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, 1995
COMMISSION FILE NUMBER 0-10161
FIRSTMERIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1339938
(STATE OR OTHER JURSIDICTION OF (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
III CASCADE PLAZA, 7TH FLOOR, AKRON, OHIO 44308
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(216) 384-8000
(TELEPHONE NUMBER)
SHARES OF COMMON STOCK, AS OF MARCH 31, 1995
33,344,247
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
--- ---
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, 1995, December 31,
1994 and March 31, 1994
Consolidated Statements of Income for the three months ended
March 31, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for
the year ended December 31, 1994 and for the three months ended
March 31, 1995
Consolidated Statements of Cash Flows for the three months
ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements as of March 31,
1995, December 31, 1994 and March 31, 1994
Management's Discussion and Analysis of Financial Conditions as
of March 31, 1995, December 31, 1994 and March 31, 1994 and
Results of Operations for the quarter ended March 31, 1995 and
1994 and for the year ended December 31, 1994
3
FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - - -------------------------------------------
(In thousands)
------------------------------------------------------
March 31, December 31, March 31,
---------- ------------ ---------
1995 1994 1994
- - - ----------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities $1,544,894 1,610,360 1,563,422
Federal funds sold 10,335 13,700 93,117
Loans less unearned income 3,809,447 3,687,889 3,195,211
Less allowance for possible loan losses 37,426 35,834 35,676
---------- --------- ---------
Net loans 3,772,021 3,652,055 3,159,535
---------- --------- ---------
Total earning assets 5,327,250 5,276,115 4,816,074
Cash and due from banks 235,416 238,073 247,406
Premises and equipment, net 85,906 83,223 78,411
Accrued interest receivable and other assets 104,872 125,162 118,974
---------- --------- ---------
$5,753,444 5,722,573 5,260,865
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-non-interest bearing $ 711,963 733,171 673,992
Demand-interest bearing 439,091 475,099 469,667
Savings 1,556,818 1,633,189 1,745,318
Certificates and other time deposits 1,768,595 1,699,998 1,590,601
---------- --------- ---------
Total deposits 4,476,467 4,541,457 4,479,578
Securities sold under agreements to repurchase
and other borrowings 701,944 612,624 217,550
---------- --------- ---------
Total funds 5,178,411 5,154,081 4,697,128
Accrued taxes, expenses, and other liabilities 50,497 45,173 57,484
---------- --------- ---------
Total liabilities 5,228,908 5,199,254 4,754,612
Shareholders' equity:
Series preferred stock, without par value:
authorized and unissued 7,000,000 shares - - -
Common stock, without par value:
authorized 80,000,000 shares; issued 33,344,247,
33,289,097 and 33,246,998 shares, respectively 100,061 99,882 95,948
Net unrealized holding gains(losses)
on available for sale securities (12,918) (23,205) (4,656)
Retained earnings 437,393 446,642 414,961
---------- --------- ---------
Total shareholders' equity 524,536 523,319 506,253
---------- --------- ---------
$5,753,444 5,722,573 5,260,865
========== ========= =========
4
FIRSTMERIT CORPORATION AND SUBSIDIARIES
AVERAGE CONSOLIDATED BALANCE SHEETS
- - - ----------------------------------------------------
(In thousands except ratios)
Quarters
--------------------------------------------------------------------------------
1995 1994
------------ --------------------------------------------------------------
1st 4th 3rd 2nd 1st
- - - -------------------------------------------------------------- ----------- ----------- ----------- -----------
ASSETS
Investment securities $1,498,357 1,645,526 1,647,422 1,596,042 1,563,967
Federal funds sold 15,482 31,911 17,110 67,086 101,862
Loans less unearned income 3,807,842 3,611,012 3,354,209 3,225,272 3,149,913
Less allowance for possible
loan losses 36,450 35,902 35,907 36,188 35,672
---------- --------- --------- --------- ---------
Net loans 3,771,392 3,575,110 3,318,302 3,189,084 3,114,241
---------- --------- --------- --------- ---------
Total earning assets 5,285,231 5,252,547 4,982,834 4,852,212 4,780,070
Cash and due from banks 232,548 207,142 204,351 202,313 231,404
Premises and equipment, net 84,590 82,181 80,783 79,079 77,478
Accrued interest receivable
and other assets 109,206 109,163 112,377 119,203 102,988
---------- --------- --------- --------- ---------
$5,711,575 5,651,033 5,380,345 5,252,807 5,191,940
========== ========= ========= ========= =========
LIABILITIES
Deposits:
Demand-non-interest bearing $ 708,097 689,964 660,783 660,406 669,283
Demand-interest bearing 444,005 470,873 461,667 464,492 458,187
Savings 1,588,708 1,665,245 1,685,365 1,739,981 1,725,742
Certificates and other time
deposits 1,717,283 1,674,635 1,573,435 1,568,937 1,565,491
---------- --------- --------- --------- ---------
Total deposits 4,458,093 4,500,717 4,381,250 4,433,816 4,418,703
Securities sold under agreements to
repurchase and other borrowings 684,794 575,561 443,836 245,742 225,276
---------- --------- --------- --------- ---------
Total funds 5,142,887 5,076,278 4,825,086 4,679,558 4,643,979
Accrued taxes, expenses and
other liabilities 50,676 49,517 39,139 60,559 43,602
---------- --------- --------- --------- ---------
Total liabilities 5,193,563 5,125,795 4,864,225 4,740,117 4,687,581
SHAREHOLDERS' EQUITY 518,012 525,238 516,120 512,690 504,359
---------- --------- --------- --------- ---------
$5,711,575 5,651,033 5,380,345 5,252,807 5,191,940
========== ========= ========= ========= =========
RATIOS
Net income as a percentage of:
Average assets -0.08% 1.27% 1.30% 1.36% 1.40%
Average shareholders' equity -0.93% 13.61% 13.53% 13.97% 14.37%
5
FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - - ------------------------------------------
(In thousands except per share data)
------------------------------------
Quarters Ended March 31,
------------------------------------
1995 1994
- - - ----------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 78,112 63,589
Interest and dividends on securities:
Taxable 22,770 19,959
Exempt from Federal income taxes 1,670 1,958
Interest on Federal funds sold 314 803
--------- ------
Total interest income 102,866 86,309
--------- ------
Interest expense:
Interest on deposits:
Demand-interest bearing 2,448 2,631
Savings 10,321 10,573
Certificates and other time deposits 21,531 15,668
Interest on securities sold under agreements ---------
to repurchase and other borrowings 10,059 2,084
--------- ------
Total interest expense 44,359 30,956
--------- ------
Net interest income 58,507 55,353
Provision for possible loan losses 2,712 1,381
--------- ------
Net interest income after provision
for possible loan losses 55,795 53,972
--------- ------
Other income:
Trust department income 2,944 3,516
Service charges on depositors' accounts 5,187 5,281
Credit card fees 2,047 1,877
Securities gains-net 0 (12)
Other operating income 7,845 7,513
--------- ------
Total other income 18,023 18,175
--------- ------
73,818 72,147
--------- ------
Other expenses:
Salaries, wages, pension and employee benefits 25,790 23,724
Net occupancy expense 4,185 3,697
Equipment expense 3,089 2,908
Other operating expense 22,654 16,085
--------- ------
Total other expenses 55,718 46,414
--------- ------
Income before Federal income taxes 18,100 25,733
Federal income taxes 19,284 7,867
--------- ------
Net income $ (1,184) 17,866
========= ======
Per share data based on average number of
shares outstanding:
Net income (.04) .54
Dividends paid .25 .24
Weighted average number of shares
outstanding 33,334,368 33,241,336
6
FIRSTMERIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- - - ----------------------------------------------------------
Year Ended December 31, 1994 and
Three Months Ended March 31, 1995
--------------------------------------------------------------
Net unrealized
holding gains
(losses) on Total
Common available for Retained Shareholders'
Stock sale securities Earnings Equity
-------- --------------- -------- -------------
Balance at December 31, 1993 $ 95,992 - 404,129 500,121
Net Income - - 71,349 71,349
Cash dividends ($.98 per share) - - (28,836) (28,836)
Stock options exercised 3,890 - - 3,890
Market adjustment investment securities - (23,205) - (23,205)
-------- ------- ------- -------
Balance at December 31, 1994 99,882 (23,205) 446,642 523,319
Net Income - - (1,184) (1,184)
Cash dividends ($ .25 per share) - - (8,679) (8,679)
Stock options exercised 179 - - 179
Market adjustment investment securities - 10,287 - 10,287
Acquisiton adjustment of fiscal year - - 614 614
-------- ------- ------- -------
Balance at March 31, 1995 $100,061 (12,918) 437,393 524,536
======== ======= ======= =======
7
FIRSTMERIT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994
(In thousands)
-------------------------
1995 1994
-------------------------
Operating Activities
- - - --------------------
Net income ($1,184) 17,866
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,712 1,381
Provision for depreciation and amortization 2,438 1,946
Amortization of investment securities premiums, net 885 (2,380)
Amortization of income for lease financing 1,872 (1,271)
Losses on sales of investment securities, net - 12
Deferred federal income taxes 1,194 301
(Increase) decrease in interest receivable 56 (1,373)
Increase in interest payable 2,680 1,539
Amortization of values ascribed to acquired intangibles 819 893
Other increases (decreases) 16,081 (1,437)
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,553 17,477
--------- -------
Investing Activities
- - - --------------------
Dispositions of investment securities:
Available-for-sale - sales 56 14,901
Held-to-maturity - maturities 173,179 123,953
Available-for-sale - maturities 37,851 22,902
Purchases of investment securities held-to-maturity (7,199) (80,141)
Purchases of investment securities available-for-sale (123,621) (69,893)
Net (increase) decrease in federal funds sold 3,365 (18,529)
Net increase in loans and leases (124,550) (58,809)
Purchases of premises and equipment (8,147) (3,292)
Sales of premises and equipment 3,026 488
--------- -------
NET CASH USED BY INVESTING ACTIVITIES (46,040) (68,420)
--------- -------
Financing Activities
- - - --------------------
Net increase (decrease) in demand, NOW and
savings deposits (133,587) 25,979
Net increase in time deposits 68,597 23,918
Net increase in securities sold under repurchase
agreements and other borrowings 89,320 17,652
Cash dividends (8,679) (7,375)
Proceeds from exercise of stock options 179 297
--------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,830 60,471
Increase (decrease) in cash and cash equivalents (2,657) 9,528
Cash and cash equivalents at beginning of year 238,073 237,878
--------- -------
Cash and cash equivalents at end of year $ 235,416 247,406
========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
- - - --------------------------------------------------
Cash paid during the year for:
Interest, net of amounts capitalized $ 30,040 20,642
Income taxes 31 2,451
========= =======
See accompanying notes to consolidated financial statements.
8
FirstMerit Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1995, December 31, 1994
and March 31, 1994
1. FirstMerit Corporation is a bank holding company whose principal assets are
the common stock of its wholly owned subsidiaries, First National Bank of Ohio,
The Old Phoenix National Bank of Medina, EST National Bank, Citizens National
Bank, Peoples National Bank, Peoples Bank, N.A. and Life Savings Bank FSB. In
addition FirstMerit Corporation owns all of the common stock of FBOH Credit Life
Insurance Company and Bancorp Trust Co., N.A.
2. In May 1993, the Financial Accounting Standards Board issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities." The
statement requires debt and equity securities to be classified as
held-to-maturity, available-for-sale, or trading. Securities classified as
held-to-maturity are measured at amortized or historical cost, securities
available-for-sale and trading at fair value. Adjustment to fair value of the
securities available-for-sale, in the form of unrealized holding gains and
losses, is excluded from earnings and reported as a net amount in a separate
component of shareholders' equity. This statement was adopted during the first
quarter of 1994.
3. Management believes that the interim consolidated financial statements
reflect all adjustments consisting only of normal recurring accruals, necessary
for a fair presentation of the March 31, 1995 statement of condition and the
results of operations for the three months ended March 31, 1995 and 1994.
9
FirstMerit Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1995, December 31, 1994
and March 31, 1994
4. ACQUISITION
The CIVISTA Corporation located in Canton, Ohio was acquired on January 31, 1995
in exchange for 6,157,809 shares of FirstMerit Corporation common stock. The
transaction was accounted for as a pooling-of-interests. The accompanying
consolidated financial statements for all periods presented have been restated
to account for the acquisition.
Details of the results of operations of the previously separate corportions for
the periods prior to combination are as follows:
The
FirstMerit CIVISTA
Corporation Corporation Combined
----------- ----------- --------
FOR THE YEAR ENDED
DECEMBER 31, 1994
Interest income $316,809 54,209 371,018
Net interest income 200,932 29,905 230,837
Net income 60,301 11,048 71,349
FOR THE THREE MONTHS
ENDED MARCH 31, 1994
Interest income $ 72,486 13,823 86,309
Net interest income 47,701 7,652 55,353
Net income 14,885 2,981 17,866
FOR THE YEAR ENDED
DECEMBER 31, 1993
Interest income $304,589 56,619 361,208
Net interest income 194,802 31,257 226,059
Net income 55,560 13,072 68,632
10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Average Consolidated Balance Sheet, Fully-tax Equivalent Interest Rates and
Interest Differential (Dollars in thousands)
Quarters ended March 31, Year ended December 31,
----------------------------- ----------------------------
1995 1994
----------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
- - - ---------------------------------------------------------------------------------------------------------
ASSETS
Investment securities $1,498,357 25,237 6.68% 1,624,724 97,952 6.03%
Federal funds sold 15,482 314 8.05% 55,126 2,168 3.93%
Loans, net of unearned income 3,807,842 78,333 8.16% 3,350,162 275,488 8.22%
Less allowance for possible loan losses 36,450 36,040
---------- ------- --------- -------
Net loans 3,771,392 78,333 8.24% 3,314,122 275,488 8.31%
Cash and due from banks 232,548 - - 204,513 - -
Other assets 193,796 - - 187,273 - -
---------- ------- --------- -------
Total assets $5,711,575 103,884 - 5,385,758 375,608 -
========== ======= ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing $ 708,097 - - 666,469 - -
Demand-
interest bearing 444,005 2,448 2.19% 460,994 10,429 2.26%
Savings 1,588,708 10,321 2.58% 1,710,909 43,372 2.54%
Certificates and other time deposits 1,717,283 21,531 4.97% 1,607,616 68,528 4.26%
---------- ------- --------- -------
Total deposits 4,458,093 34,300 3.05% 4,445,988 122,329 2.75%
Federal funds purchased, securities sold
under agreements to repurchase and 684,794 10,059 5.83% 374,351 17,853 4.77%
other borrowings
Other liabilities 50,676 - 50,559 -
Shareholders' equity 518,012 - 514,860 -
---------- ------- --------- -------
Total liabilities and shareholders' equity $5,711,575 44,359 - 5,385,758 140,182 -
========== ======= ========= =======
Total earning assets $5,285,231 103,884 7.80% 4,993,972 375,608 7.52%
========== ======= ========= =======
Total interest bearing liabilities $4,434,790 44,359 3.97% 4,153,870 140,182 3.37%
========== ======= ========= =======
Net yield on earning assets 59,525 4.47% 235,426 4.71%
======= ==== ======= ====
Interest rate spread 3.83% 4.15%
==== ====
Quarters ended March 31,
----------------------------
1994
----------------------------
Average Average
Balance Interest Rate
- - - ----------------------------------------------------------------------------
ASSETS
Investment securities 1,563,967 22,871 5.80%
Federal funds sold 101,862 803 3.13%
Loans, net of unearned income 3,149,913 63,888 8.05%
Less allowance for possible loan losses 35,672
--------- ------
Net loans 3,114,241 63,888 8.14%
Cash and due from banks 231,404 - -
Other assets 180,466 - -
--------- ------
Total assets 5,191,940 87,562 -
========= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand-
non-interest bearing 669,283 - -
Demand-
interest bearing 458,187 2,631 2.28%
Savings 1,725,742 10,573 2.43%
Certificates and other time deposits 1,565,491 15,668 3.97%
--------- ------
Total deposits 4,418,703 28,872 2.59%
Federal funds purchased, securities sold
under agreements to repurchase and 225,276 2,084 3.67%
other borrowings
Other liabilities 43,602 -
Shareholders' equity 504,359 -
--------- ------
Total liabilities and shareholders' equity 5,191,940 30,956 -
========= ======
Total earning assets 4,780,070 87,562 7.27%
========= ======
Total interest bearing liabilities 3,974,696 30,956 3.09%
========= ======
Net yield on earning assets 56,606 4.70%
====== ====
Interest rate spread 4.18%
====
11
*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.
12
RESULTS OF OPERATIONS
FirstMerit Corporation's net loss for the quarter ended March 31, 1995
was $1,184,000 compared to net income of $17,866,000 for the same period one
year ago. Return on average assets equaled (0.08)% for the first quarter of 1995
compared to 1.40% for the same quarter one year ago. The first quarter of 1995
return on average equity was (0.93)% compared to 14.37% in 1994. Significantly
affecting the first quarter net loss was the one time charge of $16,200,000
related to the acquisition of The CIVISTA Corporation, a unitary savings and
loan holding company whose principal asset was the common stock of its wholly
owned subsidiary, Citizens Savings Bank, Canton, Ohio. Approximately $12,400,000
of the $16,200,000 charge is the loss of the tax benefit related to the
recapture of the bad debt reserve as Citizens Savings Bank's charter was
converted to a national bank through a merger with a subsidiary of the
Corporation. The remaining charge relates to fees paid to financial advisors and
severance payments. Excluding the effect of the one time charges, net income
totaled $15,000,000 or $.45 per share of common stock. The adjusted return on
average assets was 1.07% and adjusted return on average equity was 11.77%.
In February, the Corporation offered an early retirement program to
employees who met certain age and years of service requirements. Employees who
elected to retire under this plan had an effective retirement date of May 1,
1995. The Corporation's estimated cost associated with the early retirement
program, expected to be incurred in the second quarter of 1995, is approximately
$3,300,000 on a pre-tax basis and $2,100,000 after tax, or $.06 per share of
common stock.
In March, management began developing a plan for increasing the
profitability of the Corporation on a long term basis. In addition to increasing
revenue opportunities, in order to increase efficiencies and reduce operating
costs, the plan currently contemplates the consolidation of much of the
back-room operations of the Corporation's subsidiaries into one location.
Although the plan is not yet complete and will continue to be developed, it
calls for implementation of the initial portions of the plan during the second
quarter of 1995 and to continue throughout the balance of 1995 and into 1996.
Related to this plan there are expected to be certain restructuring charges for
employee displacement, system changes, replacement of equipment and other
related costs which have yet to be determined in both amount or timing of such
charges.
13
On a per share basis, net loss for the quarter ended March 31, 1995 was
$(.04) per share compared to net income of $.54 per share one year ago. The
components of change in per share income for the quarters ended March 31,1995
and 1994 are summarized in the following table.
- - - --------------------------------------------------------------------------------
CHANGES IN EARNINGS PER SHARE
Three Months
Ended March 31,
1995/1994
- - - --------------------------------------------------------------------------------
Net income for the quarter
March 31, 1994 $ .54
Increases (decreases)
attributable to:
Net interest income-
taxable equivalent .08
Provision for possible
loan loss (.04)
Other income (.01)
Other expenses (.28)
Federal income taxes-
taxable equivalent (.33)
-----
Net change in net income .58
-----
Net income for the quarter ended
March 31, 1995 $(.04)
=====
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 (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.
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, 1995 was
$59,525,000 compared to $56,606,000 for the same period one year ago, an
increase of $2,919,000 or 5.2%.
14
As summarized in the schedule below, total interest income FTE
increased $16,322,000 for the quarter ended March 31, 1995. An increase in loan
volume accounted for $13,535,000 of the increase. In addition to the increase in
volume, higher market interest rates accounted for $5,644,000 of the total
increase. Higher market interest rates increased the yield on earning assets
from 7.27% to 7.80% for the quarters ending March 31, 1994 and 1995,
respectively.
CHANGES IN NET INTEREST DIFFERENTIAL -
FULLY-TAX EQUIVALENT RATE/VOLUME ANALYSIS
(Dollars in thousands)
Quarters ended
March 31,
1995 and 1994
- - - --------------------------------------------------------------------------------
Increase (Decrease)
Interest Income Expense
-----------------------
Yield
Volume Rate Total
-------- -------- ------
INTEREST INCOME
Investment securities $ (1,105) 3,471 2,366
Loans 13,535 910 14,445
Federal funds sold (1,752) 1,263 (489)
-------- ----- ------
Total interest income $ 10,678 5,644 16,322
INTEREST EXPENSE
Interest on deposits:
Demand-interest bearing $ (78) (105) (183)
Savings (890) 638 (252)
Certificates and other
time deposits 1,903 3,960 5,863
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings 6,750 1,225 7,975
-------- ----- ------
Total interest expense $ 7,685 5,718 3,403
-------- ----- ------
Net interest income $ 2,993 (74) 2,919
======== ===== ======
Total interest expense increased $13,403,000 for the quarter ended
March 31, 1995. An increase in the volume of federal funds purchased and other
borrowings accounted for $6,750,000 of the increase. In addition to the increase
in volume, higher market interest rates accounted for $5,718,000 of the total
increase. As higher market interest rates increased the yield on earning assets,
it also increased the Corporation's cost of funds. The average rate for interest
bearing liabilities was 3.97% for the first quarter of 1995 compared to 3.09%
for the same period one year ago.
15
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,
------------------------------
1995 1994
---------- ---------
Net interest income per
financial statements $ 58,507 55,353
Tax equivalent adjustment 1,018 1,253
---------- ---------
Net interest income-FTE $ 59,525 56,606
========== =========
Average Earning Assets $5,285,231 4,780,070
========== =========
Net Interest Margin 4.47% 4.70%
==== ====
The Tax Reform Act of 1986 ("Act") reduced the tax benefit available to
banks acquiring tax exempt assets which has resulted in the reduction of the
tax-equivalent adjustment since the Act's adoption.
Average loans outstanding for the quarter ended March 31, 1995
increased 20.9% to $3,807,842 compared to $3,149,913 for the same period one
year ago. Average loans outstanding for the first quarter of 1995 equaled 72% of
average earning assets.
Average certificates and other time deposits have decreased from 39.4%
of total interest bearing funds in the first quarter of 1994 to 38.7% in the
first quarter of 1995, while average savings deposits decreased form 43.4% in
the first quarter of 1994 to 35.8% in the first quarter of 1995. Interest
bearing deposits decreased from 11.5% to 10.0% of interest bearing funds and
other borrowings increased from 5.7% to 15.5% of interest bearing funds.
Interest bearing liabilities funded 83.9% of average earning assets for
the first quarter of 1995 compared to 83.2% one year ago. Maximizing the use of
non-interest liabilities helps reduce the cost of funds, thus improving the net
interest margin.
NON-INTEREST INCOME
Non-interest income for the quarter ended March 31, 1995 was
$18,023,000 compared to $18,175,000 for the same period one year ago, a decrease
of .8%.
Trust department income decreased 16.3% or $572,000, service charges on
depositors' accounts decreased 1.8% or $94,000, credit card fees increased 9.1%
or $170,000 and other operating income increased 4.4% or $332,000 for the three
month period compared to
16
one year ago. The Corporation continues to examine new sources of non-interest
income as well as the current pricing of existing products and services which
provide a source of revenues not sensitive to the interest rate environment.
NON-INTEREST EXPENSE
Non-interest expense was $55,718,000 for the first quarter of 1995
compared to $46,414,000 for the same quarter of 1994, an increase of 20%.
Salaries and benefits increased 8.7% for the three months ended March 31, 1995
compared to the same period one year ago, or $25,790,000 compared to $23,724,000
and represented 46.3% of the first three months' total operating expenses
compared to 51.1% in 1994. Other operating expense increased 40.8% or $6,569,000
for the three months ended March 31, 1995 compared to the same period one year
ago. Included in both the salaries and benefits expense and the other operating
expense for the three months ended March 31, 1995 are one time charges relating
to the acquisition of The CIVISTA Corporation. Approximately $5,850,000 are fees
paid to the financial advisors of both The CIVISTA Corporation and FirstMerit
Corporation to effect the acquisition, as well as the cost of severance payments
to certain individuals as part of the acquisition.
FINANCIAL CONDITIONS
INVESTMENT SECURITIES
To comply with SFAS #115, in 1994, the Corporation placed its core
investment portfolio in held-to-maturity and its remaining investments into
available-for-sale. The core portfolio is held till maturity and should provide
the Corporation with earnings and liquidity over a relatively wide band of
interest rate movements. The available-for-sale portfolio represents the
non-core segment of the Corporation's investment portfolio. This non-core
segment will provide flexibility if under certain circumstances disposition is
prudent. The Corporation's investment strategy focuses on high quality
investments that provide earnings, liquidity and assists in asset/liability
management. The Corporation does not engage in the trading of investment
securities. Investment securities continue to be a source of liquidity in the
funding of loan growth.
The book value and market value of investment securities classified as
held-to-maturity are as follows:
March 31,
------------------------------------------
1995
------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
------------------------------------------
U.S. Treasury securities
and U.S. Government agency
obligations $481,297 136 10,517 476,916
Obligations of state and
political subdivisions 127,239 1,354 601 127,992
Mortgage-backed
securities 143,739 1,268 3,065 141,942
Other securities 32,859 50 286 32,623
-------- ----- ------ -------
$791,134 2,808 14,469 779,473
=================================================================================
Book Market
Value Value
- - - ---------------------------------------------------------------------------------
Due in one year or less $228,104 227,702
Due after one year through five years 315,927 310,321
Due after five years through ten years 125,537 121,430
Due after ten years 121,566 120,020
-------- -------
$791,134 779,473
=================================================================================
17
The book value and market value of investment securities
classified as available-for-sale are as follows:
March 31,
------------------------------------------
1995
------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
------------------------------------------
U.S. Treasury securities
and U.S. Government agency
obligations $544,818 1,029 15,691 530,156
Obligations of state and
political subdivisions -- -- -- --
Mortgage-backed
securities 151,998 168 4,097 148,069
Other securities 76,964 517 1,946 75,535
-------- ----- ------ -------
$773,780 1,714 21,734 753,760
=================================================================================
Book Market
Value Value
- - - ---------------------------------------------------------------------------------
Due in one year or less $ 70,367 70,256
Due after one year through five years 199,261 193,959
Due after five years through ten years 31,296 30,320
Due after ten years 472,856 459,225
-------- -------
$773,780 753,760
=================================================================================
The book value and market value of investment securities including
mortgage-backed securities and derivatives at March 31, 1995, by contractual
maturity, are shown above. 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 $854,746,000,000 at March 31, 1995, $883,320,000 at December 31,
1994 and $619,223,000 at March 31, 1994.
As noted in prior periods, securities with remaining maturities over
five years reflected in the foregoing schedule consist of U.S. agencies and
mortgage backed securities. This is part of a strategy to maximize future
earnings. While the maturities of the mortgage 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, 1995 amounted to $3,809,447,000
compared to $3,687,889,000 at December 31, 1994 and $3,195,211,000 at March 31,
1994. Loans have increased $121,558,000 since year end 1994, for an annualized
growth rate of approximately 13%. The loan to deposit ratio at March 31, 1995
equaled 85.1% compared to 81.2% and 71.3% at December 31, 1994 and March 31,
1994, respectively.
18
ASSET QUALITY
Total non performing assets (non-accrual and restructured and other
real estate owned) amounted to $17,681,000 at March 31, 1995 or .46% of total
loans outstanding. At December 31, 1994 non performing assets equaled .71% of
total loans or $26,044,000 compared to 1.10% or $35,285,000 at March 31, 1994.
(Dollars in thousands)
-------------------------------
March December March
31, 31, 31,
1995 1994 1994
- - - -------------------------------------------------------------------------------
Non-accrual loans $13,371 13,625 19,444
Restructured loans 1,745 2,026 3,874
Other real estate owned 2,565 10,393 12,967
------- ------ ------
$17,681 26,044 35,285
======= ====== ======
Past due loans
(90 days or more) $ 3,268 3,569 1,703
======= ====== ======
Total Non-Performing
assets as a percent of
total loans .46% .71% 1.10%
=== === ====
As of this report, there were no loans outstanding which in total could
be considered a concentration of lending 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, 1995 amounted to
$37,426,000 or .98% of total loans outstanding compared to $35,834,000 or .97%
at December 31, 1994 and $35,676,000 at March 31, 1994 or 1.12%.
(Dollars in thousands)
-------------------------------
March December March
31, 31, 31,
1995 1994 1994
- - - -------------------------------------------------------------------------------
Balance at beginning
of year $35,834 35,030 35,030
Provision charged to
operating expenses 2,711 4,624 1,376
Loans charged off 2,177 7,695 1,670
Recoveries on loans
previously charged off 1,058 3,875 940
------- ------ ------
$37,426 35,834 35,676
======= ====== ======
Net charge offs as a percent
of average loans .12% .11% .09%
Allowance for possible
loan losses:
As a percent of loans
outstanding at end of
period .98% .97% 1.12%
As a multiple of net
charge offs 8.25X 9.38X 12.05X
19
The Credit Risk Management Division of the Corporation is responsible
for determining the adequacy of the allowance for possible loan losses through
internal review, analysis of delinquency trends and ratios, changes in the
composition and level of various loan categories, historical loss experience,
and current economic conditions.
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 Ended and Year Ended
----------------------------------------------------------------
March 31, December 31, March 31,
1995 1994 1994
-------------------- ------------------- -------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
----------------------------------------------------------------
Demand deposits -
non-interest bearing $ 708,097 - 689,964 - 669,283 -
Demand deposits -
interest bearing 444,005 2.24% 470,873 1.97% 458,187 2.33%
Savings deposits 1,588,708 2.63 1,665,245 2.68 1,725,742 2.48
Certificates and other
time deposits 1,717,283 5.08 1,674,635 4.63 1,565,491 4.06
---------- --------- ---------
$4,458,093 3.12 4,500,717 2.92 4,418,703 2.65
========== ========= =========
The following table summarizes the certificates and other time deposits in
amounts of $100,000 or more as of March 31, 1995 by time remaining until
maturity.
(Dollars in Thousands) Amount
------------------------------------------------
Maturing in:
Under 3 months $105,134
3 to 12 months 58,244
Over 12 months 66,149
--------
$229,527
20
CAPITAL RESOURCES
Shareholders' equity at March 31, 1995 totaled $524,536,000 compared to
$523,319,000 at December 31, 1994 and $506,253,000 at March 31, 1994.
The following table reflects the various measures of capital:
- - - --------------------------------------------------------------------------------------
As Of As Of As Of
March December March
31, 1995 31, 1994 31, 1994
- - - --------------------------------------------------------------------------------------
In millions
Total equity $524,536 9.12% 523,319 9.14% 506,253 9.62%
Common equity 524,536 9.12% 523,319 9.14% 506,253 9.62%
Tangible common
equity (a) 506,586 8.83% 504,337 8.84% 485,338 9.26%
Tier 1 capital
(b) 529,511 14.63% 537,999 15.32% 501,044 16.46%
Total risk-based
capital (c) 566,937 15.66% 573,833 16.34% 536,720 17.63%
Leverage (d) 529,511 9.28% 537,999 9.53% 501,044 9.67%
<FN>
(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 quarters 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. At
March 31, 1995 the Corporation's risk-based capital equaled 15.66% of risk
adjusted assets, far exceeding the minimum guidelines.
The cash dividend of $.25 paid in the first quarter has an indicated
annual rate of $1.00 per share.
21
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 (a) Employment Agreement of John R. Cochran
(b) Membership Agreement of John R. Cochran with respect to the
FirstMerit Corporation Executive Supplemental Retirement Plan
(c) Stock Option Agreement of John R. Cochran dated March 1, 1995
(d) FirstMerit Corporation 1995 Restricted Stock Plan
(e) Restricted Stock Award Agreement for John R. Cochran
(f) Termination Agreement of John R. Cochran
27 Financial Data Schedule
(b) Form 8-K
On February 15, 1995, FirstMerit Corporation filed a Form 8-K for
the purpose of reporting the completion of its acquisition of The CIVISTA
Corporation and to file the audited financial statements of The CIVISTA
Corporation.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRSTMERIT CORPORATION
(Registrant)
By:/s/GARY J. ELEK
----------------------------
Signature
Senior Vice President/Treasurer
Authorized to sign for the
Corporation
By:/s/GARY J. ELEK
----------------------------
Signature
GARY J. ELEK
Senior Vice President/Treasurer
Principal Financial Officer and
Principal Accounting Officer
Date: May 15, 1995