-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qGWo/Ut8PoppHqfTmzVyc4kJBGiJCR9sCPwY8QS2m/P4PRqYD8iJ270Q+dIAMiOB 8SVc+OCkfjWrb/RlEF+2KA== 0000950114-95-000104.txt : 19950601 0000950114-95-000104.hdr.sgml : 19950601 ACCESSION NUMBER: 0000950114-95-000104 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950531 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950531 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11792 FILM NUMBER: 95543888 BUSINESS ADDRESS: STREET 1: ONE MECANTILE CENTER STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 8-K 1 MERCANTILE BANCORPORATION, INC. FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 MAY 31, 1995 ------------ DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MERCANTILE BANCORPORATION INC. ------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 1-11792 43-0951744 - -------- ------- ---------- (STATE OR (COMMISSION FILE NO.) (I.R.S. EMPLOYER OTHER JURISDICTION OF IDENTIFICATION NO.) INCORPORATION) P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524 - --------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (314) 425-2525 -------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 2 ITEM 5. OTHER MATTERS ------------- EFFECTIVE JANUARY 3, 1995, MERCANTILE BANCORPORATION INC. ("CORPORATION") ACQUIRED UNSL FINANCIAL CORP. ("UNSL"). EFFECTIVE MAY 1, 1995, THE CORPORATION ACQUIRED CENTRAL MORTGAGE BANCSHARES, INC. ("CENTRAL MORTGAGE") AND TCBANKSHARES, INC. ("TCBANKSHARES"). ALL THREE TRANSACTIONS ARE ACCOUNTED FOR AS POOLINGS-OF-INTERESTS. AUDITED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS RESTATING THE CORPORATION'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 TO REFLECT ALL THREE TRANSACTIONS ARE INCLUDED HEREIN. UNAUDITED SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS RESTATING THE CORPORATION'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994 TO REFLECT THE CENTRAL MORTGAGE AND TCBANKSHARES TRANSACTIONS ARE ALSO INCLUDED HEREIN. 3 MERCANTILE MERCANTILE BANCORPORATION INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 1 4 MERCANTILE BANCORPORATION INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 Effective January 3, 1995, Mercantile Bancorporation Inc. ("Corporation") acquired UNSL Financial Corp in a transaction accounted for as a pooling-of-interests. Effective May 1, 1995, Central Mortgage Bancshares, Inc. and TCBankshares, Inc. were acquired in transactions accounted for as poolings-of-interests. The following Supplemental Consolidated Financial Statements restate the Corporation's historical consolidated financial statements as of and for the years ended December 31, 1994, 1993 and 1992 to reflect these transactions. 2 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1994 1993 1992 ---- ---- ---- (Thousands except per share data) INTEREST INCOME Interest and fees on loans and leases $757,571 $715,974 $ 742,173 Investments in debt and equity securities Trading 527 678 593 Taxable 203,902 221,933 231,129 Tax-exempt 21,659 20,807 20,464 -------- -------- ---------- Total 226,088 243,418 252,186 Due from banks-interest bearing 2,843 3,428 8,306 Federal funds sold and repurchase agreements 8,394 8,662 8,879 -------- -------- ---------- Total Interest Income 994,896 971,482 1,011,544 INTEREST EXPENSE Interest bearing deposits 319,709 340,952 430,446 Foreign deposits 5,398 1,363 870 Short-term borrowings 50,443 25,822 31,761 Bank notes 780 - - Long-term debt 23,019 22,774 22,176 -------- -------- ---------- Total Interest Expense 399,349 390,911 485,253 -------- -------- ---------- NET INTEREST INCOME 595,547 580,571 526,291 PROVISION FOR POSSIBLE LOAN LOSSES 43,201 63,513 77,874 -------- -------- ---------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 552,346 517,058 448,417 OTHER INCOME Trust 60,769 61,996 58,222 Service charges 68,783 67,144 62,670 Credit card fees 24,895 24,312 21,658 Mortgage banking 10,917 13,691 10,234 Investment banking and brokerage 8,301 8,486 8,918 Securities gains 2,177 5,121 5,590 Other 33,916 38,953 34,673 -------- -------- ---------- Total Other Income 209,758 219,703 201,965 OTHER EXPENSE Salaries 208,690 197,569 180,385 Employee benefits 49,856 47,900 37,364 Net occupancy 31,675 32,737 28,523 Equipment 38,109 38,174 33,947 Other 163,740 191,663 191,684 -------- -------- ---------- Total Other Expense 492,070 508,043 471,903 -------- -------- ---------- INCOME BEFORE INCOME TAXES 270,034 228,718 178,479 INCOME TAXES 101,705 85,467 61,072 -------- -------- ---------- NET INCOME $168,329 $143,251 $ 117,407 ======== ======== ========== PER SHARE DATA Average common shares outstanding 51,957,002 50,965,103 47,275,834 Net income $3.22 $2.79 $2.42 Dividends declared 1.12 .99 .93
3 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
DECEMBER 31 1994 1993 1992 ---- ---- ---- (Thousands) ASSETS Cash and due from banks $ 770,710 $ 772,314 $ 745,095 Due from banks-interest bearing 29,166 164,573 92,993 Federal funds sold and repurchase agreements 128,264 211,762 264,747 Investments in debt and equity securities Trading 14,299 15,735 17,684 Available-for-sale 416,059 419,756 89,424 Held-to-maturity (Estimated fair value of $3,301,207, $3,811,026 and $4,083,673, respectively) 3,413,142 3,744,592 3,998,886 ----------- ----------- ----------- Total 3,843,500 4,180,083 4,105,994 Loans held-for-sale 21,383 141,468 37,387 Loans and leases, net of unearned income 9,648,595 8,560,864 8,488,048 ----------- ----------- ----------- Total Loans and Leases 9,669,978 8,702,332 8,525,435 Reserve for possible loan losses (194,515) (184,836) (178,735) ----------- ----------- ----------- Net Loans and Leases 9,475,463 8,517,496 8,346,700 Bank premises and equipment 248,318 243,363 234,021 Due from customers on acceptances 6,609 11,923 7,451 Other assets 304,314 321,565 392,859 ----------- ----------- ----------- Total Assets $14,806,344 $14,423,079 $14,189,860 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 1,763,439 $ 1,928,441 $ 1,694,148 Interest bearing 9,206,676 9,643,983 9,915,502 Foreign 219,135 26,085 19,650 ----------- ----------- ----------- Total Deposits 11,189,250 11,598,509 11,629,300 Federal funds purchased and repurchase agreements 1,495,540 660,643 789,081 Other short-term borrowings 315,425 541,750 242,393 Bank notes 100,000 - - Long-term debt 298,664 287,949 309,845 Bank acceptances outstanding 6,609 11,923 7,451 Other liabilities 166,520 189,636 215,984 ----------- ----------- ----------- Total Liabilities 13,572,008 13,290,410 13,194,054 Commitments and contingent liabilities - - - SHAREHOLDERS' EQUITY 1994 1993 1992 ---- ---- ---- Preferred stock- no par value Shares authorized 5,000 5,000 5,000 Shares issued 15 15 15 12,153 12,153 12,153 Common stock- $5.00 par value Shares authorized 100,000 70,000 70,000 Shares issued 52,167 51,666 50,392 260,836 258,332 251,960 Capital surplus 166,878 161,188 138,020 Retained earnings 797,423 700,996 593,673 Treasury stock, at cost 94 - - (2,954) - - ------------ ---------- ---------- Total Shareholders' Equity 1,234,336 1,132,669 995,806 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $14,806,344 $14,423,079 $14,189,860 =========== =========== =========== The accompanying notes to supplemental consolidated financial statements are an integral part of these statements.
4 7 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK --------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ----------- ------- ----- ------- -------- ------- ---------- ($ in Thousands) BALANCE AT DECEMBER 31, 1991, AS REPORTED 33,639,248 $168,196 $ - $ 95,124 $426,942 $ - $ 690,262 Adjustment to reflect poolings-of-interests 7,671,140 38,356 12,153 (17,233) 81,261 - 114,537 ---------- -------- ------- --------- -------- ------ ---------- BALANCE AT DECEMBER 31, 1991, AS RESTATED 41,310,388 206,552 12,153 77,891 508,203 - 804,799 Net income 117,407 117,407 Dividends declared Mercantile Bancorporation Inc.- $.93 per share (27,506) (27,506) Pooled companies prior to acquisition (5,953) (5,953) Issuance of common stock Acquisition of Ameribanc, Inc. 1,975,421 9,877 41,418 51,295 Employee incentive plans 195,679 978 2,854 3,832 Warrants and convertible notes 347,143 1,736 7,272 9,008 Change in valuation allowance for marketable equity securities 1,522 1,522 Initial public offering of United Postal Bancorp, Inc. 5,537,405 27,688 (818) 26,870 Public offering of Central Mortgage Bancshares, Inc. 675,246 3,376 6,725 10,101 Other pre-merger transactions of pooled companies 350,606 1,753 2,678 4,431 ---------- -------- ------- -------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1992 50,391,888 251,960 12,153 138,020 593,673 - 995,806 Net income 143,251 143,251 Dividends declared Mercantile Bancorporation Inc.- $.99 per share (34,840) (34,840) Pooled companies prior to acquisition (8,370) (8,370) Issuance of common stock Acquisition of First National Bank of Flora 232,503 1,162 6,879 8,041 Acquisition of Mt. Vernon Bancorp, Inc. 216,936 1,085 6,056 7,141 Employee incentive plans 161,912 809 1,929 2,738 Convertible notes 73,360 367 1,536 1,903 Public offering of Central Mortgage Bancshares, Inc. 549,240 2,746 7,203 9,949 Change in valuation allowance for marketable equity securities prior to the adoption of FAS 115 3,554 3,554 Net fair value adjustment for available- for-sale securities 3,636 3,636 Pre-merger transactions of pooled companies and other 40,360 203 (435) 92 (140) ---------- -------- ------- -------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1993 51,666,199 258,332 12,153 161,188 700,996 - 1,132,669 NET INCOME 168,329 168,329 DIVIDENDS DECLARED MERCANTILE BANCORPORATION INC.- $1.12 PER SHARE (48,329) (48,329) POOLED COMPANIES PRIOR TO ACQUISITION (4,864) (4,864) ISSUANCE OF COMMON STOCK EMPLOYEE INCENTIVE PLANS 308,112 1,541 1,683 3,224 CONVERTIBLE NOTES 181,092 905 3,793 4,698 NET FAIR VALUE ADJUSTMENT FOR AVAILABLE- FOR-SALE SECURITIES (18,808) (18,808) PURCHASE OF TREASURY STOCK (93,500) (2,954) (2,954) PRE-MERGER TRANSACTIONS OF POOLED COMPANIES AND OTHER 11,450 58 214 99 371 ---------- -------- ------- -------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1994 52,073,353 $260,836 $12,153 $166,878 $797,423 $(2,954) $1,234,336 ========== ======== ======= ======== ======== ======= ==========
5 8 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1994 1993 1992 ---- ---- ---- (Thousands) OPERATING ACTIVITIES Net income $ 168,329 $ 143,251 $ 117,407 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 43,201 63,513 77,874 Depreciation and amortization 31,936 30,064 27,687 Provision for deferred income taxes (credits) (8,751) 6,304 902 Net change in trading securities 1,436 1,949 5,953 Net change in loans held-for-sale 120,085 (104,081) 6,827 Net change in accrued interest receivable (14,584) 8,952 7,834 Net change in accrued interest payable 4,812 (7,014) (20,097) Net change in accrued taxes payable (14,513) (9,203) 10,470 Other, net 10,133 14,598 (17,643) ----------- ----------- ----------- Net Cash Provided by Operating Activities 342,084 148,333 217,214 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (1,339,490) (1,760,526) (2,235,784) Proceeds from maturities 1,533,108 1,746,639 1,216,708 Proceeds from sales of: Held-to-maturity securities 1,985 32,749 274,677 Available-for-sale securities 23,704 27,141 7,953 Securities from acquired entities 79,388 14,491 58,219 Net change in loans and leases (1,381,784) (315,644) (69,031) Purchases of loans and leases (78,730) (196,152) (178,496) Proceeds from sales of loans and leases 302,580 538,051 266,566 Purchases of premises and equipment (41,720) (36,975) (35,400) Proceeds from sales of premises and equipment 5,880 707 3,896 Proceeds from sales of foreclosed property 45,978 51,067 13,443 Cash and cash equivalents from acquisitions, net of cash paid 10,664 14,077 401,312 Other, net 30,384 23,197 12,803 ----------- ----------- ----------- Net Cash Provided (Used) by Investing Activities (808,053) 138,822 (263,134) FINANCING ACTIVITIES Net change in time certificates of deposit under $100,000 (144,080) (517,390) (718,546) Net change in time certificates of deposit $100,000 and over 11,657 (30,210) (124,781) Net change in other time deposits (10,745) (88,231) 45,411 Net change in foreign deposits 193,050 6,435 5,713 Net change in other deposits (471,864) 286,261 666,762 Sale of branch deposits, net of premium received (3,796) (14,130) (4,552) Net change in short-term borrowings 608,572 170,919 50,488 Issuance of bank notes 100,000 - - Issuance of long-term debt 75,000 6,275 165,697 Principal payments on long-term debt (58,683) (29,576) (86,978) Cash dividends paid (52,650) (43,210) (33,257) Proceeds from issuance of common stock Public offering of Central Mortgage Bancshares, Inc. - 9,949 10,101 Employee incentive plans and warrants 2,729 2,203 3,904 Initial public offering of United Postal Bancorp, Inc. - - 26,870 Purchase of treasury stock (2,954) - - Other, net (776) (636) 1,816 ----------- ----------- ----------- Net Cash Provided (Used) by Financing Activities 245,460 (241,341) 8,648 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (220,509) 45,814 (37,272) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,148,649 1,102,835 1,140,107 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 928,140 $ 1,148,649 $ 1,102,835 =========== =========== =========== The accompanying notes to supplemental consolidated financial statements are an integral part of these statements.
6 9 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS NOTE A ACCOUNTING POLICIES Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") and its subsidiaries follow generally accepted accounting principles and reporting practices applicable to the banking industry. The significant accounting policies are summarized below. Basis of Presentation: Consolidation: The Supplemental Consolidated Financial Statements include the accounts of Mercantile Bancorporation Inc. and its subsidiaries. Material intercompany transactions are eliminated. Restatements: Effective January 3, 1995, Mercantile Bancorporation Inc. acquired UNSL Financial Corp ("UNSL"), in a transaction accounted for as a pooling-of-interests. Effective May 1, 1995, Central Mortgage Bancshares, Inc. ("Central Mortgage") and TCBankshares, Inc. ("TCBankshares") were acquired in transactions accounted for as poolings-of-interests. The Supplemental Consolidated Financial Statements give retroactive effect to the transactions and, as a result, the Supplemental Consolidated Statement of Income, Balance Sheet and Statement of Cash Flows are presented as if the combining companies had been consolidated for all periods presented. (As required by generally accepted accounting principles, the Supplemental Consolidated Financial Statements will become the historical consolidated financial statements upon issuance of the financial statements for the period that includes the date of the transactions.) The Supplemental Consolidated Statement of Changes in Shareholders' Equity reflects the accounts of Mercantile Bancorporation Inc. as if the common and preferred stock issued in the UNSL, Central Mortgage and TCBankshares acquisitions had been outstanding during all periods presented. The Supplemental Consolidated Financial Statements, including the notes thereto, should be read in conjunction with the historical consolidated financial statements of the Corporation included in its 1994 Annual Report on Form 10-K. Reclassification: Certain reclassifications have been made to the 1993 and 1992 historical financial statements to conform with the 1994 presentation. New Accounting Standards: Financial Accounting Standard ("FAS") 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," effective for fiscal years ending after December 15, 1994, has been adopted by the Corporation with the related disclosure included in Note N to the Supplemental Consolidated Financial Statements. FAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by FAS 118, effective for fiscal years beginning after December 15, 1994, requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. The adoption of FAS 114 is not expected to have a material impact on the Corporation's financial condition or results of operations. FAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," effective for fiscal years beginning after December 15, 1995, and FAS 122, "Accounting for Mortgage Servicing Rights," effective for fiscal years beginning after December 15, 1995, have not been adopted by the Corporation. The effects of the adoptions of FAS 121 and FAS 122 are currently being evaluated by the Corporation; however, they are not expected to have a material impact on the Corporation's financial condition or results of operations. Earnings per Common Share: Earnings per common share data is calculated by dividing net income, after deducting dividends on preferred stock, by the weighted average number of common shares outstanding during the period. Earnings of United Postal Bancorp, Inc. ("United Postal") are excluded from the earnings per share calculation from January 1, 1992 through March 20, 1992, which is the date United Postal made its initial public offering of common stock. Also on March 20, 1992, United Postal Savings Association ("UPSA"), a wholly-owned subsidiary of United Postal, converted from a Missouri state- chartered mutual savings association to a Missouri state-chartered stock association. Investments in Debt and Equity Securities: Trading securities, which include any security held primarily for near-term sale, are valued at fair value. Gains and losses on trading securities, both realized and unrealized, are recorded in investment banking income. Available-for-sale securities, which include any security for which the Corporation has no immediate plan to sell but which may be sold in the future under different circumstances, are valued at fair value. Realized gains and losses, based on the amortized cost of the specific security, are included in other income as securities gains. Unrealized gains and losses are recorded, net of related income tax effects, in retained earnings. 7 10 Held-to-maturity securities, which include any security for which the Corporation has the positive intent and ability to hold until maturity, are valued at historical cost adjusted for amortization of premiums and accretion of discounts computed by the level-yield method. Prior to December 31, 1993, realized gains and losses, based on the amortized cost of the specific security, were included in other income as securities gains. Prior to December 31, 1993, marketable equity securities were stated at the lower of cost or fair value. Changes in the valuation of marketable equity securities which were considered to be temporary were recorded as adjustments to retained earnings. Since December 31, 1993, these securities have been classified as available-for-sale and accounted for as stated above. Loans Held-for-Sale: In its lending activities, the Corporation originates residential and student loans with the intent to be sold in the secondary market. Loans held-for-sale are carried at the lower of cost or fair value which is determined on an aggregate basis. Gains or losses on the sale of loans held-for-sale are determined on a specific identification method. Loans and Leases: Interest income on loans not discounted is generally accrued on a simple interest basis. Interest income on discounted loans is computed on the sum-of-the-months'-digits method, which approximates the interest method. Loan fees and direct costs of loan originations are deferred and amortized over the life of the loans under methods approximating the interest method. The finance method is used to account for direct and leveraged equipment lease contracts. Income is recorded over the lease periods in proportion to the unrecovered investment in the leases after consideration of investment tax credits and other related income tax effects. When, in management's opinion, the collection of interest on a loan is unlikely, or when either principal or interest is past due over 90 days, that loan is generally placed on non-accrual status. When a loan is placed on non-accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the reserve for possible loan losses. Interest payments received on non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest, and/or the borrower demonstrates the ability to pay and remain current. Reserve for Possible Loan Losses: The reserve for possible loan losses is increased by provisions charged to expense and reduced by loans charged off, net of recoveries. The reserve is maintained at a level considered adequate to provide for potential loan losses based on management's evaluation of current economic conditions, changes in the character and size of the portfolio, past experience, expected future losses and other pertinent factors. Foreclosed Assets: Foreclosed assets include real estate and other assets acquired through foreclosure or other proceedings, and in-substance foreclosures. In-substance foreclosures represent loans accounted for as foreclosed assets due to the borrower having limited equity in the underlying collateral, anticipated repayment only through the operation or sale of the collateral, or the borrower either formally or effectively abandoning control of the collateral. With the adoption of FAS 114 in 1995, the in-substance foreclosure classification will no longer be utilized. Foreclosed assets are included in other assets in the Supplemental Consolidated Balance Sheet. Foreclosed assets are valued at the lower of cost or fair value less estimated costs to sell. Losses arising at the time of transfer from loans are charged to the reserve for possible loan losses. Subsequent reductions in valuation based upon periodic appraisals are charged against current earnings. Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation. Provisions for depreciation are computed principally by the straight-line method and are based on estimated useful lives of the assets. The carrying values of assets sold or retired and the related accumulated depreciation are eliminated from the accounts, and the resulting gains or losses are reflected in income. Expenditures for maintenance and repairs are charged to expense, while expenditures for major renewals are capitalized. Intangible Assets: Intangible assets, consisting primarily of goodwill and core deposit premium, are included in other assets in the Supplemental Consolidated Balance Sheet. Goodwill, the excess of cost over the net assets acquired in business combinations accounted for as purchases, is amortized using the straight-line method over the estimated period to be benefited, most recently 15 years, but not exceeding 40 years. Core deposit premium represents the premiums paid, net of any rebate on assets acquired, plus the insurance funds' entrance and exit fees, for deposits acquired from failed thrift institutions in Resolution Trust Corporation-assisted transactions. This intangible asset is amortized, on an accelerated basis, over the estimated life of the core deposit base acquired, but not exceeding 10 years. Income Taxes: Deferred income taxes, computed using the asset and liability method, are provided on temporary differences between the financial reporting basis and the tax basis of the assets and liabilities of the Corporation. 8 11 Treasury Stock: The purchase of the Corporation's common stock is recorded at cost. Upon subsequent reissue, the treasury stock account will be reduced by the average cost basis of such stock. Cash Equivalents: Cash and due from banks, federal funds sold and repurchase agreements are considered cash equivalents for purposes of the Supplemental Consolidated Statement of Cash Flows. Financial Instruments: Financial instruments include cash, evidence of an ownership interest in an entity or a contract that both (a) imposes on the Corporation a contractual obligation, (1) to deliver a financial instrument to another party or (2), to exchange other financial instruments on potentially unfavorable terms with another party; and (b) conveys to another party a contractual right, (1) to receive a financial instrument from the Corporation or (2), to exchange other financial instruments on potentially favorable terms with the Corporation. NOTE B SUBSIDIARIES Acquisitions: As described in Note A, effective May 1, 1995, the Corporation acquired Central Mortgage, a three-bank holding company with assets totaling $659 million, headquartered in Kansas City, Missouri. Also effective May 1, 1995, Mercantile acquired North Little Rock, Arkansas-based TCBankshares, a six-bank holding company with assets totaling $1.4 billion. Effective January 3, 1995, the Corporation acquired UNSL, holding company for Lebanon, Missouri-based United Savings Bank, with assets totaling $508 million. A total of 2,537,723, 4,749,999 and 1,578,107 shares of Mercantile common stock were issued in the Central Mortgage, TCBankshares and UNSL transactions, respectively, which were accounted for as poolings-of- interests. Net income and net income per share for the Corporation and the pooled companies prior to restatement were as follows:
YEAR ENDED DECEMBER 31 1994 1993 1992 ($ in Thousands except per share data) Corporation Net income $161,029 $118,864 $95,040 Net income per share 3.74 2.80 2.36 Central Mortgage Net income $2,851 $5,130 $3,741 Net income per share .69 1.54 1.79 TCBankshares Net income $ 8,729 $ 15,189 $ 13,398 Net income per share 3,616.30 6,646.69 5,806.53 UNSL Net income (loss) $(4,280) $4,068 $5,228 Net income (loss) per share (2.71) 2.72 3.42
During the fourth quarter of 1994, certain adjustments were recorded by UNSL, Central Mortgage and TCBankshares to conform their accounting and credit policies regarding loan, other real estate and other asset valuations to those of the Corporation. These adjustments consisted of an increase in the provision of $7,775,000, an increase in other expense of $12,664,000 and a related tax benefit of $3,739,000, for a total of $16,700,000 on an after-tax basis. Effective January 3, 1995, Mercantile completed a merger with Wedge Bank ("Wedge"), an Alton, Illinois-based bank with assets totaling $196 million. A total of 969,954 shares of Mercantile common stock was issued in the Wedge transaction. The Wedge transaction meets the requirements for treatment as a pooling-of-interests; however, due to the immateriality of Wedge's financial condition and results of operations to that of Mercantile's, the historical financial statements of the Corporation will not be restated for the Wedge pooling-of-interests transaction. Effective February 1, 1994, the Corporation acquired United Postal, holding company for St. Louis, Missouri-based UPSA, with assets totaling $1.3 billion. Effective January 3, 1994, Mercantile completed a merger with Metro Bancorporation, a Waterloo, Iowa-based holding company for The Waterloo Savings Bank, with assets totaling $370 million. A total of 5,631,953 and 1,638,278 shares of Mercantile common stock were issued in the United Postal and Metro Bancorporation transactions, respectively, which were accounted for as poolings-of-interests. Net income and net income per share for the Corporation and the pooled companies prior to restatement were as follows:
YEAR ENDED DECEMBER 31 1993 1992 ($ in Thousands except per share data) Corporation Net income $116,972 $85,295 Net income per share 3.32 2.53 United Postal Net income (loss) $ (58) $7,259 Net income (loss) per share (.01) 1.21 Metro Bancorporation Net income $1,950 $2,486 Net income per share 3.76 4.81
During the fourth quarter of 1993, certain adjustments were recorded by United Postal and Metro Bancorporation to conform their accounting and credit policies regarding loan, other real estate and other asset valuations to those of the Corporation. These adjustments consisted of an increase in the provision of $8,700,000, an increase in other expense of $12,728,000 and a related tax benefit of $4,928,000, for a total of $16,500,000 on an after-tax basis. 9 12 On September 1, 1993, Mercantile completed a merger with Mt. Vernon Bancorp, Inc., a $113,128,000-asset holding company for First Bank and Trust Co. in Mt. Vernon, Illinois. The total cost of the acquisition was $1,805,000 in cash and 216,936 shares of Mercantile common stock. The excess of the purchase price over the fair value of net assets acquired was $4,700,000. On April 1, 1993, Mercantile completed the merger with the $70,725,000-asset First National Bank of Flora in Clay County, Illinois. The total cost of the acquisition was $3,004,000 in cash and 232,503 shares of Mercantile common stock. The excess of the purchase price over the fair value of net assets acquired was $2,549,000. Both transactions were accounted for as purchases and, accordingly, the results of operations, which were not material, were included in the Supplemental Consolidated Financial Statements from the respective acquisition dates. On January 4, 1993, the Corporation acquired MidAmerican Corporation and Johnson County Bankshares, Inc., two northeast Kansas-based holding companies with assets totaling $1.1 billion. A total of 4,736,424 shares of Mercantile common stock was issued in the transaction, which was accounted for as a pooling-of-interests. Net income and net income per share for the Corporation, MidAmerican Corporation and Johnson County Bankshares, Inc. prior to restatement were as follows:
YEAR ENDED DECEMBER 31 1992 ($ in Thousands except per share data) Corporation Net income $85,003 Net income per share 2.91 MidAmerican Corporation Net income $1,007 Net income per share .30 Johnson County Bankshares, Inc. Net loss $ (715) Net loss per share (36.70)
During the fourth quarter of 1992, certain adjustments were recorded by MidAmerican Corporation and Johnson County Bankshares, Inc. to conform their accounting and credit policies regarding loan, other real estate and other asset valuations to those of the Corporation. These adjustments consisted of an increase in the provision of $5,800,000, an increase in other expense of $5,600,000 and a related tax benefit of $3,400,000, for a total of $8,000,000 on an after-tax basis. MidAmerican Corporation acquired Jayhawk Bancshares, Inc., a $52,000,000-asset, one-bank holding company in Lawrence, Kansas, in July 1992. This acquisition was accounted for as a purchase and, accordingly, the results of operations, which were not material, were included in the Supplemental Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $10,872,000 in cash and $2,200,000 in notes. Upon maturity of the final $1,900,000 in notes in August 1994, $1,391,000 was offset against the fair value of net assets acquired, based upon the outcome of certain losses in the loan portfolio of the acquired bank subsidiary. The excess of the purchase price over the fair value of net assets acquired was $7,956,000. On April 30, 1992, the Corporation acquired Ameribanc, Inc., a $1.2 billion-asset, 11-bank holding company headquartered in St. Joseph, Missouri. This acquisition was accounted for as a purchase and, accordingly, the results of operations were included in the Supplemental Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $8,851,000 in cash and 1,975,421 shares of Mercantile common stock. The following unaudited pro forma combined consolidated financial information gives effect to the April 30, 1992 acquisition of Ameribanc, Inc. as if it had been consummated on January 1, 1992.
YEAR ENDED DECEMBER 31 1992 ($ in Thousands except per share data) Net interest income $468,362 Other income 188,053 Net income 95,115 Net income per share 2.32
For all acquisitions accounted for as purchases, the unamortized excess of cost over the fair value of assets acquired was $58,663,000, $66,708,000 and $60,210,000 at December 31, 1994, 1993 and 1992, respectively. RTC Transactions: During 1992, certain subsidiaries of the Corporation acquired from the Resolution Trust Corporation the deposits and certain assets of failed thrift institutions. Transactions included: Mercantile Bank of Joplin and Mercantile Bank of Kansas City acquired $222,304,000 in deposits of two branches of the former Home Federal Savings Association in Joplin and Kansas City, Missouri in March 1992; Mercantile Bank of West Central Missouri acquired $163,055,000 in deposits and $156,818,000 in assets of First State Savings Association of Sedalia in April 1992; and UPSA acquired $79,000,000 in deposits and $80,000,000 in assets of First Federal Savings and Loan Association in Manchester, Missouri in December 1992. Unamortized core deposit premium was $11,063,000, $14,738,000 and $14,464,000 at December 31, 1994, 1993 and 1992, respectively. 10 13 The effect of the Mt. Vernon, Flora, Jayhawk and Resolution Trust Corporation acquisitions on the Corporation's operating results from January 1, 1992 through the respective acquisition dates and for the years ended December 31, 1994, 1993 and 1992, was not material. Subsidiary Mergers: During 1994, the Corporation effected several reorganization transactions among certain subsidiaries. On December 9, 1994, Mercantile Bank of Table Rock Lake was merged with Mercantile Bank of Springfield. On August 16, 1994, certain assets and liabilities of UPSA, primarily those associated with its Arnold and Crystal City, Missouri branches, were sold to Mercantile Bank of Jefferson County. On the same date, UPSA was merged with Mercantile Bank of St. Louis N.A. On July 21, 1994, certain assets and liabilities of the Troy, Missouri agency office of UPSA were sold to Mercantile Bank of Pike County. Pending Acquisitions: The Corporation entered into an agreement dated December 23, 1994 to acquire the capital stock of Plains Spirit Financial Corporation, holding company for the $439 million-asset First Federal Savings Bank of Iowa headquartered in Davenport, Iowa. The acquisition, to be accounted for as a purchase transaction, is expected to be consummated in the third quarter of 1995. The Corporation entered into an agreement dated January 27, 1995 to acquire the capital stock of the $181 million-asset Southwest Bancshares, Inc. ("Southwest"), the holding company for Southwest Bank, which is based in Bolivar, Missouri. On February 17, 1995, Mercantile announced an agreement to merge with AmeriFirst Bancorporation ("AmeriFirst"), holding company for Sikeston, Missouri-based AmeriFirst Bank, which had assets of $157 million. The Southwest and AmeriFirst transactions meet the requirements for treatment as poolings-of-interests; however, due to the immateriality of Southwest's and AmeriFirst's financial condition and results of operations to that of Mercantile's, the historical financial statements of the Corporation will not be restated for the Southwest and AmeriFirst pooling-of-interests transactions. These two acquisitions are expected to be completed in the third quarter of 1995. NOTE C CASH FLOWS The Corporation paid interest on deposits, short-term borrowings, bank notes and long-term debt of $397,336,000, $397,369,000 and $498,863,000 in 1994, 1993 and 1992, respectively. The Corporation paid Federal income taxes of $103,928,000, $70,449,000 and $53,271,000 in 1994, 1993 and 1992, respectively. The following details cash and cash equivalents from acquisitions accounted for as purchases, net of cash paid:
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) Fair value of assets purchased $ (6,089) $(373,379) $(1,679,456) Liabilities assumed 16,753 334,038 1,603,529 Issuance of common stock - 15,182 51,295 ------ --------- ----------- Net cash received (paid) for acquisitions 10,664 (24,159) (24,632) Cash and cash equivalents acquired - 38,236 425,944 ------ --------- ----------- CASH AND CASH EQUIVALENTS FROM ACQUISITIONS, NET OF CASH PAID $10,664 $ 14,077 $ 401,312 ======= ========= ===========
NOTE D CASH AND DUE FROM BANKS RESTRICTIONS The Corporation's subsidiary banks are required to maintain average reserve balances which place withdrawal and/or usage restrictions on cash and due from banks balances. The average amount of these restricted balances for the year ended December 31, 1994 was $197,165,000. 11 14 NOTE E INVESTMENTS IN DEBT AND EQUITY SECURITIES Available-for-Sale: The amortized cost, estimated fair values, and unrealized gains and losses of available-for-sale securities were as follows:
AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE (Thousands) DECEMBER 31, 1994 U.S. government $359,552 $ 258 $11,092 $348,718 State and political subdivisions-tax-exempt 12,582 156 24 12,714 Other 55,302 1,468 2,143 54,627 -------- ------ ------ -------- Total $427,436 $1,882 $13,259 $416,059 ======== ====== ======= ======== DECEMBER 31, 1993 U.S. government $359,362 $2,289 $ 604 $361,047 State and political subdivisions-tax-exempt 14,259 925 11 15,173 Other 40,540 4,240 1,244 43,536 -------- ------ ------ -------- Total $414,161 $7,454 $1,859 $419,756 ======== ====== ====== ======== DECEMBER 31, 1992 U.S. government $89,424 $2,672 $ - $92,096 ======= ====== === =======
Held-to-Maturity: The amortized cost, estimated fair values, and unrealized gains and losses of held-to-maturity securities were as follows:
AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE (Thousands) DECEMBER 31, 1994 U.S. government $2,849,318 $ 7,877 $104,366 $2,752,829 State and political subdivisions Tax-exempt 372,641 3,853 9,764 366,730 Taxable 157,992 49 9,067 148,974 ---------- ------- -------- ---------- Total State and Political Subdivisions 530,633 3,902 18,831 515,704 Other 33,191 - 517 32,674 ---------- ------ -------- ---------- Total $3,413,142 $11,779 $123,714 $3,301,207 ========== ======= ======== ========== DECEMBER 31, 1993 U.S. government $3,121,831 $54,852 $6,038 $3,170,645 State and political subdivisions Tax-exempt 378,531 17,109 638 395,002 Taxable 101,852 338 671 101,519 ---------- ------- ------ ---------- Total State and Political Subdivisions 480,383 17,447 1,309 496,521 Other 142,378 1,809 327 143,860 ---------- ------- ------ ---------- Total $3,744,592 $74,108 $7,674 $3,811,026 ========== ======= ====== ========== DECEMBER 31, 1992 U.S. government $3,259,804 $77,090 $8,602 $3,328,292 State and political subdivisions Tax-exempt 320,253 12,422 1,232 331,443 Taxable 12,195 317 131 12,381 ---------- ------- ------ ---------- Total State and Political Subdivisions 332,448 12,739 1,363 343,824 Other 406,634 5,782 859 411,557 ---------- ------- ------ ---------- Total $3,998,886 $95,611 $10,824 $4,083,673 ========== ======= ======= ==========
12 15 On October 1, 1994, the Corporation transferred securities from the available-for-sale classification to the held-to-maturity classification. The securities transferred had an amortized cost basis of $238,018,000 and an estimated fair value of $225,792,000 on the transfer date. The unrealized loss on the date of the transfer remained in shareholders' equity and will be accreted over the remaining life of the transferred securities. The amortized cost basis of the Company's held-to-maturity securities is reduced by a valuation allowance of $11,444,000 relating to the unaccreted holding losses as of December 31, 1994. Securities with a carrying value of $2,324,721,000 at December 31, 1994, $2,331,278,000 at December 31, 1993 and $2,403,907,000 at December 31, 1992 were pledged to secure public and trust deposits, securities sold under agreements to repurchase, and for other purposes required by law. Included in other held-to-maturity securities at December 31, 1992 were marketable equity securities with a cost of $16,675,000 and a carrying value of $13,121,000. At December 31, 1993 and 1994, these same securities were classified as available-for-sale upon the adoption of FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." Additional securities with carrying values of $752,000 became marketable equity securities during 1993, and at December 31, 1993 and 1994, these securities were classified as available-for-sale. The following table presents proceeds from sales of securities and the components of net securities gains. There were no securities classified as held-to-maturity during 1994 that were transferred to available-for-sale securities or sold. Held-to-maturity securities gains and losses in 1994 resulted from portfolio restructurings in connection with subsidiary bank acquisitions or calls by the security issuer prior to maturity.
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) Proceeds from sales of: Held-to-maturity securities $ 1,985 $32,749 $274,677 Available-for-sale securities 23,704 27,141 7,953 Securities from acquired entities 79,388 14,491 58,219 Securities gains on: Held-to-maturity securities $ 471 $ 2,396 $7,367 Available-for-sale securities 5,141 5,230 1,001 ------ ------- ------ Total Securities Gains 5,612 7,626 8,368 Securities losses on: Held-to-maturity securities 262 867 1,907 Available-for-sale securities 3,173 1,638 871 ------ ------- ------ Total Securities Losses 3,435 2,505 2,778 ------ ------- ------ Before Income Taxes 2,177 5,121 5,590 Applicable income taxes (762) (1,792) (1,901) ------- ------- ------- Net Securities Gains $1,415 $ 3,329 $3,689 ====== ======= ======
NOTE F LOANS AND LEASES Loans and leases consisted of the following:
DECEMBER 31 1994 1993 1992 (Thousands) Commercial $2,353,493 $2,157,554 $2,216,938 Real estate-commercial 1,580,380 1,451,781 1,500,786 Real estate-construction 300,081 282,370 264,971 Real estate-residential 3,108,748 2,896,855 2,853,269 Consumer 1,481,823 1,150,067 1,077,368 Credit card 845,028 763,243 610,429 Foreign 425 462 1,674 ---------- ---------- ---------- Loans and Leases $9,669,978 $8,702,332 $8,525,435 ========== ========== ==========
Changes in the reserve for possible loan losses were as follows:
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) Beginning Balance $184,836 $178,735 $157,842 Provision 43,201 63,513 77,874 Charge-offs (66,601) (87,326) (91,156) Recoveries 32,632 24,443 16,187 -------- -------- -------- Net Charge-offs (33,969) (62,883) (74,969) Acquired Reserves 447 5,471 17,988 -------- -------- -------- Ending Balance $194,515 $184,836 $178,735 ======== ======== ========
Non-performing loans consisted of the following:
DECEMBER 31 1994 1993 1992 (Thousands) Non-accrual $27,687 $53,375 $ 99,462 Renegotiated 5,872 13,058 21,634 ------- ------- -------- Non-performing Loans $33,559 $66,433 $121,096 ======= ======= ========
Certain directors and executive officers of the Corporation and Mercantile Bank of St. Louis N.A. were loan customers of the Corporation's banks during 1994, 1993 and 1992. Such loans were made in the ordinary course of business at normal terms, including interest rate and collateralization, and did not represent more than a normal risk. Loans to those persons, their immediate families and companies in which they were principal owners were $6,067,000, $7,122,000 and $39,133,000 at December 31, 1994, 1993 and 1992, respectively. During 1994, $25,225,000 of new loans were made to these persons; repayments totaled $26,280,000. 13 16 NOTE G BANK PREMISES AND EQUIPMENT Bank premises and equipment were as follows:
DECEMBER 31 1994 1993 1992 (Thousands) Land $ 43,028 $ 42,710 $ 39,705 Bank premises 219,564 234,238 224,007 Leasehold improvements 41,553 22,776 19,701 Furniture and equipment 204,337 192,493 174,790 --------- --------- --------- Total Cost 508,482 492,217 458,203 Accumulated depreciation (260,164) (248,854) (224,182) --------- --------- --------- Net Carrying Value $ 248,318 $ 243,363 $ 234,021 ========= ========= =========
At December 31, 1994, the Corporation had certain long-term leases, none of which were considered to be capital leases, which were principally related to the use of land, buildings and equipment. The following table summarizes the future minimum rental commitments for all noncancelable operating leases which had initial or remaining noncancelable lease terms in excess of one year:
PERIOD MINIMUM RENTAL (Thousands) 1995 $ 5,494 1996 5,361 1997 5,096 1998 3,557 1999 3,131 2000 and later 7,544 ------- Total $30,183 =======
Net rental expense for all operating leases was $7,714,000 in 1994, $8,103,000 in 1993 and $8,172,000 in 1992. NOTE H SHORT-TERM BORROWINGS Short-term borrowings were as follows:
DECEMBER 31 1994 1993 1992 (Thousands) Federal funds purchased and repurchase agreements $1,495,540 $ 660,643 $ 789,081 Treasury tax and loan notes 166,545 503,360 216,621 Commercial paper 26,800 18,390 9,198 Other short-term borrowings 122,080 20,000 16,574 ---------- ---------- ---------- Total $1,810,965 $1,202,393 $1,031,474 ========== ========== ==========
The Corporation had unused lines of credit arrangements with unaffiliated banks in support of commercial paper outstanding of $40,000,000 at December 31, 1994. NOTE I BANK NOTES AND LONG-TERM DEBT Bank Notes: Beginning in 1994, Mercantile Bank of St. Louis N.A., Mercantile Bank of Illinois N.A., Mercantile Bank of Kansas City, Mercantile Bank of Kansas and Mercantile Bank of Springfield may offer unsecured bank notes in aggregate principal amounts of up to $1 billion. Note maturities can range from 30 days to 15 years from the date of issue and can be issued with fixed or floating interest rates. Each bank note issued will be an obligation solely of that issuing bank and will not be an obligation of, or otherwise guaranteed by, the other issuing banks or the Corporation. The bank notes are being offered and sold only to institutional investors, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. On November 16, 1994, Mercantile Bank of St. Louis N.A. issued $100,000,000 of two-year bank notes, with a floating interest rate equal to the three-month LIBOR plus 1/8%. The coupon rate on the issued bank notes was 5.9375% at December 31, 1994. Long-term Debt: Long-term debt consisted of the following:
DECEMBER 31 1994 1993 1992 (Thousands) MERCANTILE BANCORPORATION INC. (PARENT COMPANY ONLY) 7.625% subordinated notes, due 2002 $150,000 $150,000 $150,000 8.500% debentures, due 2004 - 30,550 31,171 8.000% convertible subordinated capital notes, due April 1, 1995 8,822 13,522 15,426 Notes issued in acquisitions - - 120 ------- ------- -------- Total 158,822 194,072 196,717 SECOND-TIER HOLDING COMPANIES 11,319 16,469 35,411 BANKS AND OTHER SUBSIDIARIES 6.375% subordinated debt, due 2004 75,000 - - 9.000% mortgage-backed notes, due 1999 53,450 53,041 52,966 Mortgage payable - 23,653 24,337 Other 73 714 414 -------- -------- -------- Total 128,523 77,408 77,717 -------- -------- -------- Total Long-term Debt $298,664 $287,949 $309,845 ======== ======== ========
On October 15, 1992, the Corporation issued $150,000,000 of subordinated notes with a 10-year maturity and a coupon rate of 7.625% to yield 7.741%. These notes qualify as Tier II capital under current regulatory guidelines. 14 17 On January 25, 1994, Mercantile Bank of St. Louis N.A. issued $75,000,000 of 6.375% 10-year, non-callable subordinated debt, due January 15, 2004. This debt qualifies as Tier II capital. The Corporation used the proceeds of this subordinated debt issue to: (1) prepay in full on February 23, 1994 the $30,550,000 8.500% unsecured debentures of the Corporation; and (2) prepay in full on February 1, 1994 the $23,653,000 8.250% mortgage secured by the Corporation's headquarters building. The 8.000% convertible subordinated capital notes were issued by Ameribanc, Inc. prior to its acquisition by the Corporation. At December 31, 1994, these notes were convertible into approximately 339,000 shares of the Corporation's common stock. Notes issued in acquisitions by the parent company with an interest rate of 6.500% matured in November 1993. Second-tier holding company debt was issued by MidAmerican Corporation, Johnson County Bankshares, Inc., Central Mortgage and TCBankshares, prior to their acquisition by the Corporation. All second-tier holding company debt issued by MidAmerican Corporation or Johnson County Bankshares, Inc. has been paid off or matured prior to December 31, 1994. As of December 31, 1994, second-tier holding company debt issued by Central Mortgage consisted of (1) a note due in 1996 with annual principal payments of $500,000 plus quarterly interest at a rate of 6.61% and (2), an obligation secured by approximately 112,000 shares of the Corporation's common stock. The second-tier holding company debt issued by TCBankshares as of December 31, 1994 consisted of (1) an 8.5% note due in 1997 with quarterly principal payments of $185,000 and (2), an amortizing revolving line of credit of $2,035,000 with an interest rate equal to LIBOR plus 2.25%. In July 1989, UPSA issued $100 million of 9.000% fixed-rate mortgage-backed notes with a maturity date of July 1999. UPSA used a portion of the proceeds from the sale of the notes as, or to purchase, eligible collateral which was pledged to the trustee simultaneously with the initial sale of the notes. During 1990, $46,550,000 of the mortgage-backed notes were repurchased on the open market at a discount. In 1994 the mortgage-backed securities collateralizing these notes were replaced with U.S. government securities of a like amount. A summary of annual principal reductions of long-term debt is presented below:
ANNUAL PERIOD PRINCIPAL REDUCTIONS (Thousands) 1995 $ 12,559 1996 3,739 1997 3,484 1998 432 1999 53,450 2000 and later 225,000 -------- Total $298,664 ========
15 18 NOTE J INCOME TAXES The Corporation's results include income tax expense as follows:
CURRENT DEFERRED TOTAL (Thousands) YEAR ENDED DECEMBER 31, 1994 U.S. FEDERAL $ 98,940 $(8,350) $ 90,590 STATE AND LOCAL 11,516 (401) 11,115 -------- ------- -------- TOTAL $110,456 $(8,751) $101,705 ======== ======= ======== Year ended December 31, 1993 U.S. Federal $67,917 $5,578 $73,495 State and local 11,246 726 11,972 ------- ------ ------- Total $79,163 $6,304 $85,467 ======= ====== ======= Year ended December 31, 1992 U.S. Federal $52,132 $642 $52,774 State and local 8,038 260 8,298 ------- ---- ------- Total $60,170 $902 $61,072 ======= ==== =======
The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities are presented below.
DECEMBER 31 1994 1993 1992 (Thousands) Deferred tax assets Reserve for possible loan losses $ 62,383 $ 58,602 $ 59,378 Foreclosed property 2,560 2,842 3,415 Deferred compensation 2,447 2,792 1,874 Net operating losses from pooled subsidiary 1,494 4,527 10,377 Expenses not currently allowable for tax purposes 11,079 7,598 5,802 State tax liabilities 2,239 1,266 1,567 Investments in debt and equity securities-FAS 115 8,168 - - Retirement expenses in excess of tax deduction 5,274 2,404 1,670 Other 5,856 1,575 11,089 -------- -------- -------- Total Gross Deferred Tax Assets 101,500 81,606 95,172 Deferred tax liabilities Leasing (56,776) (55,050) (55,187) Pension settlement gain (6,005) (6,005) (5,833) Intangible assets (9,078) (10,726) (10,965) Depreciation (2,163) (3,610) (3,861) Investments in debt and equity securities-FAS 115 - (1,959) - Other (8,162) (3,818) (10,648) --------- -------- -------- Total Gross Deferred Tax Liabilities (82,184) (81,168) (86,494) --------- -------- -------- Net Deferred Tax Assets $ 19,316 $ 438 $ 8,678 ======== ======== ========
The 1992 and 1993 net deferred tax assets reflect amounts attributable to entities acquired in purchase transactions. Income tax expense as reported differs from the amounts computed by applying the statutory U.S. Federal income tax rate to pretax income as follows:
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) Computed "expected" tax expense $ 94,512 $80,051 $60,683 Increase (reduction) in income taxes resulting from Tax-exempt income (8,096) (8,109) (6,113) State and local income taxes, net of federal income tax benefit 6,937 7,501 5,216 Thrift bad debt recapture 3,615 6,070 - Other, net 4,737 (46) 1,286 -------- ------- ------- Total Tax Expense $101,705 $85,467 $61,072 ======== ======= =======
15A 19 NOTE K RETIREMENT PLANS Pension Plans: The Corporation maintains both qualified and nonqualified noncontributory pension plans that cover all employees meeting certain age and service requirements. The qualified plan provides pension benefits based on the employee's length of service and compensation earned during the five years prior to retirement. The Corporation's funding policy is to contribute annually at least the minimum amount required by government funding standards but not more than is tax deductible. No contribution was required during 1994, 1993 or 1992. UNSL is a member of the Financial Institutions Retirement Fund ("Fund"). This trust provides retirement and death benefits to multiple employers. All contributions to the Fund are commingled, and all assets of the Fund are invested on a pooled basis, without allocation to the individual employers. Therefore, UNSL's pension plan assets and actuarial liabilities are not included in the qualified plan tables listed below. The contribution policy of UNSL is to fund the pension cost accrued in each year. The annual contributions for 1994, 1993 and 1992 were $406,000, $237,000 and $61,000, respectively. The net periodic pension expense related to the qualified plan included in the Supplemental Consolidated Statement of Income is summarized as follows:
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) Service cost-benefits earned during the period $ 6,665 $ 5,088 $ 3,970 Interest cost on projected benefit obligation 8,382 7,744 6,237 Actual (return) loss on plan assets 1,863 (10,117) (7,972) Net amortization and deferral (14,254) (1,132) (1,721) -------- -------- ------- Net Periodic Pension Expense $ 2,656 $ 1,583 $ 514 ======== ======== =======
The table below sets forth the funded status and amounts recognized in the Supplemental Consolidated Balance Sheet for the qualified plan:
DECEMBER 31 1994 1993 1992 (Thousands) Actuarial present value of Vested benefit obligation $ 78,380 $ 81,790 $ 67,043 ======== ======== ======== Accumulated benefit obligation $ 87,122 $ 89,131 $ 72,310 ======== ======== ======== Projected benefit obligation $104,949 $109,718 $ 88,965 Plan assets at fair value 121,799 123,299 116,609 -------- -------- -------- Plan assets in excess of projected benefit obligation (16,850) (13,581) (27,644) Unrecognized net gain (loss) (8,964) (12,213) 1,505 Unrecognized prior service cost 2,922 1,895 1,666 Unrecognized net asset at December 31 5,664 7,229 7,181 -------- -------- -------- Prepaid Pension $ (17,228) $ (16,670) $(17,292) ========= ========= ======== Assumptions used were as follows: 1994 1993 1992 Discount rate in determining benefit obligations 8.50% 7.50% 8.00% Rate of increase in compensation levels 5.00 5.00 5.25 Expected long-term rate on assets 9.00 9.00 8.50
At December 31, 1994, approximately 58% of the plan's assets were invested in listed common stocks, 36% were invested in government and corporate bonds rated A or better, and the remaining 6% were invested in short-term cash equivalents. A nominal amount of common stock of the Corporation was held by the plan. The nonqualified plans provide pension benefits which would have been provided under the qualified plan in the absence of limits placed on qualified plan benefits by the Internal Revenue Service. The Corporation's funding policy is to fund benefits as they are paid. Contributions under the nonqualified plans were not material for the three years ended December 31, 1994, 1993 and 1992. The expense related to these plans was $1,612,000 in 1994, $1,641,000 in 1993 and $1,337,000 in 1992. Other Postretirement Benefits: In addition to the pension plans described above, the Corporation provides other postretirement benefits, largely medical benefits and life insurance, to its retirees. 16 20 The Corporation adopted FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in the first quarter of 1993, which required the recording of the unrecognized transition obligation for postretirement benefits other than pensions. That liability is being amortized over a 20-year period. The net periodic postretirement benefit expense included in the Supplemental Consolidated Statement of Income is summarized as follows:
YEAR ENDED DECEMBER 31 1994 1993 (Thousands) Service cost-benefits earned during the period $ 734 $ 591 Interest cost on accumulated postretirement benefit obligation 2,539 2,661 Net amortization and deferral 1,633 1,679 ------ ------ Net Periodic Postretirement Benefit Cost $4,906 $4,931 ====== ======
The cash basis postretirement benefit cost prior to the adoption of FAS 106 was $2,235,000 in 1992. The table below sets forth the funded status and the amount recognized in the Supplemental Consolidated Balance Sheet regarding other postretirement benefits:
DECEMBER 31 1994 1993 1992 (Thousands) Accumulated postretirement benefit obligation ("APBO") Retirees $24,493 $ 25,956 $ 25,900 Active employees fully eligible for benefits 1,085 1,437 1,149 Other active employees 6,609 7,856 6,523 ------- -------- -------- Total 32,187 35,249 33,572 Assets at fair value - - - ------ ------- ------- APBO in excess of assets 32,187 35,249 33,572 Unrecognized net gain (loss) 2,436 (1,268) - Unrecognized prior service cost (155) - - Unrecognized transition obligation December 31 (28,470) (30,393) (33,572) -------- -------- -------- Accrued Postretirement Benefit Obligation $ 5,998 $ 3,588 $ - ======= ======== ======= Assumptions used were as follows: 1994 1993 1992 Discount rate in determining benefit obligations 8.50% 7.50% 8.00% Health care cost trend First year 11.00 12.00 13.00 Ultimate (2001 and after) 6.00 6.00 6.00
An increase in the health care cost trend of one percent would increase the aggregate of service and interest cost components of net periodic postretirement benefit costs by $120,000 in 1994 compared with $136,000 in 1993. The APBO would increase by $1,443,000 as of December 31, 1994 compared with $1,675,000 as of December 31, 1993. NOTE L SHAREHOLDERS' EQUITY Common Stock: The authorized common stock of the Corporation consists of 100,000,000 shares as of December 31, 1994 and 70,000,000 shares as of December 31, 1993 and 1992, $5.00 par value, of which 52,073,353, 51,666,199 and 50,391,888 shares were outstanding at December 31, 1994, 1993 and 1992, respectively. The Corporation's Dividend Reinvestment Plan ("Plan") allows shareholders of record to reinvest dividends and/or make voluntary cash contributions to purchase additional shares of the Corporation's common stock. Under the Plan, stock is purchased in the open market by the Plan Trustee with no service charge to the shareholder. Preferred Stock: The authorized preferred stock of the Corporation consists of 5,000,000 shares, no par value, of which 14,806 shares were issued and outstanding at December 31, 1994, 1993 and 1992. In addition, 1,000,000 shares were reserved at December 31, 1994 for issuance pursuant to the Preferred Share Purchase Rights Plan. As of December 31, 1994, 1993 and 1992, there were two series of preferred stock issued. Series B-1 consists of 5,306 shares which are redeemable by the Corporation and which have non-cumulative dividends as declared by Mercantile's Board of Directors. Series B-2 represents 9,500 shares with a cumulative annual dividend at the rate of $85 per share. The Series B-2 preferred shares are also redeemable by the Corporation. Preferred Share Purchase Rights Plan: One Preferred Share Purchase Right ("Right") is attached to each share of common stock and trades automatically with such shares. The Rights, which can be redeemed by the Board of Directors in certain circumstances and expire by their terms on June 3, 1998, have no voting rights. The Rights become exercisable and will trade separately from the common stock 10 days after a person or a group either becomes the beneficial owner or announces an intention to commence a tender offer for 20% or more of the Corporation's outstanding common stock. When exercisable, each Right entitles the registered holder to purchase from the Corporation 1/100 of a share of Series A Junior Participating Preferred Stock for $100 per 1/100 of a preferred share. 17 21 In the event a person acquires beneficial ownership of 20% or more of the Corporation's common stock, holders of Rights (other than the acquiring person or group) may purchase, at the Rights' then current exercise price, common stock of the Corporation having a value at that time equal to twice the exercise price. In the event the Corporation merges into or otherwise transfers 50% or more of its assets or earnings power to any person after the Rights become exercisable, holders of Rights may purchase, at the then current exercise price, common stock of the acquiring entity having a value at that time equal to twice the exercise price. Stock Options: The Corporation had stock options outstanding under various plans at December 31, 1994, including plans assumed in acquisitions. The original Mercantile plans provide for the granting to employees of the Corporation and its subsidiaries of options to purchase shares of common stock of the Corporation over periods of up to 10 years at a price not less than the market value of the shares at the date the options are granted. The plans provide for the granting of options which either qualify or do not qualify as Incentive Stock Options as defined by Section 422 of the Internal Revenue Code of 1986, as amended. A summary of the plans follows:
SHARES PRICE ------ ----- AT DECEMBER 31, 1994 Available for grant 1,836,130 Outstanding 2,847,549 $5.41-38.88 Exercisable 1,524,073 5.41-34.33 Changes in options outstanding were as follows: SHARES PRICE ------ ----- BALANCE AT DECEMBER 31, 1991 1,269,106 $ 7.54-$21.78 Granted 1,146,347 5.41- 29.00 Exercised (332,913) 5.41- 24.09 Canceled (71,186) 12.26- 26.33 Assumed 72,223 14.60- 25.83 --------- BALANCE AT DECEMBER 31, 1992 2,083,577 5.41- 29.00 Granted 729,935 14.62- 34.33 Exercised (269,920) 5.41- 26.33 Canceled (40,225) 17.17- 32.67 --------- BALANCE AT DECEMBER 31, 1993 2,503,367 5.41- 34.33 GRANTED 718,489 18.44- 38.88 EXERCISED (319,080) 5.41- 32.50 CANCELED (55,227) 12.50- 32.67 --------- BALANCE AT DECEMBER 31, 1994 2,847,549 5.41- 38.88 =========
No amounts have been charged to expense in connection with any plan. Debt and Dividend Restrictions: Consolidated retained earnings at December 31, 1994 were not restricted under any debenture agreement as to payment of dividends or reacquisition of common stock. The primary source of funds for dividends paid by the Corporation to its shareholders is dividends received from bank subsidiaries. At December 31, 1994, approximately $388,034,000 of the equity of bank subsidiaries was available for distribution as dividends to the Parent Company without prior regulatory approval or without reducing the capital of the respective subsidiary banks below present minimum standards. An additional $106,797,000 would be available for loans to the Parent Company under Federal Reserve regulations. The remaining equity of bank subsidiaries approximating $766,651,000 was restricted as to transfers to the Parent Company. NOTE M CONCENTRATIONS OF CREDIT The Corporation's primary market area is the state of Missouri and the lower Midwest. At December 31, 1994, approximately 93% of the total loan portfolio, and 90% of the commercial and commercial real estate loan portfolio, were to borrowers within this region. The diversity of the region's economic base tends to provide a stable lending environment. Real estate lending constituted the only other significant concentration of credit risk. Real estate-related financial instruments (loans, commitments and standby letters of credit) comprised 36% of all such instruments of the Corporation. However, of this total, approximately 63% was consumer-related in the form of residential real estate mortgages and home equity lines of credit. The Corporation is, in general, a secured lender. At December 31, 1994, approximately 85% of the loan portfolio was secured. Collateral is required in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction. NOTE N FINANCIAL INSTRUMENTS Fair Values: Fair values for financial instruments are management's estimates of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, certain financial instruments and all non-financial instruments are excluded from the fair value disclosure requirements of FAS 107, "Disclosures about Fair Value of Financial Instruments." Therefore, the fair values presented below should not be construed as the underlying value of the Corporation. 18 22 The following methods and assumptions were used in estimating fair values for financial instruments. Cash and Due from Banks, Short-term Investments and Short-term Borrowings: The carrying values reported in the Supplemental Consolidated Balance Sheet approximated fair values. Investments in Debt and Equity Securities: Fair values for held- to-maturity and available-for-sale securities were based upon quoted market prices where available. Fair values for trading securities, which also were the amounts reported in the Supplemental Consolidated Balance Sheet, were based on quoted market prices where available. If quoted market prices were not available, fair values were based upon quoted market prices of comparable instruments. Loans and Leases: The fair values for most fixed-rate loans were estimated by utilizing discounted cash flow analysis, applying interest rates currently being offered for similar loans to borrowers with similar risk profiles. The discount rates used therefore include a credit risk premium. The fair values of variable-rate loans and residential mortgages were estimated by utilizing the same type of discounted cash flows, but over a range of interest rate scenarios, in order to incorporate the value of the options imbedded in these assets. Loans with similar characteristics were aggregated for purposes of these calculations. The fair value of credit card loans was assumed to be the same as the par value. The fair value estimate of the credit card portfolio does not include any value attributable to the ongoing cardholder relationship. That component was estimated to be approximately $150,000,000 to $185,000,000 in excess of the fair value at December 31, 1994. Deposits: The fair values disclosed for deposits generally payable on demand (i.e., interest bearing and non-interest bearing demand, savings, and money market accounts) were considered equal to their respective carrying amounts as reported in the Supplemental Consolidated Balance Sheet. Fair values for certificates of deposit and foreign deposits were estimated using a discounted cash flow calculation that applied interest rates generally offered on similar certificates to a schedule of aggregated expected monthly maturities of time deposits. The fair value estimate of the deposit portfolio has not been adjusted for any value derived from the retention of those deposits for an expected future period of time. That component, commonly referred to as core deposit premium, was estimated to be approximately $205,000,000 to $305,000,000 at December 31, 1994 and was neither considered in the fair value amounts below nor recorded as an intangible asset on the Supplemental Consolidated Balance Sheet. Bank Notes and Long-term Debt: The fair value of publicly traded debt was based upon quoted market prices, where available, or upon quoted market prices of comparable instruments. The fair values of bank notes and long-term debt were estimated using discounted cash flow analysis, based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements. Off-Balance-Sheet Instruments: Fair values of foreign exchange contracts and interest rate contracts were determined from quoted market prices. Fair values of commitments to extend credit, standby letters of credit and commercial letters of credit were based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings. The estimated fair values of the Corporation's financial instruments were as follows:
DECEMBER 31 1994 1993 1992 ----------------------------------------------------------------------------------- (Thousands) CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE FINANCIAL ASSETS Cash and due from banks and short-term investments $ 928,140 $ 928,140 $1,148,649 $1,148,649 $ 1,102,835 $ 1,102,835 Trading securities 14,299 14,299 15,735 15,735 17,684 17,684 Held-to-maturity securities 3,413,142 3,301,207 3,744,592 3,811,026 3,998,886 4,083,673 Available-for-sale securities 416,059 416,059 419,756 419,756 89,424 92,096 Net loans and leases 9,475,463 9,533,598 8,517,496 8,779,353 8,346,700 8,628,878 FINANCIAL LIABILITIES Deposits 11,189,250 11,175,045 11,598,509 11,661,355 11,629,300 11,714,630 Short-term borrowings 1,810,965 1,810,965 1,202,393 1,202,393 1,031,474 1,031,474 Bank notes and long-term debt 398,664 377,730 287,949 317,652 309,845 312,932 OFF-BALANCE-SHEET Foreign exchange contracts purchased $ 6,641 $ 5,375 $(2,034) Foreign exchange contracts sold (6,199) (6,890) 1,392 Interest rate contracts (184) (4,125) (5,300) Commitments to extend credit (8,817) (11,950) (9,307) Standby letters of credit (1,955) (2,247) (2,051) Commercial letters of credit (3,988) (4,321) (4,774)
19 23 Off-Balance-Sheet Risk: The Corporation is, in the normal course of business, a party to certain off-balance-sheet financial instruments with inherent credit and/or market risk. These instruments, which include commitments to extend credit, standby letters of credit, interest options written, interest futures contracts and foreign exchange contracts, are used by the Corporation to meet the financing needs of its customers and, to a lesser degree, to reduce its own exposure to interest rate fluctuations. These instruments involve, to varying degrees, credit and market risk in excess of the amount recognized in the Supplemental Consolidated Balance Sheet. Financial instruments with off-balance-sheet credit risk for which the contract amounts represent potential credit risk were as follows:
DECEMBER 31 1994 1993 1992 (Thousands) Commitments to extend credit Commercial $1,829,221 $1,613,817 $1,587,487 Consumer 3,905,890 3,061,311 2,638,905 ---------- ---------- ---------- Total $5,735,111 $4,675,128 $4,226,392 ========== ========== ========== Standby letters of credit $207,121 $237,718 $216,054 ======== ======== ======== Interest rate contracts $21,000 $37,500 $71,000 ======= ======= =======
The Corporation's maximum exposure to credit loss under commitments to extend credit and standby letters of credit is the equivalent of the contractual amount of those instruments. The same credit policies are used by the Corporation in granting commitments and conditional obligations as are used in the extension of credit. Commitments to extend credit are legally binding agreements to lend to a borrower as long as the borrower performs in accordance with the terms of the contract. Commitments generally have fixed expiration dates or other termination clauses, and may require payment of a fee. As many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Included in consumer commitments are the unused portions of lines of credit for credit card and home equity credit line loans. Standby letters of credit are commitments issued by the Corporation to guarantee specific performance of a customer to a third party. Collateral is required for both commitments and standby letters of credit in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction. Collateral held varies, but may include commercial real estate, accounts receivable, inventory or equipment. Included in interest rate contracts are interest rate exchange agreements with major investment banking firms to convert short- term, variable-rate liabilities into long-term, fixed-rate liabilities, to secure interest margins and to hedge against interest rate movements. Derivative Financial Instruments: Held or Issued for Trading Purposes: In the normal course of business, the Corporation maintains minimal trading positions in a variety of derivative financial instruments. Most of the Corporation's trading activities are customer oriented, with trading positions established to meet the financing and foreign exchange transaction needs of customers. This activity complements the Corporation's traditional money and capital markets trading business, which also exists to meet customers' demands. Net revenue recognized on interest rate contracts and foreign exchange contracts totaled $2,558,000 in 1994. For interest options written, foreign exchange contracts purchased and foreign exchange contracts sold, the notional amounts of $62,725,000, $184,079,000 and $173,378,000, respectively, at December 31, 1994, do not represent exposure to credit loss. These commitments are generally entered into on behalf of customers and result in the Corporation being in a matched position. Credit risk in the transactions is minimal. The Corporation manages the potential credit exposure through established credit approvals, risk control limits and other monitoring procedures. Market risk to the Corporation could result from non-performance by a counterparty to a contract. Held or Issued for Purposes Other Than Trading: Of the commitments to extend credit discussed in the preceding paragraphs, $74,966,000 and $35,289,000 were entered into with fixed rates at December 31, 1994 for commercial and consumer (residential mortgage) loan customers, respectively. Fixed-rate commitments to extend credit are defined as fixed-rate commercial loan commitments with remaining maturities greater than one year, fixed-rate residential mortgage loan commitments, and adjustable-rate residential mortgage loan commitments for loans with adjustment periods greater than one year. Fixed-rate mortgage loans held for resale are partially hedged with contracts for forward delivery in the secondary mortgage market. This hedging activity is designed to protect the Corporation from changes in interest rates. Gains and losses from the hedging transactions on mortgage loans held for resale are deferred and included in the cost of the loans for determining the gain or loss when the loans are sold. As of December 31, 1994, the Company had $6,932,000 of forward delivery contracts outstanding. 20 24 NOTE O CONTINGENT LIABILITIES In the ordinary course of business, there are various legal proceedings pending against the Corporation and its subsidiaries. Management, after consultation with legal counsel, is of the opinion that the ultimate resolution of these proceedings will have no material adverse effect on the consolidated financial condition or results of operations of the Corporation. NOTE P PARENT COMPANY FINANCIAL INFORMATION Following are the condensed financial statements of Mercantile Bancorporation Inc. (Parent Company Only) for the periods indicated. For the Statement of Cash Flows (Parent Company Only), cash and short-term investments were considered cash equivalents. Interest paid on commercial paper and long-term debt was $15,099,000, $15,881,000 and $10,618,000 for the years ended December 31, 1994, 1993 and 1992, respectively. STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) INCOME Dividends from banking subsidiaries $104,950 $ 77,548 $ 44,077 Other interest and dividends 4,644 5,538 3,320 Management fees 13,879 13,392 12,320 Other 3,546 2,687 2,994 -------- -------- -------- Total Income 127,019 99,165 62,711 EXPENSE Interest on commercial paper 1,199 733 416 Interest on long-term debt 12,607 15,157 12,497 Personnel expense 14,463 11,544 10,489 Other operating expenses 16,019 14,301 15,743 -------- -------- -------- Total Expense 44,288 41,735 39,145 INCOME BEFORE INCOME TAX CREDITS AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 82,731 57,430 23,566 Income tax credits 6,482 6,708 6,469 -------- -------- -------- INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 89,213 64,138 30,035 Equity in undistributed income of subsidiaries 79,116 79,113 87,372 -------- -------- -------- NET INCOME $168,329 $143,251 $117,407 ======== ======== ======== BALANCE SHEET DECEMBER 31 1994 1993 1992 (Thousands) ASSETS Cash $ - $ 609 $ 156 Short-term investments 82,405 47,776 63,766 Available-for-sale securities 12,539 16,569 - Marketable equity securities - - 13,121 Investment in subsidiaries 1,270,456 1,190,526 1,061,904 Goodwill 48,557 45,912 27,383 Loans and advances to subsidiaries 26,849 53,390 44,248 Other assets 3,849 7,865 12,265 ---------- ---------- ---------- Total Assets $1,444,655 $1,362,647 $1,222,843 ========== ========== ========== LIABILITIES Commercial paper $ 26,800 $ 18,390 $ 9,198 Long-term debt 158,822 194,072 196,717 Other liabilities 24,697 17,516 21,122 ---------- ---------- ---------- Total Liabilities 210,319 229,978 227,037 SHAREHOLDERS' EQUITY 1,234,336 1,132,669 995,806 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $1,444,655 $1,362,647 $1,222,843 ========== ========== ==========
21 25 STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1994 1993 1992 (Thousands) OPERATING ACTIVITIES Net income $ 168,329 $ 143,251 $ 117,407 Adjustments to reconcile net income to net cash provided by operating activities Net income of subsidiaries (184,066) (156,661) (131,449) Dividends from subsidiaries 98,666 62,430 44,077 Other, net 14,263 2,038 4,023 --------- --------- --------- Net Cash Provided by Operating Activities 97,192 51,058 34,058 INVESTING ACTIVITIES Investments in debt and equity securities Purchases (948) (2,054) (1,858) Proceeds from maturities 5,417 5,878 1,807 Contributions of capital to subsidiaries (21,505) (31,705) (31,209) Investment in note from banking subsidiary - - (35,000) Other, net 25,143 (9,280) (1,412) --------- --------- --------- Net Cash Provided (Used) by Investing Activities 8,107 (37,161) (67,672) FINANCING ACTIVITIES Cash dividends paid by Mercantile Bancorporation Inc. (48,329) (34,840) (27,506) Issuance of common stock Employee incentive plans and warrants 2,923 2,203 3,904 Purchase of treasury stock (2,954) - - Issuance of long-term debt - - 150,000 Principal payments on long-term debt (30,552) (742) (60,207) Acquisitions - (4,809) (8,347) Net change in commercial paper 8,410 9,192 1,271 Other, net (777) (438) (4,305) --------- --------- --------- Net Cash Provided (Used) by Financing Activities (71,279) (29,434) 54,810 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,020 (15,537) 21,196 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 48,385 63,922 42,726 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 82,405 $ 48,385 $ 63,922 ========= ========= =========
22 26 INDEPENDENT AUDITORS' REPORT Shareholders and Board of Directors Mercantile Bancorporation Inc.: We have audited the accompanying supplemental consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1994, 1993, and 1992, and the related supplemental consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The supplemental consolidated financial statements give retroactive effect to the mergers of Central Mortgage Bancshares, Inc. and TCBankshares, Inc. on May 1, 1995, and UNSL Financial Corp on January 3, 1995, which have been accounted for using the pooling of interests method as described in the notes to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to consummated business combinations accounted for by the pooling of interest method in financial statements that do not include the dates of consummation. These financial statements do not extend through the dates of consummation; however, they will become the historical consolidated financial statements of Mercantile Bancorporation Inc. and subsidiaries after financial statements covering the dates of consummation of the business combinations are issued. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1994, 1993, and 1992, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles applicable after financial statements are issued for a period which includes the date of consummation of the business combinations. /s/ KPMG Peat Marwick LLP May 31, 1995 24 27 MERCANTILE BANCORPORATION INC. SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1995 and 1994 CONSOLIDATED STATEMENT OF INCOME (THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31 1995 1994 ---- ---- INTEREST INCOME Interest and fees on loans and leases $220,430 $175,223 Investments in debt and equity securities Trading 163 126 Taxable 50,351 51,560 Tax-exempt 5,691 5,285 -------- -------- Total 56,205 56,971 Due from banks-interest bearing 342 1,317 Federal funds sold and repurchase agreements 2,812 2,595 -------- -------- Total Interest Income 279,789 236,106 INTEREST EXPENSE Interest bearing deposits 93,030 77,689 Foreign deposits 3,196 468 Short-term borrowings 23,560 6,697 Bank notes 1,670 - Long-term debt 5,590 5,937 -------- -------- Total Interest Expense 127,046 90,791 -------- -------- NET INTEREST INCOME 152,743 145,315 PROVISION FOR POSSIBLE LOAN LOSSES 13,975 8,879 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 138,768 136,436 OTHER INCOME Trust 15,398 15,877 Service charges 16,500 17,034 Credit card fees 6,576 5,858 Mortgage banking 2,078 3,647 Investment banking and brokerage 1,416 2,399 Securities gains (losses) (43) 1,418 Other 14,878 8,861 -------- -------- Total Other Income 56,803 55,094 OTHER EXPENSE Salaries 51,488 50,964 Employee benefits 13,270 12,813 Net occupancy 7,578 7,776 Equipment 9,551 9,750 Other 37,356 38,581 -------- -------- Total Other Expense 119,243 119,884 -------- -------- INCOME BEFORE INCOME TAXES 76,328 71,646 INCOME TAXES 26,625 26,051 -------- -------- NET INCOME $ 49,703 $ 45,595 ======== ======== PER SHARE DATA Average common shares outstanding 52,919,978 51,723,559 Net income $.93 $.88 Dividends declared .33 .28 Based on weighted average common shares outstanding.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 28 CONSOLIDATED BALANCE SHEET (THOUSANDS)
MARCH 31 MARCH 31 1995 1994 -------- -------- ASSETS Cash and due from banks $ 680,581 $ 625,519 Due from banks-interest bearing 23,441 103,744 Federal funds sold and repurchase agreements 146,389 72,978 Investments in debt and equity securities Trading 11,542 6,622 Available-for-sale 439,061 781,389 Held-to-maturity (Estimated fair value of $3,357,438 and $3,370,662, respectively) 3,400,420 3,364,107 ----------- ----------- Total 3,851,023 4,152,118 Loans held-for-sale 51,310 90,947 Loans and leases, net of unearned income 10,023,067 8,725,392 Reserve for possible loan losses (195,683) (182,551) ----------- ----------- Net Loans and Leases 9,878,694 8,633,788 Bank premises and equipment 254,891 243,223 Due from customers on acceptances 5,985 9,979 Other assets 309,567 338,574 ----------- ----------- Total Assets $15,150,571 $14,179,923 =========== =========== LIABILITIES Deposits Non-interest bearing $ 1,610,841 $ 1,666,618 Interest bearing 9,482,958 9,567,159 Foreign 239,499 48,767 ----------- ----------- Total Deposits 11,333,298 11,282,544 Federal funds purchased and repurchase agreements 1,608,407 641,537 Other short-term borrowings 191,322 554,189 Bank notes 250,000 - Long-term debt 290,302 307,270 Bank acceptances outstanding 5,985 9,979 Other liabilities 199,084 220,806 ----------- ----------- Total Liabilities 13,878,398 13,016,325 Commitments and contingent liabilities - -
MARCH 31 MARCH 31 1995 1994 -------- -------- SHAREHOLDERS' EQUITY Preferred stock-no par value Shares authorized 5,000 5,000 Shares issued 15 15 12,153 12,153 Common stock-$5.00 par value Shares authorized 100,000 70,000 Shares issued 53,514 51,798 267,573 258,991 Capital surplus 176,011 161,886 Retained earnings 843,710 730,568 Treasury stock, at cost 765 - (27,274) - ----------- ---------- Total Shareholders' Equity 1,272,173 1,163,598 ----------- ----------- Total Liabilities and Shareholders' Equity $15,150,571 $14,179,923 =========== ===========
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 29 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK ----------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ------------ ------- --------- ------- -------- -------- ------------- BALANCE AT DECEMBER 31, 1993, AS RESTATED 51,666,199 $258,332 $12,153 $161,188 $700,996 $ _ $1,132,669 Net income 45,595 45,595 Dividends declared Mercantile Bancorporation Inc._ $.28 per share (12,018) (12,018) Pooled companies prior to acquisition (989) (989) Issuance of common stock Employee incentive plans 115,686 579 533 1,112 Convertible notes 534 3 11 14 Net fair value adjustment for available-for-sale securities (3,038) (3,038) Pre-merger transactions of pooled companies 15,423 77 154 22 253 ---------- -------- ------- -------- -------- -------- ---------- BALANCE AT MARCH 31, 1994 51,797,842 $258,991 $12,153 $161,886 $730,568 $ _ $1,163,598 ========== ======== ======= ======== ======== ======== ========== BALANCE AT DECEMBER 31, 1994, AS RESTATED 52,073,353 $260,836 $12,153 $166,878 $797,423 $ (2,954) $1,234,336 Net income 49,703 49,703 Dividends declared Mercantile Bancorporation Inc._ $.33 per share (15,066) (15,066) Pooled companies prior to acquisition (1,895) (1,895) Issuance of common stock Acquisition of Wedge Bank 969,954 4,850 1,649 7,314 13,813 Employee incentive plans 47,634 232 82 38 352 Convertible notes 331,075 1,655 6,935 8,590 Net fair value adjustment for available-for-sale securities 6,231 6,231 Purchase of treasury stock (672,500) (24,358) (24,358) Pre-merger transactions of pooled companies 467 467 ---------- -------- ------- -------- -------- -------- ---------- BALANCE AT MARCH 31, 1995 52,749,516 $267,573 $12,153 $176,011 $843,710 $(27,274) $1,272,173 ========== ======== ======= ======== ======== ======== ==========
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 30 CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
THREE MONTHS ENDED MARCH 31 1995 1994 ---- ---- OPERATING ACTIVITIES Net income $ 49,703 $ 45,595 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 13,975 8,879 Depreciation and amortization 7,808 7,900 Provision for deferred income taxes (2,403) (561) Net change in trading securities 2,757 9,113 Net change in loans held-for-sale (29,927) 50,521 Net change in accrued interest receivable (64) 2,260 Net change in accrued interest payable 5,465 (2,069) Net change in accrued taxes payable 26,041 27,195 Other, net 4,816 27,207 --------- ---------- Net Cash Provided by Operating Activities 78,171 176,040 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (238,341) (595,043) Proceeds from maturities 306,699 482,239 Proceeds from sales of: Available-for-sale securities 1,190 13,881 Securities from acquired entities - 73,914 Net change in loans and leases (259,300) (228,508) Purchases of loans and leases (48,289) (20,063) Proceeds from sales of loans and leases 21,713 67,471 Purchases of premises and equipment (13,419) (8,733) Proceeds from sales of premises and equipment 692 385 Proceeds from sales of foreclosed property 3,687 6,482 Cash and cash equivalents from acquisitions, net of cash paid 7,968 - Other, net 3,543 4,048 --------- ---------- Net Cash Used by Investing Activities (213,857) (203,927) FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts (362,302) (243,031) Net change in time certificates of deposit under $100,000 124,317 (116,346) Net change in time certificates of deposit $100,000 and over 110,576 19,417 Net change in other time deposits 98,228 1,313 Net change in foreign deposits 20,364 22,682 Net change in short-term borrowings (39,788) (6,667) Issuance of bank notes 150,000 - Issuance of long-term debt 1,330 75,000 Principal payments on long-term debt (804) (54,846) Cash dividends paid (19,958) (13,082) Proceeds from issuance of common stock 352 1,195 Purchase of treasury stock (24,358) - Other, net - (4,156) --------- ---------- Net Cash Provided (Used) by Financing Activities 57,957 (318,521) --------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (77,729) (346,408) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 928,140 1,148,649 --------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 850,411 $ 802,241 ========= ========== MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
31 Note A -- Basis of Presentation Effective May 1, 1995, Mercantile Bancorporation Inc. ("Corporation") acquired Central Mortgage Bancshares, Inc. ("Central Mortgage") and TCBankshares, Inc. ("TCBankshares"). Both transactions are accounted for as poolings-of-interests. These Unaudited Supplemental Interim Consolidated Financial Statements restate the Corporation's historical interim consolidated financial statements as of and for the three month periods ended March 31, 1995 and 1994 to reflect the Central Mortgage and TCBankshares transactions. The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. 32 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: Not Applicable (b) PRO FORMA FINANCIAL INFORMATION: Not Applicable (c) EXHIBITS: (23) Consent of KPMG Peat Marwick LLP (27) Financial Data Schedules 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MERCANTILE BANCORPORATION INC. Dated as of May 31, 1995 By /s/ MICHAEL T. NORMILE Michael T. Normile Senior Vice President Finance and Control 34 EXHIBIT INDEX (23) Consent of KPMG Peat Marwick LLP. (27) Financial Data Schedules. EX-23 2 CONSENT OF EXPERT 1 Independent Auditors' Consent ----------------------------- The Board of Directors Mercantile Bancorporation Inc.: We consent to the incorporation by reference in the Registration Statements No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139, No. 33-43694, No. 33-48952, and No. 33-57543, each on Form S-8, and No. 33-45863, No. 33-52986, No. 33-50981, No. 33-50579, No. 33-55439, No. 33-56603 and No. 33-58467, each on Form S-4, of Mercantile Bancorporation Inc., of our report dated May 31, 1995, relating to the supplemental consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1994, 1993 and 1992, and the related supplemental consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, which report appears in the Current Report on Form 8-K dated May 31, 1995 of Mercantile Bancorporation Inc. /s/ KPMG Peat Marwick LLP St. Louis, Missouri May 31, 1995 EX-27.1 3 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 129,091 29,166 120,344 14,299 416,059 3,413,142 3,301,207 9,669,978 194,515 14,806,344 11,189,250 1,810,965 173,129 298,644 257,882 0 12,153 964,301 14,806,344 757,571 226,088 11,237 994,896 325,107 399,349 595,547 43,201 1,727 492,070 270,034 168,329 0 0 168,329 3.22 3.22 4.55 27,687 21,814 5,872 24,502 184,836 66,601 32,632 194,515 194,515 0 77,130 This amount represents Mercantile Bancorporation Inc. potential problem loans excluding the effects of the poolings-of-interests transactions with UNSL Financial Corp, Central Mortgage Bancshares, Inc. and TCBankshares, Inc.
EX-27.2 4 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 105,603 23,441 138,265 11,542 439,061 3,400,420 3,357,438 10,074,377 195,683 15,150,571 11,333,298 1,799,729 205,069 290,302 267,573 0 12,153 1,019,721 15,150,571 219,540 56,205 3,145 279,789 96,226 127,046 152,743 13,975 (43) 119,243 76,328 49,703 0 0 49,703 .93 .93 4.47 32,386 22,511 3,439 0 194,515 18,605 3,749 195,683 195,683 0 0 Information only reported at year-end.
-----END PRIVACY-ENHANCED MESSAGE-----