FirstMerit, Inc. 1998
Third Quarter Report
To Our Shareholders
We are pleased to report another quarter of strong earnings growth. Third quarter net income was $25.6 million, a gain of 16.2 percent above third quarter 1997. Earnings per share on a diluted basis were $0.39, up 11.4 percent above prior year. Return on average equity (ROE) and return on average assets (ROA) were 15.4 percent and 1.62 percent, respectively. This compares to third quarter 1997 levels of 16.9 percent and 1.66 percent.
We are benefiting from the first full quarter impact of CoBancorp to FirstMerit's revenue base. We completed the operational integration of CoBancorp over Labor Day weekend and closed our acqusition of Security First on October 23. Since closing of Security First occurred after September 30, 1998, Security First's results are not included for the periods presented.
Net revenue on a fully tax-equivalent basis reached $98.2 million in the third quarter of 1998, compared with $86.2 million for the prior year period, a gain of 13.9 percent. Revenue growth was fueled by strong gains in both fee income and net interest income.
Net interest income on a fully tax-equivalent basis was $72.8 million for the third quarter of 1998, a gain of 12.7 percent. Growth in average earning assets was 16.1 percent above third quarter 1997, reaching $5.7 billion. This growth more than offset a 2.9 percent, or 15 basis point, decline in net interest margin, from 5.20 percent in the third quarter of 1997 to 5.05 percent this quarter. Margins were lowered by falling interest rates that caused a larger decline in asset yields than in cost of funds.
Excluding securities gains/losses from each quarter, non-interest income was $25.4 million compared to $21.7 million the prior year, an improvement of 17.4 percent. Major gains were reported for trust income, up 20.6 percent, credit card fees, up 42.4 percent, and other service fees, including ATM revenue, up 55.1 percent.
Operating expenses were $56.6 million for the third quarter of 1998, an increase of 17.2 percent above the prior year level of $48.3 million. Much of the increase is due to the recent merger of CoBancorp and expense reductions are still in progress. The third quarter efficiency ratio was 55.6 percent, compared to 55.5 percent in 1997.
Assets exceeded the $6.2 billion level at quarter end, with earning assets comprising 91.7 percent of the total. At period end, total loans, net of unearned interest, were $4.3 billion, a gain of 16.4 percent. On an average basis, total loans were $4.4 billion, 13.5 percent above 1997 third quarter average levels. Commercial loans grew 26 percent to account for 43.8 percent of the portfolio, up from 39.3 percent, reflecting the impact of CoBancorp's strong commercial lending focus.
At September 30, 1998, non-performing assets were $19.3 million, or 0.44 percent of total loans and other real estate associated with CoBancorp branch closures, compared to $11.7 million, or 0.31 percent, for the same quarter last year. The loan loss allowance as a percent of non-performing loans was 417.61 percent compared to 478.58 percent at September 30, 1997. The 1997 asset quality results do not include CoBancorp totals.
Total deposits grew 15.1 percent, ending the quarter at $4.8 billion. On an average basis, deposits were $4.9 billion for the third quarter, up 16.3 percent from year earlier levels. Increases were recorded in all deposit categories.
Total shareholders' equity grew $175 million, or 33.6 percent, from year earlier levels, reaching $695 million at third quarter end. In connection with the Security First acquisition, we suspended our stock repurchase program on April 6, 1998, and closed a secondary offering of 1.38 million shares of stock on September 14.
On August 11, 1998, we signed a definitive agreement to acquire Signal Corporation, a $1.9 billion bank holding company headquartered in Wooster, Ohio. Signal has 32 branches in eleven northern Ohio counties and a consumer finance subsidiary specializing in the financing of manufactured housing. This acquisition will move FirstMerit to the number one market position in Wayne County, enhance its position in Summit, Stark and Medina counties and gain a strong foothold into Knox, Ashland, Richland counties and the western Pennsylvania county of Lawrence. Subject to approval by FirstMerit and Signal shareholders, and regulatory approval and customary conditions of closing, we will close the transaction in the first quarter of 1999.
It is a pleasure to announce several promotions in our FirstMerit Services Division this quarter: Joleen Cicchinelli to Senior Vice President, Project Management; Larry Stouffer to Senior Vice President, Information Systems Group Manager; Mary Lore to Senior Vice President, Technology Strategy & Development; Richard Kindig to Senior Vice President, Operations Group Manager; Robert Rood to Senior Vice President, Director Administrative Services, and David Cromer to Group Vice President, Telecommunications. These talented employees are leaders in our strong systems and operations center which makes us competitive in our product, technology and acquisition consolidations. Congratulations on jobs well done.
We are well-positioned to enter a period of economic uncertainty. Our loan quality is strong, and we continue to see opportunities for profitable growth. We are on target for another record year.
JOHN R. COCHRAN
Chairman and Chief Executive Officer
Number of shareholders at September 30, 1998 Ð 7,647.
*Based upon number of shares outstanding at the end of each quarter.
This table sets forth the high and low closing bid quotations, dividend rates and book values per share for the calendar periods indicated. All previous statistics are adjusted to reflect previous stock splits. These quotations, furnished by the National Quotations Bureau Incorporated, represent prices between dealers, do not include retail markup, markdowns, or commissions, and may not represent actual transactions.
This chart illustrates the changes in book and market values of the Common Stock over the past four years (adjusted for stock splits). The point at which the closing price line leaves the range block on the chart indicates the closing price on the last day of each quarter. On September 30, 1998, the stock closed at $23.50 per share or 225% of book value.
DirectorsKaren S. Belden R. Cary Blair John C. Blickle Sid A. Bostic Robert W. Briggs John R. Cochran Richard Colella Elizabeth A. Dalton Terry L. Haines Clifford J. Isroff Philip A. Lloyd, II Robert G. Merzweiler Stephen E. Myers Roger T. Read Justin T. Rogers, Jr. Richard N. Seaman Jerry M. Wolf Stock Listings NASDAQ/NMS Symbol - FMER Corporate Address Corporate Address FirstMerit Corporation III Cascade Plaza Akron, Ohio 44308-1103 330-996-6300 www.FirstMerit.com Dividend Reinvestment A plan is available to shareholders whereby they may acquire additional shares free of commissions and fees. For information, contact:Subsidiaries FirstMerit Bank, N.A. FirstMerit Credit Life Insurance Company FirstMerit Community Development Corporation FirstMerit Mortgage Corporation FirstMerit Insurance Agency, Inc. FirstMerit Securities, Inc. Abell & Associates, Inc. |
Executive OfficersJohn R. Cochran Chairman & Chief Executive Officer Sid A.Bostic President & Chief Operating Officer John R. Macso Executive Vice President/ Chief Technology Officer Robert P. Brecht Executive Vice President/ Corporate Retail Jack R. Gravo Executive Vice President/ Finance & Administration Bruce M. Kephart Executive Vice President George P. Paidas Executive Vice President Gregory R. Bean Senior Vice President Gary J. Elek Senior Vice President George D. Griffin Senior Vice President & Auditor H. Joseph Haren Senior Vice President & CIO Felice L. Larmer Senior Vice President/ Investment & Insurance Services Daniel K. McGill Senior Vice President Christopher J. Maurer Senior Vice President/ Human Resources Richard G. Norton Senior Vice President Terry E. Patton Senior Vice President & Secretary William R. Reed Senior Vice President & Senior Credit Officer William E. Stansifer Senior Vice President & Chief Credit Policy Officer |