Renovation: The purpose of the Renovation phase is to ensure all date routines have been corrected to properly address Year 2000 dates. During 1999 the Corporation completed 100% of the renovation for all “in-house” applications (both “mission critical” and non-“mission critical”). Installation of vendor supplied upgrades were also completed during 1999 for the other “mission critical” and non-“mission critical” applications.

Validation: The Validation phase consists of various types of testing and retesting. FirstMerit performed extensive testing of both in-house and vendor written systems as well as the various connections to other systems (internal and external). Non-information system applications or functions such as vault operations and security systems were also tested. Testing guidelines were issued to ensure consistency and completeness throughout the organization. Integrated testing was completed to ensure the applications worked together. During 1999, major integrated tests occurred in March, May and October. For example, in excess of 100 applications were successfully tested on May 18-19, 1999. “Future dates” (i.e., the system’s ability to properly recognize dates involving the Year 2000 and beyond) were tested for both “mission critical” and non-”mission critical” systems.

Implementation: During the Implementation phase, systems are certified as Year 2000 compliant and placed into production. FirstMerit placed systems, once renovated and validated, into production throughout the project.

Another FFIEC area mentioned was contingency planning. FirstMerit enhanced current contingency plans throughout the organization with specific Year 2000-caused problem scenarios. Business areas reviewed departmental Year 2000 risks and incorporated changes to their contingency plans. This process was completed by June 30, 1999.

FirstMerit successfully opened 43 branches on January 1, 2000. No significant Year 2000 issues have been identified as of the date of publication of this Annual Report. Efforts expended during the life of the project helped ensure a smooth transition into the 21st century.

The Corporation’s total Year 2000 readiness project costs spent project life to date (including the estimated costs and time associated with the impact of a third party vendor’s Year 2000 issues) are based on presently available information. There can be no guarantees, however, that the systems and applications of other companies on which the Corporation’s systems and applications rely are completely Year 2000 trouble free, and therefore, will not have material adverse effect on the Corporation.

The total operating costs of the Year 2000 readiness project are estimated at $6.1 million. The costs incurred to date have been funded through operating cash flows and have not had a material adverse effect on the Corporation’s results of operations. Included in the $6.1 million estimate of total project costs are capitalized amounts of approximately $1.0 million. During 2000, the Corporation expects to incur the last of the project costs (included in the $6.1 million estimate) of approximately $530,000, related mostly to project related incentives.