%		8,337,976			95,621		4.65	%
Interest rate spread									3.47	%							3.77	%							3.93	%

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

RESULTS OF OPERATIONS

      FirstMerit Corporation’s first quarter 2000 net income was $39.7 million, up 5.6% above the $37.6 million of core income earned in the first quarter of 1999. The first quarter 1999 core earnings are before $38.1 million of merger-related and extraordinary charges from the acquisition of Signal Corp, which was closed on February 12, 1999. After these charges, FirstMerit reported a loss of $504,000 in the first quarter of 1999.

      Performance this quarter was driven primarily by a strong increase in non-interest income and continued strict control of non-interest expenses. The efficiency ratio improved to 46.3% this quarter. First quarter 2000 returns on average common equity and average assets were 19.3% and 1.56%, respectively, compared with 1999 first quarter ratios (adjusted to exclude merger-related and extraordinary charges) of 16.7% and 1.68%, respectively.

      Net interest income on a fully tax-equivalent basis reached $97.5 million for the first quarter of 2000 compared to $95.6 million for the prior year’s quarter, an increase of 2.0%. The increase was primarily the result of a 15.0% increase in average earning assets, largely offset by the decline in net interest margin from 4.65% last year to 4.10% in the first 2000 quarter.

      Adjusted net revenue for the first quarter of 2000 was $137.1 million, or $1.54 per share, up 11.6% from $1.38 last year. Growth in fee income and earning assets more than offset the compression in net interest margin. Excluding gains/losses from the sale of securities, non-interest income was $39.6 million, a 21.8% increase from the $32.5 million reported a year ago. Trust income, up 20.9%, service charges on deposits, up 21.1%, credit card fees, up 28.7%, loan sales and servicing, up 38.4%, and other operating income, up 34.9%, together accounted for the strong growth in fee income. First quarter 2000 fees accounted for 28.9% of net revenues compared to 25.4% in the first quarter of 1999.

      Non-interest expense totaled $66.1 million in the first quarter of this year, down 7.9% from 1999 first quarter expenses, excluding merger-related and extraordinary charges resulting from the Signal acquisition. Improvement was experienced in every category, but most notably in bankcard and loan processing, down 26.9%; professional services, down 20.8%; and other operating expenses, down 14.8%. The efficiency ratio improved to 46.3% for this quarter versus 53.9% a year ago.

      Period-end assets reached $10.4 billion, 13.0% ahead of 1999 year ago assets of $9.2 billion. Earning assets were up 14.0%, with loans up 9.0%. Total loans, net of unearned interest, were $7.2 billion. Strong growth was experienced in every category except mortgage loans, which declined 46.0% as existing loans were securitized. Commercial loans, up 17.7%, and manufactured housing loans, up 123%, spearheaded portfolio growth.

      Total deposits at March 31, 2000 were $7.2 billion, an increase of 7.2% above year ago 1999 levels, with time deposits, up 16.9%, accounting for the majority of growth.

      The first quarter loan loss provision was $11.7 million, up 89.0% from the first quarter 1999 core provision of $6.2 million. Net charge-offs for the quarter were $8.3 million, or 0.47% of average loans outstanding on an annualized basis, compared to 0.72% a year ago. The allowance stands at 1.50% of period-end loans compared to 1.54% at the end of the prior-year quarter. Non-performing assets as a percent of loans and other real estate were 0.46% this first quarter, compared with 0.36% at December, 31, 1999 and 0.28% at March 31, 1999. Reserve coverage of non-performing assets was 3.2 times, down from 5.4 times the prior year quarter.

      Shareholders’ equity was $844.4 million at quarter end. Average equity to assets for the 2000 quarter was 8.11% compared to 10.08% last year. Common stock dividends paid were $0.20 per share, representing a 44.4% payout ratio. This compares with a 43.9% core payout ratio for the prior year quarter. At quarter end, there were 88.4 million shares outstanding.

      The components of change in per share income for the quarters ended March 31, 2000 and 1999 were as follows:

Changes in Earnings per Share
	Three months ended			Three months ended
	Core*			As Reported
	March 31,			March 31,
	2000/1999			2000/1999
Diluted net income per share March 31, 1999	$	0.41			0.00
Increases (decreases) due to:
Net interest income — taxable equivalent		0.02			0.02
Provision for possible loan losses		(0.06	)		0.05
Other income		0.01			0.01
Other expenses		0.06			0.43
Federal income taxes — taxable equivalent		(0.01	)		(0.14	)
Extraordinary item-extinguishment of debt		—			0.06
Change in share base		0.02			0.02
Net change in diluted net income per share		0.04			0.45
Diluted net income per share March 31, 2000	$	0.45			0.45

* - 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.

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, 2000 was $97.5 million compared to $95.6 million for the same period one year ago, an increase of $1.9 million. The increase in net interest income FTE occurred because interest income from higher average earning assets outpaced additional interest expense incurred to fund the growth. A more detailed analysis follows and is also illustrated in the next table.

      Interest income increased during the quarter as higher average loan and investment securities balances contributed an additional $21.9 million compared to the same quarter last year. The average loan yield for both first quarter periods was 8.47%. The average yield on earning assets for the first quarter 2000 was 8.04%, six basis points less than the 8.10% earned for the three months ended March 31, 1999.

      Similar to the trend in earning assets, the large majority of the increase in interest expense was volume driven. Higher average balances in certificate and other time deposits (“CDs”) as well as wholesale borrowings increased interest expense by $21.4 million. Higher rates paid on CDs, savings and money market accounts increased interest expense by $3.6 million, offset by $1.2 million from lower rates paid on other borrowings.

Changes in Net Interest Differential -
Fully-Tax Equivalent Rate/Volume Analysis
(Dollars in thousands)

Quarters ended March 31, 2000 and 1999
Increase (Decrease)
Interest Income/Expense
			Volume			Yield Rate			Total
INTEREST INCOME
Investment Securities			$	8,643			(132	)		8,511
Loans held for sale				1,667			—			1,667
Loans				13,292			1,143			14,435
Federal funds sold				—			(25	)		(25	)
		Total interest income		23,602			986			24,588
INTEREST EXPENSE
Interest on deposits:
	Demand-interest bearing			(20	)		(226	)		(246	)
	Savings			(851	)		1,831			980
	Certificates and other time deposits			6,132			1,792			7,924
	Federal funds purchased, REPOs & other borrowings			15,280			(1,190	)		14,090
		Total interest expense		20,541			2,207			22,748
Net interest income			$	3,061			(1,221	)		1,840

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.

Net Interest Margin
(Dollars in thousands)

	Quarters Ended
	March 31,
	2000			1999
Net interest income per financial statements	$	96,451			94,447
Tax equivalent adjustment		1,010			1,174
Net interest income — FTE	$	97,461			95,621
Average earning assets	$	9,559,240			8,337,976
Net interest margin		4.10	%		4.65	%

      Average loans outstanding for the quarter ended March 31, 2000 were $7.145 billion, up $631.0 million or 9.7%, from $6.514 billion for the same quarter last year. Increases occurred in every category except mortgage loans which are being sold in the secondary market and the resulting proceeds reinvested in the other higher-yielding loan categories. Specific increases were as follows: commercial loans, up $550.4 million or 20.8%; installment loans, up $305.6 million or 26.1%; home equity loans up $63.7 million or 18.3%; manufactured housing loans up $399.5 million or 108.4% and leased assets up $116.7 million or 68.5%. Average outstanding loans for the 2000 and 1999 first quarters equaled 74.7% and 78.1% of average earning assets, respectively.

      Average deposits were $6.978 billion during the 2000 first quarter, up $262.3 million over the same period last year. The mix of demand deposits changed little from first quarter 1999; savings and money market account balances comprised 25.0% of total deposits during the first quarter of 2000 compared to 28.0% in 1999; CD balances made up 51.1% of average deposits during the current quarter up from 46.3% a year ago. Average other borrowings increased to $2.288 billion during the quarter, compared to $1.239 billion during the 1999 quarter. Other borrowings as a percentage of total interest bearing funds was 27.7% in 2000 and 18.0% during the 1999 quarter. Average interest bearing liabilities funded approximately 86% and 83% of average earning assets for the three months ended March 31, 2000 and 1999, respectively.

      In summary, 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. Funding of loan growth relied more heavily on CDs and other borrowings during the first quarter 2000 compared to the same 1999 quarter.

Other Income

      Other income for the quarter ended March 31, 2000 was $38.9 million, an increase of $839 thousand, or 2.2%, over the $38.0 million earned during the same period last year. Excluding securities sales, the increase in other income was $7.1 million, or 21.8%. Fee income, defined as other income less income from the sale of securities, as a percentage of net revenue during the quarter was 28.9% versus 25.4% 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 $5.1 million, up $0.9 million from the $4.2 million earned one year ago. Service charges on depositors’ accounts totaled $11.0 million for the quarter, up from $9.1 million in the 1999 quarter. Credit card fees, including merchant services, increased 28.7% to $7.2 million for the quarter compared to $5.6 million for the three months ended March 31, 1999. Other service fees, including Automated Teller Machine (ATM) revenue, rose from $3.2 million recorded during 1999’s first quarter to $3.5 million for same 2000 period. Manufactured housing income was $0.7 million during the quarter compared to $1.4 million last year.

      The Corporation recognizes 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 always looking for new opportunities to increase noninterest income.

Other Expenses

      Other expenses totaled $66.1 million for the first quarter 2000 compared to $71.8 million when 1999 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 1999 quarter, including the merger-related costs, were $105.4 million. The “lower-is-better” efficiency ratio for the quarter was 46.3% compared to 53.9% a year ago. The 1999 efficiency ratio excludes merger-related costs. The first quarter efficiency ratio indicates 46.3 cents in operating costs were spent to make each dollar of profit. This is the second consecutive quarter where the efficiency ratio has been less than 50 percent.

      All categories of first quarter 2000 expenses were lower than comparable 1999 first quarter results. First quarter 1999 results provided in this section for comparison exclude merger-related charges. Salaries, wages, pension and employee benefits, the largest component of other expenses, declined 1.3%, or $0.4 million; aggregate net occupancy and equipment expenses for the quarter were $10.2 million compared to $10.6 million for the same quarter last year; bankcard, loan processing and other costs were down $1.7 million; taxes other than federal income tax, and professional services each decreased $0.5 million; and other operating costs declined $1.1 million.

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:

	March 31, 2000
	Book		Gross Unrealized		Gross Unrealized		Market
	Value		Gains		Losses		Value
U.S. Treasury securities and U.S. Government agency obligations	$	823,511		145		23,761		799,895
Obligations of state and political subdivisions		122,489		384		1,159		121,714
Mortgage-backed securities		1,141,960		140		49,610		1,092,490
Other securities		298,992		251		11,979		287,264
	$	2,386,952		920		86,509		2,301,363
					Book Value		Market Value
Due in one year or less					$	106,466		103,143
Due after one year through five years						485,355		473,155
Due after five years through ten years						408,824		396,030
Due after ten years						1,386,307		1,329,035
					$	2,386,952		2,301,363

      The book value and market value of investment securities including mortgage-backed securities and derivatives at March 31, 2000, by contractual maturity, were included in the previous table. Expected maturities will differ from contractual maturities based on the issuers’ right to call or prepay obligations with or without call or prepayment penalties.

      The carrying value of investment securities pledged to secure trust and public deposits and for purposes required or permitted by law amounted to approximately $1,916.6 million at March 31, 2000, $1,739.7 million at December 31, 1999 and $1,326.2 million at March 31, 1999 .

      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, 2000 equaled $7.242 billion compared to $7.014 billion at December 31, 1999 and $6.646 billion at March 31, 1999. At quarter-end, the Corporation’s commercial loans were $3.245 billion, or 17.7% higher than the March 31, 1999 balance of $2.757 billion; mortgage loans were $890.8 million, down 46.0%; manufactured housing loans totaled $808.6 million, up from $362.9 million last year; and installment, home equity, bankcard, and leases (on a combined basis) were $2.299 billion, up 22.5%. Through sales and securitizations of conforming single-family mortgages in the secondary market, 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 $33.5 million at March 31, 2000 or 0.46% of period-end loans and other real estate. At December 31, 1999, nonperforming assets totaled $25.3 million or 0.36% of outstanding loans and other real estate compared to $18.9 million or 0.28% of outstanding loans and other real estate at March 31, 1999. 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. 114 and No. 118, all nonaccrual and restructured commercial, agricultural, construction, and commercial real estate loans, meet the definition of impaired loans.

			(Dollars in thousands)
			March 31,			December 31,			March 31,
			2000			1999			1999
Impaired Loans:
	Non-accrual		$	27,539			20,159			14,683
	Restructured			223			47			83
		Total impaired loans		27,762			20,206			14,766
Other Loans:
	Non-accrual			1,855			1,905			2,503
	Restructured			—			—			—
		Total other nonperforming loans		1,855			1,905			2,503
		Total nonperforming loans		29,617			22,111			17,269
Other real estate (ORE)				3,848			3,173			1,643
	Total nonperforming assets			33,465			25,284			18,912
Loans past due 90 days or more accruing interest			$	26,870			30,878			17,296
Total nonperforming assets as a percent of total loans and ORE				0.46	%		0.36	%		0.28	%

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.

Allowance for Loan Losses

      The allowance for possible loan losses at March 31, 2000 totaled $108.3 million, or 1.50% of total loans outstanding compared to $104.9 million, or 1.50% and $102.4 million, or 1.54% at December 31, 1999 and March 31, 1999, 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.

		Three months ended			Year ended			Three months ended
Dollars in thousands		March 31,			December 31,			March 31,
		2000			1999			1999
Allowance — beginning of period		$	104,897			96,149			96,149
Acquisition adjustment/other			—			1,028			1,312
Loans charged off:
	Commercial, financial, agricultural		2,587			7,539			6,967
	Installment to individuals		9,820			35,904			7,807
	Real estate		351			3,350			55
	Lease financing		305			1,043			261
Total charge-offs			13,063			47,836			15,090
Recoveries:
	Commercial, financial, agricultural		1,020			3,997			1,356
	Installment to individuals		3,561			12,910			2,113
	Real estate		2			540			—
	Lease financing		160			679			121
Total recoveries			4,743			18,126			3,590
Net charge-offs			8,320			29,710			11,500
Provision for possible loan losses			11,714			37,430			16,398
Allowance — end of period		$	108,291			104,897			102,359
Annualized net charge offs as a percent of average loans			0.47	%		0.43	%		0.72	%
Allowance for possible loan losses:
As a % of loans outstanding at end of period			1.50	%		1.50	%		1.54	%
As a multiple of annualized net charge offs			3.24	X		3.53	X		2.19	X

      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.

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

	March 31, 2000					December 31, 1999					March 31, 1999
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
Non-interest DDA	$	1,020,384		—			1,055,306		—			1,066,573		—
Interest-bearing DDA		643,842		0.53	%		667,469		0.72	%		659,189		0.68	%
Savings deposits		1,747,456		2.61	%		1,791,390		2.25	%		1,878,596		2.24	%
CDs and other time		3,566,289		5.42	%		3,284,516		5.17	%		3,111,321		5.23	%
	$	6,977,971		3.47	%		6,798,681		3.16	%		6,715,679		3.12	%

      Average CDs totaled $3.566 billion for the quarter ended March 31,2000, up 14.6% from $3.111 billion for the 1999 quarter. On a percentage basis, average CDs were 43% and 45%, respectively, of total interest bearing funds for the March 31,2000 and 1999 quarters; average savings deposits, including money market accounts, were 21% of interest bearing funds during the quarter ended March 31, 2000 and 27% for the same period last year; interest-bearing demand deposits were 8% of total interest bearing funds during 2000’s first quarter and 10% for the corresponding 1999 period; and wholesale borrowings increased from 18% of interest-bearing funds during the three months ended March 31, 1999 to 28% for the March 31, 2000 quarter. Interest bearing liabilities funded approximately 86% of average earning assets during the quarter ended March 31, 2000 and approximately 83% during the quarter ended March 31, 1999.

      The following table summarizes the certificates and other time deposits in amounts of $100 thousand or more as of March 31, 2000 by time remaining until maturity.

(Dollars in Thousands)	Amount
Maturing in:
Under 3 months	$	537,275
3 to 12 months		404,048
Over 12 months		266,966
	$	1,208,289

Market Risk

      The Corporation is exposed to market risks in the normal course of business. Changes in market interest rates may result in changes in the fair market value of the Corporation’s financial instruments, cash flows, and net interest income. The corporation seeks to achieve consistent growth in net interest income and capital while managing volatility arising from shifts in market interest rates. The Asset and Liability Committee (“ALCO”) oversees financial risk management, establishing broad policies that govern a variety of financial risks inherent in the Corporation’s operations. ALCO monitors the Corporation’s interest rates and sets limits on allowable risk annually. Market risk is the potential of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Corporation’s market risk is composed primarily of interest rate risk. Interest rate risk on the Corporation’s balance sheet consists of mismatches of maturity gaps and indices, and options risk. Maturity gap mismatches result from differences in the maturity or repricing of asset and liability portfolios. Options risk exists in many of the Corporation’s retail products such as prepayable mortgage loans and demand deposits. Options risk typically results in higher costs or lower revenue for the Corporation. Index mismatches occur when asset and liability portfolios are tied to different market indices which may not move in tandem as market interest rates change.

      Interest rate risk is monitored using gap analysis, earnings simulation and net present value estimations. Combining the results from these separate risk measurement processes allows a reasonably comprehensive view of short-term and long-term interest rate risk in the Corporation. Gap analysis measures the amount of repricing risk in the balance sheet at a point in time. Earnings simulation involves forecasting net interest earnings under a variety of scenarios including changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates. ALCO also monitors the net present value of the balance sheet, which is the discounted present value of all asset and liability cash flows. Interest rate risk is quantified by changing the interest rates used for discounting cash flows and comparing the net present value to the original figure.

Capital Resources

      Shareholders’ equity at March 31, 2000 totaled $844.4 million compared to $833.6 million at December 31, 1999 and $886.2 million at March 31, 1999. See the Consolidated Statement of Changes in Shareholders’ Equity for detailed activity of the equity accounts.

      The following table reflects the various measures of capital:

	As of	As of			As of
	March 31,	December 31,			March 31,
	2000	1999			1999
(In thousands)
Total equity	844,421         8.14%	833,575	8.24	%	886,230	9.65	%
Common equity	840,603         8.10%	829,697	8.20	%	876,931	9.55	%
Tangible common equity (a)	681,802         6.67%	668,321	6.71	%	711,879	7.90	%
Tier 1 capital (b)	757,205         8.94%	734,492	8.81	%	723,566	9.55	%
Total risk-based capital (c)	1,016,113       12.00%	843,658	10.12	%	824,653	10.88	%
Leverage (d)	757,205         7.50%	734,492	7.47	%	723,566	8.11	%

(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, 2000, the Corporation’s risk-based capital equaled 12.00% of risk adjusted assets, exceeding minimum guidelines.

      The cash dividend of $0.20 paid in the first quarter has an indicated annual rate of $0.80 per share.

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)
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 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	FirstMerit Corporation 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	FirstMerit Corporation 1997 Stock Option Program (incorporated by reference from Exhibit 10.5 to the Form 10-K filed by the registrant on February 24, 1998)*
10.6	FirstMerit Corporation 1999 Stock Plan (incorporated by reference from Exhibit 10.39 to the Form S-8 filed by the Registrant on May 21, 1999)*
10.7	FirstMerit Corporation 1987 Stock Option and Incentive Plan (SF) 1998 (incorporated by reference from Exhibit 10.7 to the Form 10-K filed by the registrant on March 10, 2000)*
10.8	FirstMerit Corporation 1996 Stock Option and Incentive Plan (SF) (incorporated by reference from Exhibit 10.8 to the form 10-K filed by the registrant on March 10, 2000)*
10.9	FirstMerit Corporation 1994 Stock Option Plan (SF) (incorporated by reference from Exhibit 10.9 to the Form 10-K filed by the registrant on March 10, 2000)*
10.10	FirstMerit Corporation 1989 Stock Incentive Plan (SB) (incorporated by reference from Exhibit 10.10 to the Form 10-K filed by the registrant on March 10, 2000.*
10.11	FirstMerit Corporation Amended and Restated Stock Option and Incentive Plan (SG)(incorporated by reference from Exhibit 10.11 to the Form 10-K filed by the registrant on March 10, 2000)*
10.12	FirstMerit Corporation 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)*
10.13	FirstMerit Corporation 1997 Omnibus Incentive Plan (SG)(incorporated by reference from Exhibit 10.13 to the Form 10-K filed by the registrant on March 10, 2000)*
10.14	FirstMerit Corporation 1993 Stock Option Plan (FSB) (incorporated by reference from Exhibit 10.14 to the Form 10-K filed by the registrant on March 10, 2000)*
10.15	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)*
10.16	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)*
10.17	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)*
10.18	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)*
10.19	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)*
10.20	First Amendment to the FirstMerit Corporation Unfunded Supplemental Benefit Plan (incorporated by reference from Exhibit 10(v) to the Form 10-K filed by the registrant on March 2, 1995)*
10.21	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)*
10.22	Long Term Disability Plan (incorporated by reference from Exhibit 10(x) to the Form 10-K filed by the registrant on March 2, 1995)*
10.23	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)*
10.24	Employment Agreement with John R. Macso, dated August 3, 1999 (incorporated by reference from Exhibit 10.13.1 to the Form 10-Q filed by the Registrant on November 12, 1999)*
A	Agreement with John R. Macso, dated August 3, 1999 (incorporated by reference from Exhibit 10.13.2 to the Form 10-Q filed by the Registrant on November 12, 1999)*
10.26	Stock Option Agreement with John R. Macso, dated August 3, 1999 (incorporated by reference from Exhibit 10.13.3 to the Form 10-Q filed by the Registrant on November 12, 1999)*
10.27	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)*
10.28	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)*
10.29	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)*
10.30	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)*
10.31	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)*

10.32	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)*
10.33	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)*
10.34	First Amendment to Employment Agreement of Sid A. Bostic, dated April 20, 1999 (incorporated by reference from Exhibit 10.23.1 to the Form 10-Q filed by the registrant on May 14, 1999)*
10.35	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)*
10.36	First Amendment to Restricted Stock Award Agreement of Sid A. Bostic, dated April 20, 1999 (incorporated by reference from Exhibit 10.25.1 to the Form 10-Q filed by the registrant on May 14, 1999)*
10.37	Form of FirstMerit Corporation Termination Agreement (incorporated by reference from Exhibit 10.24.1 to the Form 10-Q filed by the Registrant on March 22, 1999)*
10.38	Form of Director and Officer Indemnification Agreement and Undertaking (incorporated by reference from Exhibit 10(s) to the Form 8-K/ A filed by the registrant on April 27, 1995)*
10.39	Independent Contractor Agreement with Gary G. Clark, dated February 12, 1999 (incorporated by reference from Exhibit 10.38 to the Form 10-Q filed by the Registrant on May 14, 1999)*
10.40	Credit Agreement among FirstMerit Corporation, Bank of America, N.A., and Lenders, dated November 29, 1999 (incorporated by reference from Exhibit 10.40 to the Form 10-K filed by the registrant on March 10, 2000)
10.41	Distribution Agreement, by and among FirstMerit Bank, N.A. and the Agents, dated July 15, 1999 (incorporated by reference from Exhibit 10.41 to the Form 10-K filed by the registrant on March 10, 2000)*
21	Direct and Indirect Subsidiaries of FirstMerit Corporation
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. 333-52581-01, filed by FirstMerit Capital Trust I, fka Signal Capital Trust I, on May 13, 1998)
27	Financial Data Schedule
* Management Contract or Compensatory Plan or Arrangement
(b)	Form 8-K
	There were no Form 8-K filings during the first quarter 2000.

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRSTMERIT CORPORATION
By:	/s/TERRENCE E. BICHSEL
	Terrence E. Bichsel, Executive Vice President
	and Chief Financial Officer

DATE: May 12, 2000