 1 ST QUARTER 1999 |
1 ST QUARTER 1999 |
TO OUR SHAREHOLDERS
We are pleased to report that first quarter earnings reached a record level of $37.6 million before merger-related and extraordinary charges, 28% above last year. Diluted earnings per share before these charges were $0.41 for the first quarter, an increase of 17.6% above 1998.
During the first quarter, we took charges consisting of $32.3 million related to the Signal Corp acquisition and a $5.8 million extraordinary charge for the early retirement of Signal debt. First quarter net income, as reported after merger-related charges and before the extraordinary charge, was $5.3 million, or $0.06 per share. We reported a net loss of $0.5 million after the extraordinary charge. These results reflect the restatement of both 1998 and 1999 first quarters to account for the acquisition of Signal Corp on February 12, 1999 on a pooling-of-interests basis. In addition, the 1999 first quarter results include the earnings of CoBancorp, which merged with FirstMerit on May 22, 1998.
We are extremely pleased with these first quarter results, which showed solid increases in earning assets and revenues, and continued improvement in our adjusted efficiency ratio, which declined to 53.9% this quarter compared to 58.1% last year. Returns on equity and on assets for this quarter were 16.7% and 1.68%, respectively, after adjusting to exclude merger-related and extraordinary charges. This compares favorably to 1998 first quarter ratios of 15.9% and 1.52%.
First quarter 1999 net interest income on a fully-tax equivalent basis was $95.6 million, an increase of 13.8%. This increase is primarily the result of a higher level of earning assets, much of which can be attributed to the inclusion of CoBancorp this quarter. Average earning assets rose 13.1%, while net interest margin rose slightly, from 4.62% to 4.65% this quarter.
Adjusted net revenue was $128.1 million, an increase of 11.4%. Excluding gains from the sale of securities, fees increased 4.8%, a portion of which is from the inclusion of CoBancorp this quarter. Income from manufactured housing and from loan sales and services was lower than last year, but was more than offset by the improvement in trust, credit card and other service fees.
Excluding the $33.6 million charge related to the Signal Corp merger, non-interest expenses totaled $71.8 million for the quarter, an increase of 7.4%. As mentioned previously, a portion of the increase is from the inclusion of CoBancorp in the 1999 first quarter.
Assets at quarter-end were $9.2 billion, an increase of 15% above 1998. Total loans, net of unearned interest, were $6.6 billion, up 15.5% from 1998. Commercial loans continue to outpace overall portfolio growth, up 27.0% above last year, while mortgage loans are down 9.6% from year earlier levels. While we continue to make mortgage loans at our normal levels, we securitize and sell these loans, recognize gains and reinvest proceeds in higher-yielding commercial and installment loans.
The provision for loan losses of $16.4 million in the first quarter of 1999 includes a merger-related increase of $10.2 million, compared with $6.2 million in the first quarter of 1998. Net charge-offs as a percent of average loans outstanding were 0.72% for the first quarter and the allowance as a percent of outstanding loans was 1.4%, compared with 1.23% last year. If charge-offs related to the Signal acquisition are excluded, the first quarter 1999 net charge-off ratio would have approximated FirstMerit historical levels.
Total deposits grew 11.4%, ending the period at $6.7 billion. Certificates and other time deposits declined 6.2%, but were strongly offset by 33.7% growth in aggregate demand deposits and savings accounts. Deposits fund approximately 80% of earning assets, the same as last year.
Shareholders' equity ended the quarter at $886.2 million, an increase of 20.9%, or $153.1 million, above 1998 first quarter. Of this $153 million increase, $128 million was derived from the reissuance of treasury stock and $49 million from proceeds of a secondary offering, both in connection with the acquisitions of CoBancorp, Security First and Signal Corp. Dividends paid were $16.5 million in the quarter and common shares outstanding totaled 91 million at March 31, 1999.
We look forward to a smooth integration with Signal, and the opportunity to provide our new customers with the same high level of service and wide range of product choices that have become a hallmark for FirstMerit.
As always, we are committed to the development of additional strategies to enhance relationship banking in our local communities, to continue our strong momentum of earnings growth, and to provide superior value to our shareholders. At our annual shareholders' meeting held on April 21, shareholders elected five Class II directors and also approved an amendment authorizing an increase in the number of shares of our common stock from 160 million to 300 million shares. This will allow us to take advantage of business opportunities as they arise, such as acquisitions, and provide for our employee stock option and purchase plans.
In connection with our stock option plan, the Board of Directors approved a plan to award a non-qualified stock option grant of 100 shares to all non-management full-time employees, and 50 shares to all part-time employees as of April 21, 1999. The shares will vest on the sooner of April 21, 2001, or when the price of FirstMerit stock reaches a per share price of $43. This plan was initiated to reward our hardworking employees and to keep them focused on delivering shareholder value.
On April 29, our directors approved a new stock repurchase program, authorizing us to repurchase up to 1.65 million shares of FirstMerit common stock.
We've accomplished a great deal this quarter. Our strategies are working to raise performance and expand our franchise, a winning combination for customers and shareholders alike. We are excited by the success of our strategies and our prospects for the year.
Sincerely,
John R. Cochran
Chairman & Chief Executive Officer
STOCK PERFORMANCE AND DIVIDENDS
Number of common shareholders at March 31, 1999 - 11,976.
*Excludes merger-related and unusual charges.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 March 31, 1999, the stock closed at $25.75 per share or 265% of book value.
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
*Excludes merger-related and unusual charges.
DIRECTORS
Karen S. Belden
R. Cary Blair
John C. Blickle
Sid A. Bostic
Robert W. Briggs
Gary G. Clark
John R. Cochran
Richard Colella
Terry L. Haines
Clifford J. Isroff
Philip A. Lloyd, II
Robert G. Merzweiler
Roger T. Read
Justin T. Rogers, Jr.
Richard N. Seaman
Charles F. Valentine
Jerry M. Wolf
Stock Listings
Nasdaq/NMS
Symbol - FMER
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:
Stock Transfer Agent
FirstMerit Bank, N.A.
Corporate Trust Department
121 South Main Street, Suite 200
Akron, Ohio 44308-1440
1-888-384-6388
Principal Operating
Subsidiaries
Abell & Associates, Inc.
FirstMerit Bank, N.A.
FirstMerit Community
Development Corporation
FirstMerit Credit Life Insurance
Company
FirstMerit Insurance Agency, Inc.
FirstMerit Mortgage Corporation
FirstMerit Securities, Inc.
Mobile Consultants, Inc.
EXECUTIVE OFFICERS
John 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
Bruce M. Kephart
Executive Vice President
George P. Paidas
Executive Vice President
Charles F. Valentine
Executive Vice President
Gregory R. Bean
Senior Vice President &
Executive Trust Officer
Gary J. Elek
Senior Vice President/
Mergers & Acquisitions
George D. Griffin
Senior Vice President &
Auditor
H. Joseph Haren
Senior Vice President &
Chief Information Officer
Felice L. Larmer
Senior Vice President/
Investment & Insurance Services
Daniel K. McGill
Senior Vice President
Christopher J. Maurer
Senior Vice President/
Human Resources
Austin J. Mulhern
Senior Vice President &
Chief Financial Officer
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
STOCK PERFORMANCE & DIVIDENDS | COMMON STOCK PRICE
BALANCE SHEETS | STATEMENTS OF INCOME | DIRECTORS & OFFICERS
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