FirstMerit Corporation 10-Q

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
June 30, 2004

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
July 31, 2004
84,816,915

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES (X) NO ( )

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 ( )

CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDIARIES


(in thousands)	June 30			December 31			June 30
(Unaudited, except December 31, 2003, which is derived from the audited financial statements)	2004			2003			2003
ASSETS
Cash and due from banks	$	216,258			199,049			308,697
Investment securities (at fair value) and federal funds sold		2,973,858			3,061,497			2,602,836
Loans held for sale		58,862			63,319			31,543
Commercial loans		3,324,335			3,352,014			3,437,977
Mortgage loans		627,633			614,073			553,329
Installment loans		1,668,679			1,668,421			1,596,973
Home equity loans		646,197			637,749			627,379
Credit card loans		140,110			144,514			136,973
Manufactured housing loans		—			—			661,909
Leases		113,047			134,828			167,674

Total loans		6,520,001			6,551,599			7,182,214
Less allowance for loan losses		(107,561	)		(97,553	)		(119,192	)

Net loans		6,412,440			6,454,046			7,063,022
Premises and equipment, net		121,373			119,079			113,701
Goodwill		139,245			139,245			139,245
Intangible assets		5,091			5,536			5,980
Accrued interest receivable and other assets		451,028			431,864			400,420

Total assets	$	10,378,155			10,473,635			10,665,444

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand-non-interest bearing	$	1,400,715			1,346,574			1,428,645
Demand-interest bearing		804,355			773,514			766,463
Savings and money market accounts		2,498,152			2,461,265			2,428,042
Certificates and other time deposits		2,699,578			2,921,431			3,168,487

Total deposits		7,402,800			7,502,784			7,791,637

Securities sold under agreements to repurchase		1,573,492			1,525,804			1,162,589
Wholesale borrowings		320,367			311,038			555,840
Accrued taxes, expenses, and other liabilities		124,401			146,834			165,328

Total liabilities		9,421,060			9,486,460			9,675,394

Commitments and contingencies
Shareholders’ equity:
Preferred stock, without par value:
authorized and unissued 7,000,000 shares		—			—			—
Preferred stock, Series A, without par value:
designated 800,000 shares; none outstanding		—			—			—
Convertible preferred stock, Series B, without par value:
designated 220,000 shares; 0, 0 and 42,036 shares outstanding at June 30, 2004, December 31, 2003 and June 30, 2003, respectively		—			—			1,011
Common stock, without par value:
authorized 300,000,000 shares; issued 92,026,350 at June 30, 2004, December 31, 2003 and June 30, 2003		127,937			127,937			127,937
Capital surplus		110,415			110,473			111,791
Accumulated other comprehensive loss		(41,601	)		(9,475	)		(2,625	)
Retained earnings		943,021			943,492			941,974
Treasury stock, at cost, 7,197,488, 7,302,057 and 7,537,719 shares at June 30, 2004, December 31, 2003 and June 30, 2003, respectively		(182,677	)		(185,252	)		(190,038	)

Total shareholders’ equity		957,095			987,175			990,050

Total liabilities and shareholders’ equity	$	10,378,155			10,473,635			10,665,444

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES


	Three months ended						Six months ended
(Unaudited)	June 30,						June 30,
(In thousands except per share data)	2004			2003			2004			2003
Interest income:
Interest and fees on loans, including held for sale	$	94,126			118,721			190,753			240,872
Interest and dividends on investment securities and federal funds sold		28,221			25,214			57,432			52,606

Total interest income		122,347			143,935			248,185			293,478

Interest expense:
Interest on deposits:
Demand-interest bearing		503			269			869			566
Savings and money market accounts		4,512			5,529			8,826			10,157
Certificates and other time deposits		19,598			26,083			41,229			55,972
Interest on securities sold under agreements to repurchase		6,271			4,742			12,409			9,271
Interest on wholesale borrowings		4,356			8,330			8,743			16,828

Total interest expense		35,240			44,953			72,076			92,794

Net interest income		87,107			98,982			176,109			200,684
Provision for loan losses		14,154			23,442			55,138			46,938

Net interest income after provision for loan losses		72,953			75,540			120,971			153,746

Other income:
Trust department income		5,696			5,442			11,052			10,328
Service charges on deposits		15,705			15,292			31,124			30,180
Credit card fees		9,546			10,989			18,210			20,715
ATM and other service fees		3,071			3,201			5,819			6,091
Bank owned life insurance income		3,083			3,159			6,209			6,388
Investment services and insurance		3,527			2,801			7,359			6,434
Manufactured housing income		5			506			150			1,059
Investment securities gains, net		1,412			3,106			1,482			5,972
Loan sales and servicing income		1,584			5,701			4,443			10,611
Other operating income		3,340			3,684			6,988			7,955

Total other income		46,969			53,881			92,836			105,733

Other expenses:
Salaries, wages, pension and employee benefits		40,389			36,488			80,231			73,627
Net occupancy expense		5,526			5,559			11,543			11,543
Equipment expense		3,323			3,663			6,858			7,570
Stationery, supplies and postage		2,577			2,735			5,289			5,765
Bankcard, loan processing and other costs		5,988			7,324			11,691			13,801
Professional services		3,977			2,739			7,123			5,361
Amortization of intangibles		222			223			445			445
Other operating expense		17,480			16,983			33,353			31,477

Total other expenses		79,482			75,714			156,533			149,589

Income before income tax expense		40,440			53,707			57,274			109,890
Federal income taxes		9,412			16,780			13,540			34,681

Net income	$	31,028			36,927			43,734			75,209

Other comprehensive income (loss), net of tax expense (benefit):
Unrealized securities’ holding gains (losses), net of tax expense (benefit), arising during period		(54,037	)		798			(31,163	)		(2,667	)
Less: reclassification adjustment for securities’ gains (losses) realized in net income, net of tax expense (benefit)		(917	)		(2,019	)		(963	)		(3,882	)

Net unrealized losses, net of tax expense (benefit)		(54,954	)		(1,221	)		(32,126	)		(6,549	)

Comprehensive income	$	(23,926	)		35,706			11,608			68,660

Net income applicable to common shares	$	31,028			36,909			43,734			75,173

Net income used in diluted EPS calculation		31,035			36,936			43,748			75,226

Weighted average number of common shares outstanding - basic		84,809			84,470			84,789			84,491

Weighted average number of common shares outstanding - diluted		85,149			84,880			85,161			84,881

Basic Earnings per Share	$	0.37			0.44			0.52			0.89

Diluted Earnings per Share	$	0.36			0.44			0.51			0.89

Dividend per Share	$	0.26			0.25			0.52			0.50

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES


	Six months ended
(Unaudited)	June 30,
(In thousands)	2004			2003
Operating Activities
Net income	$	43,734			75,209
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		55,138			46,938
Provision for depreciation and amortization		6,835			7,273
Amortization of investment securities premiums, net		3,934			6,690
Accretion of income for lease financing		(3,927	)		(6,898	)
Gains on sales of investment securities, net		(1,482	)		(5,972	)
(Increase) decrease in interest receivable		(249	)		2,569
Decrease in interest payable		(5,251	)		(19,237	)
Increase in other prepaid expenses		(3,105	)		(4,263	)
Increase in bank owned life insurance		(6,208	)		(6,135	)
Decrease in other personal property		799			8,714
Originations of loans held for sale		(218,094	)		(542,338	)
Proceeds from sales of loans, primarily mortgage loans sold in the secondary mortgage markets		223,028			686,304
Gains on sales of loans, net		(477	)		(5,540	)
Amortization of intangible assets		445			445
Other changes		(10,079	)		8,343

NET CASH PROVIDED BY OPERATING ACTIVITIES		85,041			252,102

Investing Activities
Dispositions of investment securities:
Available-for-sale — sales		117,247			732,349
Available-for-sale — maturities		279,674			653,741
Purchases of investment securities available-for-sale		(362,047	)		(1,479,996	)
Net increase in loans and leases, except sales		(9,605	)		(11,547	)
Purchases of premises and equipment		(9,782	)		(6,507	)
Sales of premises and equipment		653			1,815

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES		16,140			(110,145	)

Financing Activities
Net increase in demand, savings and money market accounts		121,869			498,378
Net decrease in certificates and other time deposits		(221,853	)		(418,000	)
Net increase (decrease) in securities sold under agreements to repurchase		47,688			(58,232	)
Net increase (decrease) in wholesale borrowings		10,219			(45,505	)
Cash dividends — common and preferred		(44,205	)		(42,473	)
Purchase of treasury shares		—			(2,036	)
Proceeds from exercise of stock options, conversion of debentures or conversion of preferred stock		2,310			1,040

NET CASH USED BY FINANCING ACTIVITIES		(83,972	)		(66,828	)

Increase in cash and cash equivalents		17,209			75,129
Cash and cash equivalents at beginning of period		199,049			233,568

Cash and cash equivalents at end of period	$	216,258			308,697

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the six months ended June 30:
Interest, net of amounts capitalized	$	36,156			53,709

Federal income taxes	$	22,797			46,370

The accompanying notes are an integral part of the consolidated financial statements.

FirstMerit Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2004 (Unaudited) (Dollars in thousands)

1. Company Organization and Financial Presentation — FirstMerit Corporation (“Corporation”), is a bank holding company whose principal assets are the common stock of its wholly owned subsidiary, FirstMerit Bank, N. A. The Corporation’s other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, FirstMerit Community Development Corporation, FirstMerit Credit Life Insurance Company, FMT, Inc., SF Development Corp and Realty Facility Holdings XV, L.L.C.

The consolidated balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited interim financial statements reflect all adjustments (consisting only of normally recurring accruals) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules of the Securities and Exchange Commission. The consolidated financial statements of the Corporation as of June 30, 2004 and 2003, and for the three and six months ended June 30, 2004 and June 30, 2003 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2003.

2. Recent Accounting Pronouncements — During December 2003 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 132 (revised 2003) “Employers’ Disclosure about Pensions and other Postretirement Benefits an Amendment of FASB Statements No. 87, 88, and 106.” This statement revised employers’ disclosures about pension plans and other postretirement benefit plans. It did not change the measurement or recognition of those plans required by SFAS No. 87 “Employers’ Accounting for Pensions,” No. 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and No. 106 “Postretirement Benefits Other than Pensions.” This statement retains the disclosure requirements contained in the original SFAS No. 132 and requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. These additional disclosures have been included in Note 11 of these consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 is an amendment of SFAS No. 123 (“Accounting for Stock-Based Compensation”) and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Corporation currently accounts for stock-based employee compensation under the provisions of Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations. No stock based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common

stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation. The Black-Scholes option-pricing model was used to estimate the fair market value of the options at the date of grant. This model was originally developed for use in estimating the fair value of traded options, which have different characteristics from the Corporation’s employee stock options. The model is also sensitive to changes in subjective assumptions, which can materially affect fair value estimates. As a result, management believes that the Black-Scholes model may not necessarily provide a reliable single measure of the fair value of employee stock options. Other models are currently under review and may be used by the Corporation for future disclosure.


	Three			Three			Six			Six
	months			months			months			months
	ended			ended			ended			ended
	June 30,			June			June 30,			June
	2004			2003			2004			2003
Net income, as reported	$	31,028			36,927			43,734			75,209
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(857	)		(629	)		(1,620	)		(1,275	)

Pro forma net income	$	30,171			36,298			42,114			73,934

Pro forma EPS — Basic	$	0.36			0.43			0.50			0.87
Pro forma EPS — Diluted	$	0.35			0.43			0.49			0.87
Reported EPS — Basic	$	0.37			0.44			0.52			0.89
Reported EPS — Diluted	$	0.36			0.44			0.51			0.89
Assumptions:
Dividend yield		4.08	%		4.52	%		4.10	%		4.52	%
Expected volatility		29.91	%		32.66	%		30.00	%		32.66	%
Risk free interest rate		3.54 - 3.9	%		2.59 - 3.1	%		2.94 - 3.9	%		2.95	%
Expected lives	5 Years			5 Years			5 Years			3 - 5 Years

In December 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Modernization Act”), which introduces a prescription drug benefit under Medicare, into law. On May 19, 2004, FASB issued FASB Staff Position FAS No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP FAS No. 106-2”) provides guidance on accounting for the effects of the new Medicare prescription drug legislation by employers whose prescription drug benefits are actuarially equivalent to the drug benefit under Medicare Part D. The Company early adopted this FSP in the first quarter, 2004 and has recognized the effect of the Modernization Act in the calculation of its postretirement benefit liability as of January 1, 2004. This change is more fully described in Note 11 (Benefit Plans) of these consolidated financial statements.

3. Critical Accounting Policies — The accounting and reporting policies of the Corporation are in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses, income taxes, mortgage servicing rights, derivative instruments and hedging activities, and pension and postretirement benefits are deemed critical since they involve the use of estimates and require significant management judgments. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies) and Note 5 (Allowance for Loan Losses), as described in the 2003 Form 10-K, provide considerable detail with regard to the Corporation’s methodology and reporting of the allowance for loan losses. Additional information for income tax accounting is contained within Note 1, as well as in Note 11 (Federal Income Taxes) as described in the 2003 Form 10-K. Within the “Other Income” section of the second quarter 2004 Form 10-Q, the Corporation’s basis for accounting for mortgage servicing rights, which is based on a discounted cash flow model believed to be comparable to those used by other financial institutions, is discussed in more detail. Accounting for mortgage servicing rights was also discussed in the 2003 Form 10-K in Note 1 and Note 6 (Mortgage Servicing Rights and Mortgage Servicing Activity) of the 2003 Form 10-K. Derivative instruments and hedging activities are described more fully in Note 10 (Accounting for Derivatives) in these consolidated financial statements, as well as Note 1, Note 16 (Fair Value Disclosure of Financial Instruments), and Note 17(Financial Instruments with Off-Balance-Sheet Risk) of the 2003 Form 10-K. A description of the plans and the assumptions used to estimate the liabilities for pension and postretirement benefits is described in Note 12 (Benefit Plans) to the 2003 Form 10-K as well as Note 11 (Benefit Plans) to these consolidated financial statements.

4. 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:


	June 30, 2004
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
US Treasuries and agencies	$	814,320		586		17,397		797,509
Obligations of state and political subdivisions		105,178		2,117		493		106,802
Mortgage-backed securities		1,857,752		6,505		47,726		1,816,531
Other securities		258,105		1,216		6,305		253,016

	$	3,035,355		10,424		71,921		2,973,858


	Book Value		Fair Value
Due in one year or less	$	100,040		100,459
Due after one year through five years		1,846,348		1,813,158
Due after five years through ten years		935,951		911,140
Due after ten years		153,016		149,101

	$	3,035,355		2,973,858

Expected maturities will differ from contractual maturities based on the issuers’ rights to call or prepay obligations with or without call or prepayment penalties. Securities with remaining maturities over five years consist of mortgage and asset backed securities.

The carrying amount of investment securities pledged to secure trust and public deposits and for purposes required or permitted by law amounted to approximately $2.1 billion at June 30, 2004, $2.0 billion at December 31, 2003, and $1.6 billion at June 30, 2003.

5. Allowance for loan losses (“ALL”) — The Corporation’s Credit Policy Division manages credit risk by establishing common credit policies for its subsidiary banks, participating in approval of their loans, conducting reviews of loan portfolios, providing centralized consumer underwriting, collections and loan operation services, and overseeing 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.

The activity within the ALL for the current and prior year quarters, and the full year ended 12/31/03 is shown in the following table:

Allowance for Loan Losses Activity


	Quarter ended			Year Ended			Quarter ended
Dollars in thousands	June 30, 2004			December 31, 2003			June 30, 2003
Allowance for loan losses-beginning of period	$	120,261			122,790			119,001
Provision for loan losses		14,154			102,211			23,442
Loans charged off		(21,341	)		(119,877	)		(28,979	)
Recoveries on loans previously charged off		7,158			21,856			5,728
Allowance related to loans sold		(12,671	)		(29,427	)		0

Allowance for loan losses-end of period	$	107,561			97,553			119,192

6. Goodwill and Intangible Assets – The following table summarizes goodwill and intangible assets:

At June 30, 2004

At December 31, 2003

At June 30, 2003

Gross

Accumulated

Net

Gross

Accumulated

Net

Gross

Accumulated

Net

(In thousands)

Amount

Amortization

Amount

Amortization

Amount

Amortization

Amount

Amortizable intangible assets:

Deposit Base Intangibles

10,137

5,045

5,092

10,137

4,601

5,536

10,137

4,156

5,981

Unamortizable intangible assets:

Goodwill

139,245

Amortization expense for intangible assets was $0.22 million for both quarters ending June 30, 2004 and 2003. The following table shows the estimated future amortization expense for deposit base intangibles based on existing asset balances at December 31, 2003 for the years ended:


For the year ended:
December 31, 2004	$	889
December 31, 2005		889
December 31, 2006		889
December 31, 2007		889
December 31, 2008		573

During the first quarter of 2004, the Corporation conducted its annual impairment testing as required by SFAS No. 142 “Goodwill and Other Intangible Assets,” and concluded that goodwill was not impaired. There have been no events subsequent to that date which would change the conclusions reached.

7. Earnings per share — The reconciliation between basic and diluted earnings per share (“EPS”) is presented as follows:

For the quarters ended June 30, 2004 and 2003, options to purchase 4.95 million and 4.90 million shares, respectively were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.


						Six		Six
	Quarter ended		Quarter ended			months ended		months ended
Dollars in thousands except EPS	June 30, 2004		June 30, 2003			June 30, 2004		June 30, 2003
BASIC EPS:
Net income	$	31,028		36,927			43,734		75,209
Less preferred stock dividends		—		(18	)		—		(36	)

Net income applicable to common shares	$	31,028		36,909			43,734		75,173

Average common shares outstanding		84,809,340		84,469,748			84,789,186		84,491,041
Net income per share — basic	$	0.37		0.44			0.52		0.89

DILUTED EPS:
Net income available to common shares	$	31,028		36,909			43,734		75,173
Add: preferred stock dividends		—		18			—		36
Add: interest expense on convertible bonds		7		9			14		17

Net income used in diluted EPS calculation	$	31,035		36,936			43,748		75,226

Avg common shares outstanding		84,809,340		84,469,748			84,789,186		84,491,041
Add: Equivalents from stock options		284,725		231,431			317,600		206,724
Add: Equivalents-convertible bonds		54,448		62,405			54,448		62,405
Add: Equivalents from convertible preferred stock		—		116,607					121,297

Average common shares and equivalents outstanding		85,148,513		84,880,191			85,161,234		84,881,467
Net income per common share — diluted	$	0.36		0.44			0.51		0.89

8. 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 the Parent Company, Other Subsidiaries and Eliminations category are certain nonbanking affiliates, and eliminations of certain intercompany 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 following tables present a summary of financial results as of and for the three-month and six-month periods ended June 30, 2004 and 2003 and the full year ended December 31, 2003:


					Parent Company, Other
	Supercommunity Banking				Subsidiaries, Eliminations						FirstMerit Consolidated
June 30, 2004	2nd Qtr		YTD		2nd Qtr			YTD			2nd Qtr		YTD
*OPERATIONS* (thousands):
Net interest income	$	85,942		173,819		1,165			2,290			87,107		176,109
Provision for loan losses		14,215		55,188		(61	)		(50	)		14,154		55,138
Other income		46,798		92,457		171			379			46,969		92,836
Other expenses		79,355		156,020		127			513			79,482		156,533
Net income	$	30,306		42,260		722			1,474			31,028		43,734
AVERAGES (millions):
Assets	$	10,392		10,391		73			69			10,465		10,460
Loans		6,537		6,529		4			4			6,541		6,533
Earnings assets		9,644		9,641		15			14			9,659		9,655
Deposits		7,527		7,531		(90	)		(91	)		7,437		7,440
Shareholders’ equity	$	784		792		198			200			982		992


			Parent Company, Other
	Supercommunity Banking		Subsidiaries, Eliminations			FirstMerit Consolidated
December 31, 2003	YTD		YTD			YTD
*OPERATIONS* (thousands):
Net interest income	$	389,008		4,605			393,613
Provision for loan losses		101,593		618			102,211
Other income		208,774		1,372			210,146
Other expenses		325,717		1,235			326,952
Net income	$	118,264		2,705			120,969
AVERAGES (millions):
Assets	$	10,558		33			10,591
Loans		7,134		5			7,139
Earnings assets		9,824		20			9,844
Deposits		7,755		(83	)		7,672
Shareholders’ equity	$	779		197			976


					Parent Company, Other
	Supercommunity Banking				Subsidiaries, Eliminations						FirstMerit Consolidated
June 30, 2003	2nd Qtr		YTD		2nd Qtr			YTD			2nd Qtr		YTD
*OPERATIONS* (thousands):
Net interest income	$	97,748		198,186		1,234			2,498			98,982		200,684
Provision for loan losses		23,442		46,563		—			375			23,442		46,938
Other income		53,445		104,948		436			785			53,881		105,733
Other expenses		75,270		148,741		444			848			75,714		149,589
Net income	$	36,045		73,792		882			1,417			36,927		75,209
AVERAGES (millions):
Assets	$	10,541		10,552		37			38			10,578		10,590
Loans		7,152		7,158		5			5			7,157		7,163
Earnings assets		9,813		9,826		25			25			9,838		9,851
Deposits		7,791		7,787		(81	)		(79	)		7,710		7,708
Shareholders’ equity	$	786		780		197			198			983		978

9. Accounting for Derivatives — The Corporation follows the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” in accounting for its derivative activities. At June 30, 2004, the Corporation had various interest rate swaps in place that were accounted for as fair value hedges under SFAS No. 133 since their purpose is to “swap” fixed interest rate liabilities and assets to a variable interest rate basis. All but one of the interest rate swaps are associated with the Corporation’s fixed-rate commercial loan swap program that was initiated during the first quarter of 2003 and the remaining interest rate swap converts the fixed interest rate of mandatorily redeemable trust preferred securities to a variable rate. All of these interest rate swaps, with the exception of the one associated with the mandatorily redeemable trust preferred securities, qualify for the “shortcut method of accounting” as prescribed in SFAS No. 133. The shortcut accounting treatment requires that the hedge and the hedged item meet certain qualifying criteria. If the swap qualified for shortcut accounting treatment then no hedge ineffectiveness can be assumed and the need to test for ongoing effectiveness is eliminated. For hedges that qualify for shortcut accounting treatment, the fair value of the swap and the fair value of the hedged item are recorded on the balance sheets and statements of income and comprehensive income. The remaining hedge does not meet all the criteria necessary to be considered for shortcut accounting treatment. Therefore, the long-haul accounting treatment is utilized. The long-haul accounting treatment requires periodic testing of hedge effectiveness with the portion of the hedge deemed to be ineffective reported in earnings.

Additionally, in the normal course of business, the Corporation sells originated mortgage loans into the secondary mortgage loan markets. The Corporation maintains a risk management program to protect and manage interest-rate risk and pricing associated with its mortgage commitment pipeline. The Corporation’s mortgage commitment pipeline included interest-rate lock commitments (“IRLCs”) that have been extended to borrowers who have applied for loan funding and met certain defined credit and underwriting standards. During the term of the IRLCs, the Corporation is exposed to interest-rate risk, in that the value of the IRLCs may change significantly before the loans close. To mitigate this interest-rate risk, the Corporation enters into various derivatives by selling loans forward to investors using forward commitments. In accordance with SFAS No. 133, the Corporation classifies and accounts for IRLCs as nondesignated derivatives that are recorded at fair value with changes in value recorded to current earnings. The forward sale commitments used to manage the risk on the IRLCs are also classified and accounted for as nondesignated derivatives and, therefore, recorded at fair value with changes recorded through current period earnings. During 2003, the Corporation implemented a SFAS No. 133 hedging program for its mortgage loan warehouse to gain protection for the changes in fair value of the mortgage loans held for sale and the forward commitments. As such, both the mortgage loans held for sale and the forward commitments are recorded at fair value with changes in value recorded to current earnings.

In 2003, the Corporation began to enter into derivative contracts by purchasing To Be Announced Mortgage Backed Securities (“TBA Securities”) to help mitigate the interest-rate risk associated with its mortgage servicing rights. Within the “Other Income” section of these consolidated financial statements and Note 6 to the 2003 Form 10-K, the Corporation’s basis for accounting for mortgage servicing rights is discussed in more detail. In accordance with SFAS No. 133, the Corporation classifies and accounts for the TBA Securities as nondesignated derivatives. Accordingly, the TBA Securities are recorded at fair value with changes in value recorded to current period earnings.

10. Benefit Plans – The Corporation sponsors several qualified and nonqualified pension and other postretirement benefit plans for certain of its employees. The net periodic benefit cost is based on estimated values provided by independent actuaries. The components of net periodic benefit cost are as follows:


	Pension Benefits
							Six Months			Six Months
	Quarter ended			Quarter ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2004			2003			2004			2003
Components of Net Periodic Pension Cost
Service Cost		1,922			1,667			3,844			3,334
Interest Cost		2,057			1,847			4,114			3,694
Expected return on assets		(2,851	)		(2,238	)		(5,702	)		(4,476	)
Amorization of unrecognized:
Transition (asset)		(9	)		(9	)		(18	)		(18	)
Prior service costs		69			69			138			138
Cumulative net (gain) loss		567			76			1,134			152

Net periodic pension/postretirement cost		1,755			1,412			3,510			2,824


	Postretirement Benefits
						Six Months			Six Months
	Quarter ended			Quarter ended		Ended			Ended
	June 30,			June 30,		June 30,			June 30,
	2004			2003		2004			2003
Components of Net Periodic Postretirement Cost
Service Cost		192			324		384			648
Interest Cost		502			612		1,004			1224
Expected return on assets
Amorization of unrecognized:
Transition (asset)		39			156		78			312
Prior service costs		(102	)				(203	)
Cumulative net (gain) loss		92			35		184			70

Net periodic pension/postretirement cost		723			1,127		1,447			2,254

As disclosed in the 2003 Form 10-K, the Corporation does not expect to make a contribution to its pension plans or postretirement benefit plan during 2004. On December 8, 2003, President Bush signed the new Medicare legislation into law. This law provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefit established by the law. The federal subsidy in the law results in a $1.6 million reduction in our accumulated postretirement benefit obligation. Concurrently, the Corporation amended its postretirement benefits plan to limit and cap benefits prospectively. The total impact of both changes on our actuarial liability was $13.6 million and is being accounted for as an actuarial gain that will be amortized as a reduction of our periodic

cost and liability. The full year impact for 2004 is anticipated to be $2.2 million, and $0.5 million for the quarter ending June 30, 2004.

On May 19, 2004 the FASB issued FSP No. 106-2 that provided final guidance on the accounting for the effects of the new prescription drug legislation by employers whose prescription drug benefits are actuarially equivalent to the drug benefit under Medicare Part D. The Corporation early adopted during the first quarter of 2004 and in accordance with the final guidance provided by FSP No. 106-2.

11. Contingencies — The nature of the Corporation’s business results in a certain amount of litigation. Accordingly, FirstMerit Corporation and its subsidiaries are subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Management, after consultation with legal counsel, is of the opinion that the ultimate liability of such pending matters would not have a material effect on the Corporation’s financial condition and results of operations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

FIRSTMERIT CORPORATION AND SUBSIDIARIES


	Three months ended								Year ended								Three months ended
	June 30, 2004								December 31, 2003								June 30, 2003
	Average					Average			Average					Average			Average					Average
(Dollars in thousands)	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
ASSETS
Cash and due from banks	$	226,637								195,060								194,164
Investment securities:
U.S. Treasury securities and U.S. Government agency obligations (taxable)		2,689,533			24,729		3.70	%		2,273,030			87,402		3.85	%		2,248,147			21,480		3.83	%
Obligations of states and political subdivisions (tax exempt)		104,132			1,825		7.05	%		103,531			7,182		6.94	%		105,414			1,894		7.21	%
Other securities		259,901			2,321		3.59	%		249,271			9,197		3.69	%		260,639			2,490		3.83	%
Total investment securities		3,053,566			28,875		3.80	%		2,625,832			103,781		3.95	%		2,614,200			25,864		3.97	%
Federal funds sold		1,089			3		1.11	%		4,258			45		1.06	%		2,482			8		1.29	%
Loans held for sale		63,244			633		4.03	%		75,451			3,418		4.53	%		63,678			715		4.50	%
Loans		6,540,974			93,511		5.75	%		7,138,673			462,609		6.48	%		7,157,408			118,057		6.62	%
Total earning assets		9,658,873			123,022		5.12	%		9,844,214			569,853		5.79	%		9,837,768			144,644		5.90	%
Allowance for loan losses		(118,808	)							(117,332	)							(119,022	)
Other assets		698,570								669,472								664,987

Total assets	$	10,465,272								10,591,414								10,577,897

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — non-interest bearing	$	1,402,273			—		—			1,306,347			—		—			1,296,372			—		—
Demand — interest bearing		814,718			503		0.25	%		750,434			1,151		0.15	%		753,386			269		0.14	%
Savings and money market accounts		2,492,318			4,512		0.73	%		2,381,004			18,981		0.80	%		2,367,223			5,529		0.94	%
Certificates and other time deposits		2,727,745			19,598		2.89	%		3,234,673			102,955		3.18	%		3,293,493			26,083		3.18	%
Total deposits		7,437,054			24,613		1.33	%		7,672,458			123,087		1.60	%		7,710,474			31,881		1.66	%
Securities sold under agreements to repurchase		1,589,014			6,271		1.59	%		1,226,648			18,978		1.55	%		1,136,425			4,742		1.67	%
Wholesale borrowings		320,222			4,356		5.47	%		541,251			31,591		5.84	%		566,831			8,330		5.89	%
Total interest bearing liabilities		7,944,017			35,240		1.78	%		8,134,010			173,656		2.13	%		8,117,358			44,953		2.22	%
Other liabilities		136,787								174,634								181,317
Shareholders’ equity		982,195								976,423								982,850

Total liabilities and shareholders’ equity	$	10,465,272								10,591,414								10,577,897

Net yield on earning assets	$	9,658,873			87,782		3.66	%		9,844,214			396,197		4.02	%		9,837,768			99,691		4.06	%

Interest rate spread							3.34	%							3.66	%							3.68	%

Notes: Interest income on tax-exempt securities and loans have been adjusted to a fully-taxable equivalent basis.

Nonaccrual loans have been included in the average balances.

RESULTS OF OPERATIONS

FirstMerit Corporation reported second quarter 2004 net income of $31.0 million, or $0.36 per diluted share (“EPS”), compared to $36.9 million, or $0.44 per diluted share for the 2003 second quarter. The lower earnings primarily reflect reduced revenue from net interest margin compression and declining mortgage banking activity, partially offset by a lower provision for loan losses due to evidence in the Company’s credit quality outlook. Annualized return on average equity (“ROE”) and return on average assets (“ROA”) were 12.71% and 1.19%, respectively, compared with 15.09% and 1.40% for the second quarter of 2003.

For the first six months of 2004, the Company reported net income of $43.7 million or $0.51 per diluted share. This compares with $75.2 million, or $0.89 per diluted share, for the first six months of 2003. ROE and ROA were 8.87% and 0.84%, respectively, compared with 15.53% and 1.43% for the prior-year period.

Total operating revenue, which consists of net interest income on a fully-tax equivalent (“FTE”) basis plus non-interest income, excluding gains from the sale of securities, was $133.3 million for the second quarter of 2004, compared to $150.5 million reported in the prior-year quarter. FTE net interest income declined 11.9% to $87.8 million, reflecting the impact of a 40 basis point decline in the net interest margin to 3.66% and a 1.8% decline in average earning assets to $9.7 billion.

Non-interest income for the second quarter of 2004 totaled $47.0 million, compared to $53.9 million for the second quarter of 2003. Excluding securities gains and income from the Company’s discontinued manufactured housing business, non-interest income was $45.6 million in the second quarter of 2004 and $50.3 million in the same period last year. The 9.3% decline primarily reflects reduced mortgage banking activity, partially offset by gains from the wealth management business. The combined contribution from trust, investment and insurance services posted overall fee growth of 11.9%.

Non-interest expense totaled $79.5 million for the second quarter of 2004, compared to $75.7 million for the second quarter of 2003, an increase of 5.0%. The increase resulted primarily from 10.7% growth in salary and benefits expense, largely due to higher employment counts from the net addition of 127 full time equivalent employees (4% increase from second quarter, 2003). Excluding salary expenses, non-interest expenses were virtually unchanged compared with the second quarter of 2003. The efficiency ratio for the quarter was 59.4%, compared with 50.2% for the year ago quarter.

As of June 30, 2004, nonperforming assets were $48.8 million, or 0.75% of period-end loans plus ORE, compared to $88.5 million, or 1.36%, for the linked quarter and $88.3 million or 1.23%, twelve months ago. The lower level of nonperforming assets this quarter reflects the Company’ sale of non-accrual commercial loans during the quarter and a general improvement in credit quality trends for both the existing retail and commercial portfolios. Net charge-offs for the second quarter were $14.2 million, compared to $18.3 million for the linked quarter and $23.3 million in the prior-year period. Annualized net charge-offs for the second quarter of 2004 were 0.87% of average loans compared to 1.13% for the linked quarter and 1.30% for the second quarter of 2003.

Assets at June 30, 2004 totaled $10.4 billion, down 2.70% from June 30, 2003. The decline primarily reflects the sale of the Company’s manufactured housing finance business in the fourth quarter of 2003; excluding this business line, the total loan portfolio of $6.5 billion was

unchanged from the prior year. Consumer and mortgage loans have been the Company’s focus and have increased 4.0% and 13.4%, respectively, offsetting the 3.3% decline in commercial loans. Investment securities increased 14.3%.

Deposits totaled $7.4 billion at June 30, 2004, a decline of 5.0% over the last twelve months. Time deposits declined 14.8%. Core deposits now account for 63.5% of deposits, compared to 59.3% at June 30, 2003.

Shareholders’ equity was $957.1 million on June 30, 2004. The Corporation’s capital position remains strong; tangible equity to assets was 7.94% at quarter end compared to 8.03% for the prior-year quarter end. Common dividends per share were $0.26 for the quarter, a $0.01 increase from the prior-year quarter. Period-end common shares outstanding were 84.8 million.

Net Interest Income

Net interest income, the Corporation’s principal source of earnings, is the difference between interest income generated by earning assets (primarily loans and investment securities) and interest paid on interest-bearing funds (namely customer deposits, securities sold under agreements to repurchase and wholesale borrowings). Net interest income for the quarter ended June 30, 2004 was $87.1 million compared to $99.0 million for the three months ended June, 2003. The $11.9 million decline in net interest income occurred because the $9.7 million decline in interest expense, compared to the same quarter last year was less than the $21.6 million decline in interest income during the same period. For the purpose of this remaining discussion, net interest income is presented on a fully tax-equivalent (“FTE”) basis, to provide a comparison among all 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 presented on a FTE basis is a non-GAAP financial measure widely used by financial services corporations. The FTE adjustment was $0.7 million for both quarters ending June 30, 2004 and 2003.

FTE net interest income for the quarter ended June 30, 2004 was $87.8 million compared to $99.7 million for the three months ended June 30, 2003. The $11.9 million decline in FTE net interest income occurred because the $9.7 million decline in interest expense, compared to the same quarter last year, was less than the $21.6 million decline in interest income during the same period. As illustrated in the following rate/volume analysis table, interest income and interest expense both declined due to the historic or near historic low interest rate environment.

As illustrated in the following table, the lower amounts of interest income recorded in the 2004 second quarter compared to the same 2003 period, were primarily rate driven as lower yields on investment securities and loans lessened interest income by $1.0 million and $15.7 million, respectively, during those periods. The table also depicts similar three-month declines in interest expense, again caused by the continued drop in interest rates from 2003 through the second quarter of 2004. The lower rates paid on customer deposits and wholesale borrowings in the 2004 quarter compared to the same 2003 period, decreased interest expense by $4.3 million.


	Quarters ended June 30, 2004 and 2003									Six months ended June 30, 2004 and 2003
	Increases (Decreases)									Increases (Decreases)
(Dollars in thousands) RATE/VOLUME ANALYSIS	Volume			Rate			Total			Volume			Rate			Total
INTEREST INCOME FTE
Investment securities	$	4,019			(1,008	)		3,011			8,672			(3,769	)		4,903
Loans held for sale		(4	)		(78	)		(82	)		(551	)		(531	)		(1,082	)
Loans		(8,813	)		(15,733	)		(24,546	)		(18,302	)		(30,799	)		(49,101	)
Federal funds sold		(4	)		(1	)		(5	)		(18	)		(4	)		(22	)

Total interest income	$	(4,802	)		(16,820	)		(21,622	)		(10,199	)		(35,103	)		(45,302	)

INTEREST EXPENSE
Demand deposits-interest bearing	$	38			196			234			46			257			303
Savings and money market accounts		226			(1,243	)		(1,017	)		763			(2,094	)		(1,331	)
Certificates of deposits and other time deposits		(4,065	)		(2,420	)		(6,485	)		(9,207	)		(5,536	)		(14,743	)
Securities sold under agreements to repurchase		1,786			(257	)		1,529			3,414			(276	)		3,138
Wholesale borrowings		(3,355	)		(619	)		(3,974	)		(7,356	)		(729	)		(8,085	)

Total interest expense	$	(5,370	)		(4,343	)		(9,713	)		(12,340	)		(8,378	)		(20,718	)

Net interest income	$	568			(12,477	)		(11,909	)		2,141			(26,725	)		(24,584	)

Net Interest Margin

The following table provides 2004 FTE net interest income and net interest margin totals as well as 2003 comparative amounts.

(Dollars in thousands)


	Quarters ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Net interest income	$	87,107			98,982			176,109			200,684
Tax equivalent adjustment		675			709			1,364			1,373

Net interest income — FTE	$	87,782			99,691			177,473			202,057

Average earning assets	$	9,658,873			9,837,768			9,655,376			9,851,079

Net interest margin		3.66	%		4.06	%		3.70	%		4.14	%

Average loan outstandings for the current year and prior year second quarters totaled $6.5 billion and $7.2 billion, respectively. Increases in average loan balances from second quarter 2003 to second quarter this year occurred in installment, credit card, residential mortgage and home equity loans, while commercial and leases declined. The manufactured housing portfolio was sold during the fourth quarter, 2003. This sale was more fully described in Note 5 of the 2003 Form 10-K. The loan migration toward higher-yielding consumer credits continues to be consistent with the Corporation’s loan strategy. Efforts to grow loan outstandings continue to be tempered by the less than robust economy that currently exists in the Corporation’s primary lending areas.

Specific changes in average loan outstandings, compared to second quarter 2003, were as follows: commercial loans down $69.4 million or 2.0%; installment loans, direct and indirect on a combined basis, up $76.6 million or 4.9%; home equity loans continue to be a popular product in this low interest rate environment and rose $24.6 million or 4.0%; credit card loans up $4.3 million or 3.1%; residential mortgage loans were up $80.3 million or 14.7%; manufactured housing loans, for which new origination ceased October 31, 2001 and the remaining portfolio was sold in December 2003, were down $679.5 million; and leases were down $53.2 million, or 30.8%. The majority of fixed-rate mortgage loan originations are sold to investors through the secondary mortgage loan market. Average outstanding loans for the 2004 and 2003 second quarters equaled 67.7% and 72.8% of average earning assets, respectively. The decline in this percentage illustrates the increase in short-term investments, as liquidity remains high and overall loan demand remains flat.

Average deposits were $7.4 billion during the 2004 second quarter, down $273.4 million, or 3.6%, from the same period last year. Growth occurred in core deposits, which are defined as checking accounts, savings accounts and money market savings products. For the quarter ended June 30, 2004, average core deposits increased $292.3 million or 6.6% and represented 63.3% of total average deposits compared to 57.3% for the 2003 second quarter. Average CDs declined $565.7 million or 17.2% compared to the prior year quarter. Average wholesale borrowings decreased $246.6 million and as a percentage of total interest-bearing funds equaled 4.03% for the 2004 second quarter and 6.98% for the same quarter one year ago. Securities sold under agreements to repurchase increased $452.6 million and as a percentage of total interest bearing funds equaled 20.0% for the 2004 second quarter and 14.0% for the 2003 second quarter. The decrease of higher costing CDs was not completely offset by the influx of more liquid core deposits and was offset by an increase in securities sold under agreements to repurchase. Average interest-bearing liabilities funded 82.25% of average earning assets in the current year quarter and 82.51% during the three months ended June 30, 2003.

In summary, loan growth over the past year occurred mainly in higher-yielding installment, residential mortgage, home equity and credit card outstandings, resulting in a lower concentration of leases and commercial loans. Also, the funding mix for the quarter changed favorably as lower cost core deposits grew and more expensive CDs declined.

Other Income

Other (non-interest) income for the quarter totaled $47.0 million, a decrease of $6.9 million from the $53.9 million earned during the same period one year ago.

Other income, net of securities gains, as a percentage of net revenue for the second quarter was 34.2% compared to 33.7% for the same quarter one year ago. Net revenue is defined as net interest income, on a fully tax-equivalent (“FTE”) basis, plus other income, less gains from securities sales.

Loan sales and servicing income accounted for $4.1 million of the overall $6.9 million decrease in other income and consisted of: a $1.0 million decrease in origination fees; a $5.1 million loss on the nondesignated derivatives associated with the mortgage servicing rights; and a $4.0 million decrease in the gain on sale of mortgages; offset by a $1.7 million decrease in the amortization of mortgage servicing assets; and $4.3 million of mortgage servicing rights valuation reserve recapture.

The remaining changes in other income, compared to second quarter last year, were primarily as follows: trust department income, which benefited from the continuing improvement in the capital markets, was $5.7 million, up $0.3 million; service charges on deposit accounts totaled $15.7 million, up 2.7% due in part to increases in fee-based core deposits outstanding; and investment services and insurance fees increased $0.7 million. Credit card fees decreased $1.4 million or 13.1% and offsetting the revenue decline are lower processing costs of $0.3 million associated with the exit of a low-margin merchant relationship; ATM and other service fees declined $0.1 million; income from bank owned life insurance (“BOLI”) decreased $0.1 million; manufactured housing income decreased $0.5 million due to the December 2003 manufactured housing portfolio sale; investment securities gains decreased $1.7 million; and other operating income, decreased $0.3 million compared to the year ago quarter.

A significant component of loan sales and servicing income category is the income derived from mortgage servicing activities. The following is a summary of changes in capitalized Mortgage Servicing Rights (“MSR”), net of accumulated amortization and valuation allowance, included in the consolidated Statements of Income and Comprehensive Income:


	Quarter			Quarter						Quarter
	ended			ended			Quarter ended,			ended
	June 30,			March 31,			December 31,			September 30,			Quarter ended
(Dollars in thousands)	2004			2004			2003			2003			June 30, 2003
Balance at beginning of period	$	16,424			18,127			17,992			10,611			13,510
Addition of mortgage servicing rights		1,495			855			1,190			3,686			2,771
Amortization		(1,422	)		(1,429	)		(3,201	)		(3,553	)		(3,077	)
Impairment		1,761			(1,129	)		2,146			7,248			(2,593	)

Balance at end of period	$	18,258			16,424			18,127			17,992			10,611

On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. As permitted, the Corporation disaggregates its servicing rights portfolio based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. If any impairment results after current market assumptions are applied, the value of the servicing rights is reduced through the use of a valuation allowance, the balance of which is $0.0 million, $0.6 million, and $8.3 million at June 30, 2004, December 31, 2003 and June 30, 2003, respectively.

These balances represent the rights to service approximately $2.6 billion, $2.1 billion and $3.3 billion of mortgage loans at June 30, 2004, December 31, 2003, and June 30, 2003, respectively. The portfolio primarily consists of conventional mortgages.

For purposes of impairment evaluation and measurement, the MSR’s are stratified based on the predominant risk characteristics of the underlying loans. These strata currently include adjustable and fixed-rate loans. The fixed-rate loans are further stratified by rates less than 6.50%, then by a 100 basis point interest rate band, then by rates greater than 7.50%.

During the year ended December 31, 2003, the strata used for fixed loans in the valuation allowance calculation was decreased by 50 basis points to better reflect the composition of the Corporation’s servicing portfolio due to lower interest rates on refinanced loans. The MSR’s are amortized over the period of and in proportion to the estimated net

servicing revenues. A monthly valuation impairment analysis is performed using a discounted cash flow methodology that is disaggregated by predominant risk characteristics. Impairment, if any, is recognized through a valuation allowance for individual strata.

The Corporation continues to focus upon non-interest income (fee income) as a means by which to diversify revenue.

Other Expenses

Other (non-interest) expenses totaled $79.5 million for second quarter compared to $75.7 million in 2003, a increase of $3.8 million, or 4.98%.

For the three months ended June 30, 2004, increases in operating costs compared to second quarter 2003 occurred as follows: salaries, wages, pension and employee benefits, rose $3.9 million, primarily due to additional staff added to revenue-generating positions created to implement strategic revenue initiatives, higher healthcare costs for employees and retirees, and higher pension expense; bankcard, transaction and loan processing costs decreased $1.3 million as a result of reduced refinancing/new origination activity; other operating expense increased $0.5 million primarily due to increases in the operating and collection costs.

During the quarter ended June 30, 2004, the Internal Revenue Service completed its examination of the Corporation’s tax return for the years 1999 and 2000. The Corporation was successful in resolving anticipated issues at less than previous expectations and was therefore able to record a $2.6 million reduction in income tax expense.

The efficiency ratio of 59.44% for second quarter 2004 was worse than the efficiency ratio of 50.17% recorded for the second quarter, 2003. The efficiency ratio for the three months ended June 30, 2004 indicates 59.44 cents of operating costs were spent in order to generate each dollar of net revenue.

FINANCIAL CONDITION

Investment Securities

The June 30, 2004 amortized cost and market value of investment securities, including mortgage-backed securities, by average remaining term, are included in Note 4 (Investment Securities) to the unaudited consolidated financial statements.

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 the 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.

Allowance for loan losses

During the quarter ended March 31, 2004, we observed that rising input costs such as plastic resins, steel and petroleum would impact certain segments of our commercial and

industrial loan portfolio. We also observed a higher level of nonaccrual loans from within previously identified criticized loan levels while the economy was in an early stage of recovery. These observations led us to change some of the assumptions used in the Corporation’s allowance for loan methodology by shortening the historical period used for estimating loss migration factors which had the effect of more heavily weighting recent loss history in the portfolio. During the quarter ended March 31, 2004, the Corporation strengthened the allowance for loan losses by $22.7 million above net charge-offs. Note 1 (Summary of Significant Accounting Policies) and Note 4 (Allowance for Loan Losses) in the 2003 Form 10-K more fully describe the components of the model.


							Six			Six
	Quarter ended			Quarter ended			months ended			months ended
(Dollars in thousands)	June 30, 2004			June 30, 2003			June 30, 2004			June 30, 2003
Allowance for loan losses-beginning of period	$	120,261			119,001			97,553			122,790
Loans charged off:
Commercial		9,112			7,057			17,962			17,341
Mortgage		188			194			292			297
Installment		8,135			9,807			18,222			20,641
Home equity		542			872			1,327			1,675
Credit cards		2,941			3,116			5,696			6,292
Manufactured housing		27			5,588			313			11,419
Leases		396			2,345			1,195			3,446

Total charge-offs	$	21,341			28,979			45,007			61,111

Recoveries:
Commercial		2,466			773			3,364			1,282
Mortgage		7			2			32			4
Installment		3,194			3,010			6,041			5,983
Home equity		306			266			681			494
Credit cards		791			510			1,474			937
Manufactured housing		255			949			677			1,543
Leases		139			218			279			332

Total recoveries	$	7,158			5,728			12,548			10,575

Net charge-offs	$	14,183			23,251			32,459			50,536

Allowance related to loans sold		(12,671	)		—			(12,671	)		—
Provision for loan losses		14,154			23,442			55,138			46,938

Allowance for loan losses-end of period	$	107,561			119,192			107,561			119,192

Annualized net charge offs as a % of average loans		0.87	%		1.30	%		1.00	%		1.42	%
Allowance for loan losses as a % of loans outstanding at end of period		1.65	%		1.66	%		1.65	%		1.66	%
Allowance for loan losses as a multiple of annualized net charge offs		1.89			1.28			1.65			1.17

The strengthening of our loan loss allowance in the first quarter of 2004 positioned us to sell during the second quarter, a $35.0 million portfolio of nonperforming loans for proceeds of $22.3 million. The allowance related to the loans sold totaled $12.7 million, which resulted in a net basis in the loans sold that was essentially equal to the sale proceeds. In addition to the loan sale, we were able to reach settlement on $5.2 million of additional nonperforming loans.

Loans

Total loan outstandings at June 30, 2004 were $6.5 billion compared to $6.6 billion at December 31, 2003 and $ $7.2 billion at June 30, 2003.


	As of		As of		As of
(Dollars in thousands)	June 30, 2004		December 31, 2003		June 30, 2003
Commercial loans	$	3,324,335		3,352,014		3,437,977
Mortgage loans		627,633		614,073		553,329
Installment loans		1,668,679		1,668,421		1,596,973
Home equity loans		646,197		637,749		627,379
Credit card loans		140,110		144,514		136,973
Manufactured housing loans		—		—		661,909
Leases		113,047		134,828		167,674

Total Loans	$	6,520,001		6,551,599		7,182,214

The commercial loan portfolio and leasing portfolio were impacted by lower demand for credit in light of current economic conditions. As previously noted, the manufactured housing portfolio was sold during December 2003. While the Corporation originated $309.4 million of mortgage loans in the second quarter, 2004, compared to $651.4 million in same quarter of 2003, and $2.1 billion for the full year ended December 31. 2003, the majority of these loans were fixed rate mortgages and sold with servicing rights retained. Further discussion of the Corporation’s loan mix strategy as well as changes in average balances for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003 can be found in the Net Interest Income section of this document.

Expected cash flow and interest rate information for commercial loans is presented in the following table:

(Dollars in thousands)


	As of
Commercial Loan Cash Flow Schedule	June 30, 2004
Due in one year or less	$	1,516,504
Due after one year but within five years		1,497,270
Due after five years		310,561

Totals	$	3,324,335

Due after one year with a predetermined fixed interest rate	$	1,028,266
Due after one year with a floating interest rate		779,565

Totals	$	1,807,831

The following table summarizes the Corporation’s nonperforming assets:

Nonperforming Assets


	June 30,			December 31,			June 30,
(Dollars in thousands)	2004			2003			2003
Nonperforming Commercial Loans:
Nonaccrual	$	33,080			63,388			71,081
Restructured		—			35			46

Total nonperforming commercial loans		33,080			63,423			71,127

Other Loans:
Nonaccrual		8,025			10,216			11,425
Restructured		—			—			—

Total nonperforming loans		41,105			73,639			82,552
Other real estate (“ORE”)		7,714			7,527			5,797

Total nonperforming assets	$	48,819			81,166			88,349

Loans past due 90 day or more accruing interest	$	18,387			27,515			28,603

Total nonperforming assets as a percentage of total loans and ORE		0.75	%		1.24	%		1.23	%

The following is a nonaccrual commercial loan flow analysis:


Period End	2Q04			1Q04			4Q03			3Q03			2Q03
Nonaccrual commercial loans beginning of period	$	71,596			63,424			77,421			71,127			68,386
Credit Actions:
New		10,211			26,754			24,519			19,225			22,927
Loan and lease losses		(7,253	)		(7,650	)		(2,671	)		(1,764	)		(4,528	)
Charged down		(1,859	)		(1,387	)		(4,083	)		(3,786	)		(2,985	)
Return to accruing status		(744	)		(3,295	)		(8,841	)		(1,958	)		(787	)
Payments		(3,937	)		(6,250	)		(11,948	)		(5,423	)		(11,886	)
Sales		(34,934	)		—			(10,973	)		—			—

Nonaccrual commercial loans end of period	$	33,080			71,596			63,424			77,421			71,127

The quarterly flow of new nonaccrual commercial loans has slowed significantly reflecting the impact of an improved regional economy. The charged down category represents the loss attributable to the $5.2 million of loans settled at the time of the nonperforming loan sale. The allowance for loan losses covers nonperforming loans by 261.7% compared to 148.0% at the end of the linked quarter. See Note 1 (Summary of Significant Accounting Polices) of the 2003 Form 10-K for a summary of the Corporation’s nonaccrual and charge off policies.

Deposits

The following schedule illustrates the change in composition of the average balances of deposits and average rates paid for the noted periods:


	Quarter Ended					Year Ended					Quarter Ended
	June 30, 2004					December 31, 2003					June 30, 2003
	Average		Average			Average		Average			Average		Average
(Dollars in thousands)	Balance		Rate			Balance		Rate			Balance		Rate
Non-interest DDA	$	1,402,273		—			1,306,347		—			1,296,372		—
Interest-bearing DDA		814,718		0.25	%		750,434		0.15	%		753,386		0.14	%
Savings and money market accounts		2,492,318		0.73	%		2,381,004		0.80	%		2,367,223		0.94	%
CDs and other time deposits		2,727,745		2.89	%		3,234,673		3.18	%		3,293,493		3.18	%

Total customer deposits	$	7,437,054					7,672,458		1.60	%		7,710,474		1.66	%
Securities sold under agreements to repurchase		1,589,014		1.59	%		1,226,648		1.55	%		1,136,425		1.67	%
Wholesale borrowings		320,222		5.47	%		541,251		5.84	%		566,831		5.89	%

Total funds	$	9,346,290					9,440,357					9,413,730

Interest-bearing and non-interest-bearing demand deposits, on a combined basis, averaged $2.2 billion during the 2004 second quarter, up $167.2 million or 8.2% from second quarter 2003. Savings deposits, including money market savings accounts averaged $2.5 billion, $125.1 million or 5.3% higher than the year ago quarter. The sum of demand and savings accounts, often referred to as “core deposits,” grew $292.3 million or 6.6%, and represented 63.3% of total average deposits for the second quarter, 2004 compared to 57.3% last year.

The weighted-average yield paid on interest-bearing core deposits during the quarter at 0.6% was 14 basis points less than last year’s average core deposits rate. Average CDs, still the largest individual component of deposits, totaled $2.7 billion for the second quarter, down 17.2% from the same quarter last year. Average rates paid on CDs fell 29 basis points from 3.2% in the 2003 quarter to 2.9% this year. On a percentage basis, average CDs were 34.3% and 40.6%, respectively, of total interest-bearing funds for the June 30, 2004 and 2003 quarters.

Securities sold under agreements to repurchase increased to 20.0% of interest-bearing funds during the three months ended June 30, 2004 from 14.0% for the June 30, 2003 quarter. Interest-bearing liabilities funded 82.3% of average earning assets during the quarter ended June 30, 2004 and 82.5% during the quarter ended June 30, 2003. In summary, there was a significant increase in average core deposits during the quarter compared to the same period in 2003. The Corporation’s change in funding mix from higher priced CDs toward less expensive core deposits has helped to mitigate the decline in net interest margin.

The following table summarizes scheduled maturities of CDs of $100 thousand or more (“Jumbo CDs”) that were outstanding as of June 30, 2004:

(Dollars in thousands)


Maturing in:	Amount
Under 3 months	$	324,739
3 to 12 months		253,596
Over 12 months		155,440

	$	733,775

Market Risk

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. The Corporation is primarily exposed to interest rate risk as a result of offering a wide array of financial products to its customers.

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 market risk management, establishing risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. According to these policies, responsibility for measuring and the management of interest rate risk resides in the Corporate Treasury function.

Interest rate risk on the Corporation’s consolidated balance sheets consists of reprice, option, and basis risks. Reprice risk results from differences in the maturity, or repricing, of asset and liability portfolios. Option risk arises from “embedded options” present in many financial instruments such as loan prepayment options, deposit early withdrawal options and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher net revenue for the Corporation. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as interest-bearing checking accounts, savings accounts and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates.

The interest rate risk position is measured and monitored using risk management tools, including earnings simulation modeling and economic value of equity sensitivity analysis, which capture both near-term and long-term interest rate risk exposures. 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.

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. The sensitivity of net interest income to changes in interest rates is measured using numerous interest rate scenarios including shocks, gradual

ramps, curve flattening, curve steepening as well as forecasts of likely interest rates scenarios. Presented below is the Corporation’s interest rate risk profile as of June 30, 2004:

Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in Net Interest Income:


	-50 basis points			+100 basis points			+200 basis points
June 30, 2004		(1.16	%)		(0.35	%)		(1.12	%)

Modeling the sensitivity of net interest earnings to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. To the extent that actual performance is different than what was assumed, actual net interest earnings sensitivity may be different than projected. The assumptions used in the models are management’s best estimate based on studies conducted by the ALCO department. The ALCO department uses a data-warehouse to study interest rate risk at a transactional level and uses various ad-hoc reports to refine assumptions continuously. Assumptions and methodologies regarding administered rate liabilities (e.g., savings, money market and interest-bearing checking accounts), balance trends, and repricing relationships reflect management’s best estimate of expected behavior and these assumptions are reviewed regularly.

The Corporation also has longer-term interest rate risk exposure, which may not be appropriately measured by earnings sensitivity analysis. ALCO uses economic value of equity, or EVE, sensitivity analysis to study the impact of long-term cash flows on earnings and capital. Economic value of equity involves discounting present values of all cash flows on the balance sheet and off balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents the Corporation’s economic value of equity. The analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet. Presented below is the Corporation’s EVE profile as of June 30, 2004:

Immediate Change in Rates and Resulting Percentage Increase/(Decrease) in EVE:


	-50 basis points			+100 basis points			+200 basis points
June 30, 2004		(0.90	%)		(3.57	%)		(7.90	%)

Capital Resources

Shareholders’ equity at June 30, 2004 totaled $957.1 million compared to $987.2 million at December 31, 2003 and $990.1 million at June 30, 2003.

The following table reflects the various measures of capital:


	June 30,				December 31,				June 30,
(In thousands)	2004				2003				2003
Consolidated
Total equity	$	957,095	9.22	%		987,175	9.43	%		990,050	9.28	%
Common equity		957,095	9.22	%		987,175	9.43	%		989,039	9.27	%
Tangible common equity (a)		812,759	7.94	%		842,394	8.16	%		843,814	8.02	%
Tier 1 capital (b)		871,011	10.98	%		869,535	10.82	%		866,245	10.06	%
Total risk-based capital (c)		1,119,913	14.11	%		1,116,662	13.89	%		1,123,519	13.05	%
Leverage (d)		871,011	8.43	%		869,535	8.36	%		866,245	8.34	%
Bank Only
Total equity	$	770,984	7.45	%		781,734	7.48	%		785,984	7.38	%
Common equity		770,984	7.45	%		781,734	7.48	%		785,984	7.38	%
Tangible common equity (a)		626,648	6.14	%		636,953	6.18	%		640,758	6.10	%
Tier 1 capital (b)		773,927	9.77	%		755,435	9.40	%		750,918	8.75	%
Total risk-based capital (c)		1,020,429	12.89	%		1,002,484	12.45	%		1,006,392	11.72	%
Leverage (d)	$	773,927	7.51	%		755,435	7.26	%		750,918	7.25	%

(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 adequate capital equal to 8% of risk-adjusted assets effective December 31, 1993. At June 30, 2004, the Corporation’s risk-based capital equaled 14.11% of risk-adjusted assets, exceeding minimum guidelines.

The cash dividend of $0.26 paid in the second quarter has an indicated annual rate of $1.04 per share.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations in a timely manner. Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. The Corporation considers core earnings, strong capital ratios and credit quality essential for maintaining high credit ratings, which allow the Corporation cost-effective access to market-based liquidity. The Corporation relies on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk.

The Treasury Group is responsible for identifying, measuring and monitoring the Corporation’s liquidity profile. The position is evaluated daily, weekly and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments by future month and identifying sources and uses of funds. The Treasury Group also prepares a contingency funding plan that details the potential erosion of funds in the event of a systemic financial market crisis or institutional-specific stress. In addition, the overall management of the Corporation’s liquidity position is integrated into retail deposit pricing policies to ensure a stable core deposit base.

The Corporation’s primary source of liquidity is its core deposit base, raised through its retail branch system, along with unencumbered, or unpledged, investment securities and unused wholesale sources of liquidity. The corporation also has available unused wholesale sources of liquidity, including advances from the Federal Home Loan Bank of Cincinnati, issuance through dealers in the capital markets and access to certificates of deposits issued through brokers. Liquidity is also provided by unencumbered, or un-pledged investment securities that totaled $579 million at quarter end 2004.

Funding Trends for the Quarter - During the three months ended June 30, 2004, total deposits increased $21.1 million as a result of targeted marketing for core deposits.

Parent Company Liquidity - The Corporation manages its liquidity principally through dividends from the bank subsidiary. During the second quarter ended June 30, 2004, FirstMerit Bank paid FirstMerit Corporation $21 million in dividends. As of June 30, 2004, FirstMerit Bank had an additional $56 million available to pay dividends without regulatory approval.

Forward-looking Safe-harbor Statement

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, 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Market Risk Section in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4. CONTROLS AND PROCEDURES

Management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, has made an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.

During the period covered by the report, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this report, that the Corporation’s disclosure controls and procedures are effective to ensure that all material information required to be filed in this report has been made known to them, as appropriate to allow timely decisions regarding required disclosure.

PART II — OTHER INFORMATION

ITEM 2(e). CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

The following table provides information with respect to purchases the Corporation made of its common stock during the first half of the 2004 fiscal year:




					(c) Total Number of		(d) Maximum
					Shares Purchased		Number of Shares that
					as Part of Publicly		May Yet be
	(a) Total Number of		(b) Average Price		Announced Plans		Purchased Under
	Shares Purchased		Paid per Share		or Programs (1)		Plans or Programs
Balance as of March 31, 2004:			$	24.24				1,254,482
April 1, 2004 — April 30, 2004		—		—				—
May 1, 2004 — May 31, 2004		—		—				—
June 1, 2004 — June 30, 2004		—		—				—

Balance as of June 30, 2004:		—	$	24.24		0		1,254,482

(1) On May 17, 2001, The Corporation announced that its Board of Directors authorized a common stock repurchase program. Under the program, the Company is authorized to repurchase up to 3 million shares of its common stock. On July 15, 2004 the Board of Directors authorized the repurchase of up to 3 million shares of its currently outstanding common stock superseding the repurchase program announced May 17, 2001.

(2) Shares of common stock delivered or restricted shares of common stock withheld to pay income tax or other tax liabilities with respect to the vesting of restricted stock, exercise of stock options, or the settlement of performance share awards.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 21, 2004, the Registrant held its Annual Meeting of Shareholders for which the Board of Directors solicited proxies. At the Annual Meeting, the shareholders adopted two proposals, as stated in the Proxy Statement dated March 6, 2003, to elect five Class I Directors and to consider and vote upon an amendment to the FirstMerit Corporation 2002 Stock Plan. Both proposals were voted on and approved by the shareholders. The voting results are as follows:

1. The election of of five Class I directors, being:


					Authority
	For		Against		Withheld
John R. Cochran		70,521,345		*		2,071,743
Richard Colella		70,233,436		*		2,359,653
Philip A. Lloyd		70,025,789		*		2,567,299
Roger T. Read		70,873,260		*		1,719,829
Richard N. Seaman		70,365,329		*		2,227,760

* Proxies provide that shareholders may either cast a vote for, or abstain from voting for, directors.

All Class III directors (John C. Blickle, Terry L. Haines, and Jerry M. Wolf), and Class II directors (Karen S. Belden, R. Cary Blair, Robert W. Briggs, and Clifford Isroff) continued in their positions.

2. The amendment to FirstMerit Corporation 2002 Stock Plan being:


			Authority
For	Against		Withheld		Unvoted
54,130,303		4,048,260		1,355,901		18,058,493

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 S-4 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)

10.6		Amended and Restated 2002 Stock Plan*

31.1		Rule 13a-14(a)/Section 302 Certification of John R. Cochran, Chairman and Chief Executive Officer of FirstMerit Corporation

31.2		Rule 13a-14(a)/Section 302 Certification of Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit Corporation

32.1		Rule 13a-14(b)/Section 906 Certifications of John R. Cochran, Chairman and Chief Executive Officer of FirstMerit Corporation, and Terrence E. Bichsel, Executive Vice President and Chief Financial Officer of FirstMerit Corporation

Indicates management contract or compensatory plan or arrangement

(b) Form 8-K

The company filed the following Reports on Form 8-K during the quarter ended June 30, 2004:

On April 5, 2004 the registrant filed a Form 8-K to announce an increase in the allowance for loan losses by recording an additional $22.8 million to its provision for loan losses for the first quarter of 2004.

On April 15, 2004 the registrant filed a Form 8-K to announce its financial results for the fiscal quarter ended March 31, 2004.

On April 22, 2004 the registrant filed a Form 8-K to announce that a notice had been sent to its directors and executive officers pursuant to Rule 104(b)(2) of Regulation BTR with respect to a blackout period for the FirstMerit Corporation and Affiliates Employees’ Salary and Savings Retirement Plan.


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 June 30, 2004 (unaudited), December 31, 2003 and June 30, 2003 (unaudited)
Consolidated Statements of Income and Comprehensive Income for the three-month and six-month periods ended June 30, 2004 (unaudited) and 2003 (unaudited)
Consolidated Statements of Cash Flows for the six months ended March 31, 2004 (unaudited) and 2003 (unaudited)
Notes to Consolidated Financial Statements as of June 30, 2004 (unaudited)
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition as of June 30, 2004, December 31, 2003 and June 30, 2003 and Results of Operations for the quarters ended June 30, 2004 and 2003 and for the year ended December 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Internal Control over Financial Reporting for the Quarter Ended June 30, 2004.
PART II — OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EX-31.1 Certification
EX-31.2 Certification
EX-32.1 Certification


Date: August 6, 2004	By:	/s/ John R. Cochran
		Chairman and
		Chief Executive Officer


Date: August 6, 2004	By:	/s/ Terrence E. Bichsel
		Executive Vice President and
		Chief Financial Officer


Dated: August 6, 2004	By:	/s/ John R. Cochran
		Chairman and Chief
		Executive Officer

	By:	/s/ Terrence E. Bichsel
		Executive Vice President
		and Chief Financial Officer

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(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.


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

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.