To Our Shareholders

This quarter's performance is the result of both internal revenue initiatives and acquisitions. Our strong earnings resulted largely from improvement in fee income. We completed the CoBancorp acquisition on May 22, which added over $700 million in assets and $885 thousand in fees to FirstMerit. This combination of revenue and asset growth positions us well for the upcoming year. Net interest income on a fully tax-equivalent basis was $68.9 million, a gain of 5.9 percent above 1997. Growth in average earning assets was 7.9 percent, reaching $5.3 billion at period end. This more than offset a 1.7 percent decline in net interest margin, from 5.31 percent in 1997 to 5.22 percent for the 1998 period.

Excluding securities gains/losses from each quarter, non-interest income was $24.8 million compared to $19.3 million the prior year, an improvement of 28.1 percent. Major gains were reported for trust income, credit card fees, and other service fees, including ATM revenue. Operating expenses were $54.2 million for the second quarter of 1998, an increase of 13.9 percent above the prior year level of $47.6 million. Of the $6.6 million increase, processing fees accounted for $2.2 million; salaries, $1.7 million; higher professional fees, $0.7 million and amortization of intangibles, $0.7 million. Included in some of the increases were costs from CoBancorp operations that totaled approximately $2.6 million from May 22, 1998 to June 30, 1998. The second quarter efficiency ratio was 56.59 percent compared to 55.82 percent in 1997.

With the acquisition, assets were nearly $6.2 billion at quarter end, with earning assets comprising 91 percent of the total. At period end, total loans, net of unearned interest, were $4.3 billion, a gain of 10.8 percent above 1997 quarter-end levels. On an average basis, total loans were $4.1 billion, 6.2 percent above 1997 second quarter average levels.

Asset quality remains solid. The allowance for loan losses was increased by an additional $8.2 million through the purchase of CoBancorp. As a result, the allowance to loan loss ratio was 1.53 percent at the end of the second quarter, compared to 1.31 percent the prior year. At June 30, 1998, non-performing assets were $15.9 million, or 0.37 percent of total loans and other real estate, compared to $10.3 million, or 0.27 percent, for the same quarter last year.

In connection with the CoBancorp acquisition, we implemented several changes in management structure. William G. Lamb was promoted to President and CEO of FirstMerit Bank/Elyria, which now includes PremierBank & Trust. Also, William F. Randolph joined FirstMerit as Executive Vice President to head up FirstMerit's new initiative in Columbus.

We promoted Robert G. Morlan to President and CEO of FirstMerit Bank/Citizens. George Paidas, Regional President and CEO of FirstMerit Bank/Old Phoenix, will add FirstMerit Bank/Wooster to his region. Bruce Kephart, Regional President and CEO of FirstMerit Bank/Peoples, will also head FirstMerit Bank in Cleveland. Timothy A. Cahill was promoted to Executive Vice President and Managing Officer of FirstMerit Bank/Peoples.

Ilene L. Shapiro was promoted to Senior Vice President and Director of Sales, and we welcome Kim Ravenda who joins FirstMerit as Senior Vice President of Strategic Planning and Marketing. We are pleased that the depth of talent in our organization allows us to recognize so many employees' growing abilities and contributions to the success of our company.

We continue to progress with our acquisition of Security First Corporation, a thrift holding company with 14 branches located in Northeast Ohio. The agreement was signed on April 5, 1998, and we have received regulatory and Security First shareholder approval. The merger is scheduled to be completed in October, 1998, subject to customary conditions of closing.

The first half of 1998 has been eventful and rewarding. We look forward to prospects of the same in the second half of the year.

John R. Cochran
Chairman and Chief Executive Officer

Stock Performance and Dividends Number of shareholders at June 30, 1998 - 7,695. *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.

Common Stock Price

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 June 30, 1998, the stock closed at $29.13 per share or 294% of book value.

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Income

Stock Listings

Corporate Address

FirstMerit Corporation
III Cascade Plaza
Akron, Ohio 44308-1103
330-996-6300
www.FirstMerit.com

Dividend Reinvestment

For information, contact:

Stock Transfer Agent
FirstMerit Bank, N.A.
Corporate Trust Department
121 South Main Street, Suite 200
Akron, Ohio 44308-1440

Subsidiaries