-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQDhcR4v+NFdWzEarznjXNiBedTvjjJadbXIKWaNc3iwJA+z09Sl9GQQAUwkkk+F 1zgWayu1ts4W+/iKmq79nA== 0000950114-96-000103.txt : 19960513 0000950114-96-000103.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950114-96-000103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11792 FILM NUMBER: 96558853 BUSINESS ADDRESS: STREET 1: P O BOX 524 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 10-Q 1 MERCANTILE BANCORPORATION INC. FORM 10-Q 1 ======================================================================== FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 1-11792 MERCANTILE BANCORPORATION INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 43-0951744 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.) P.O. BOX 524 ST. LOUIS, MISSOURI 63166-0524 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 425-2525 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. X ---- ---- YES NO INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. COMMON STOCK, $5.00 PAR VALUE, 62,649,251 SHARES OUTSTANDING AS OF THE CLOSE OF BUSINESS ON APRIL 30, 1996. ======================================================================== 2 INDEX PART I-FINANCIAL INFORMATION
Page No. -------- Item 1-Financial Statements Consolidated Statement of Income Three months ended March 31, 1996 and 1995 3 Consolidated Balance Sheet March 31, 1996 and 1995, and December 31, 1995 4 Consolidated Statement of Changes in Shareholders' Equity Three months ended March 31, 1996 and 1995 5 Consolidated Statement of Cash Flows Three months ended March 31, 1996 and 1995 6 Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II-OTHER INFORMATION Item 4-Submission of Matters to a Vote of Security Holders 19 Item 6-Exhibits and Reports on Form 8-K 20 Signature 21 Exhibit Index 22
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (THOUSANDS EXCEPT PER COMMON SHARE DATA)
THREE MONTHS ENDED MARCH 31 1996 1995 ---- ---- INTEREST INCOME Interest and fees on loans and leases $257,044 $246,749 Investments in debt and equity securities Trading 95 163 Taxable 57,598 55,989 Tax-exempt 5,888 6,632 -------- -------- Total Investments in Debt and Equity Securities 63,581 62,784 Due from banks-interest bearing 830 344 Federal funds sold and repurchase agreements 3,785 4,319 -------- -------- Total Interest Income 325,240 314,196 INTEREST EXPENSE Interest bearing deposits 128,885 107,381 Foreign deposits 2,501 3,196 Short-term borrowings 14,114 23,899 Bank notes 3,972 1,670 Long-term debt 6,032 6,137 -------- -------- Total Interest Expense 155,504 142,283 -------- -------- NET INTEREST INCOME 169,736 171,913 PROVISION FOR POSSIBLE LOAN LOSSES 33,168 13,990 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 136,568 157,923 OTHER INCOME Trust 19,354 16,717 Service charges 19,272 18,500 Credit card fees 1,449 7,069 Securitization revenue 4,502 - Mortgage banking 3,120 2,078 Investment banking and brokerage 3,143 2,304 Securities losses (2,956) (54) Other 11,400 16,087 -------- -------- Total Other Income 59,284 62,701 OTHER EXPENSE Salaries 62,732 57,748 Employee benefits 16,524 14,795 Net occupancy 9,742 8,896 Equipment 11,574 10,495 Other 82,198 43,992 -------- -------- Total Other Expense 182,770 135,926 -------- -------- INCOME BEFORE INCOME TAXES 13,082 84,698 INCOME TAXES 8,517 29,265 -------- -------- NET INCOME $ 4,565 $ 55,433 ======== ======== PER COMMON SHARE DATA Average shares outstanding 63,052,401 60,773,934 Net income $.07 $.91 Dividends declared .41 .33 Includes the following nonrecurring merger-related amounts: Provision for possible loan losses $ 10,851 $ - Other income (securities losses) (3,082) - Other expense 41,678 - Income tax benefit (15,599) - -------- ------- Impact on Net Income $(40,012) $ - ======== ======= Earnings per common share is calculated by dividing net income, less dividends on preferred stock, by weighted average common shares outstanding.
3 4 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1996 1995 1995 -------- ------- -------- ASSETS Cash and due from banks $ 888,924 $ 1,112,088 $ 779,731 Due from banks-interest bearing 77,206 51,056 23,541 Federal funds sold and repurchase agreements 245,037 271,098 238,754 Investments in debt and equity securities Trading 13,245 3,677 11,542 Available-for-sale 4,307,504 4,207,079 738,007 Held-to-maturity (Estimated fair value of $3,495,735 at March 31, 1995) - - 3,538,579 ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,320,749 4,210,756 4,288,128 Loans held-for-sale 88,416 94,877 51,310 Loans and leases, net of unearned income 11,751,826 11,636,010 11,270,481 ----------- ----------- ----------- Total Loans and Leases 11,840,242 11,730,887 11,321,791 Reserve for possible loan losses (211,608) (201,780) (217,302) ----------- ----------- ----------- Net Loans and Leases 11,628,634 11,529,107 11,104,489 Bank premises and equipment 311,894 309,070 291,474 Due from customers on acceptances 6,458 2,622 5,985 Other assets 423,424 442,244 365,147 ----------- ----------- ----------- Total Assets $17,902,326 $17,928,041 $17,097,249 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 2,040,285 $ 2,075,579 $ 1,805,040 Interest bearing 11,801,245 11,429,511 10,976,881 Foreign 160,478 209,170 239,499 ----------- ----------- ----------- Total Deposits 14,002,008 13,714,260 13,021,420 Federal funds purchased and repurchase agreements 1,220,321 1,552,945 1,630,361 Other short-term borrowings 220,891 210,791 193,774 Bank notes 275,000 250,000 250,000 Long-term debt 323,915 325,607 324,232 Bank acceptances outstanding 6,458 2,622 5,985 Other liabilities 245,846 232,229 215,481 ----------- ----------- ----------- Total Liabilities 16,294,439 16,288,454 15,641,253 Commitments and contingent liabilities - - - MARCH 31 DEC. 31 MARCH 31 1996 1995 1995 -------- ------- -------- SHAREHOLDERS' EQUITY Preferred stock-no par value Shares authorized 5,000 5,000 5,000 Shares issued and outstanding - 15 15 - 12,153 12,153 Common stock-$5.00 par value Shares authorized 100,000 100,000 100,000 Shares issued 63,211 63,887 61,389 316,058 319,434 306,948 Capital surplus 234,689 283,288 241,901 Retained earnings 1,060,542 1,085,269 922,268 Treasury stock, at cost 87 1,380 765 (3,402) (60,557) (27,274) ----------- ----------- ----------- Total Shareholders' Equity 1,607,887 1,639,587 1,455,996 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $17,902,326 $17,928,041 $17,097,249 =========== =========== ===========
4 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK --------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ----------- ------- --------- ------- -------- -------- ------------- BALANCE AT DECEMBER 31, 1994, AS RESTATED 59,883,249 $299,885 $12,153 $230,940 $ 868,666 $ (2,954) $1,408,690 Net income 55,433 55,433 Common dividends declared: Mercantile Bancorporation Inc.-$.33 per share (14,811) (14,811) Pooled companies prior to acquisition (3,914) (3,914) Preferred dividends declared (255) (255) 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 9,835 9,835 Purchase of treasury stock (672,500) (24,358) (24,358) Pre-merger transactions of pooled companies and other 65,007 326 2,295 2,621 ---------- -------- ------- -------- ---------- -------- ---------- BALANCE AT MARCH 31, 1995 60,624,419 $306,948 $12,153 $241,901 $ 922,268 $(27,274) $1,455,996 ========== ======== ======= ======== ========== ======== ========== BALANCE AT DECEMBER 31, 1995, AS RESTATED 62,506,536 $319,434 $12,153 $283,288 $1,085,269 $(60,557) $1,639,587 Net income 4,565 4,565 Common dividends declared-$.41 per share (25,885) (25,885) Preferred dividends declared (408) (408) Redemption of preferred stock (12,153) (531) (12,684) Issuance of common stock in acquisitions of: Metro Savings Bank, F.S.B. 197,902 57 14 8,983 9,054 Security Bank of Conway, F.S.B. 321,964 75 14,614 14,689 First Sterling Bancorp, Inc. 521,417 2,607 1,876 13,772 18,255 Issuance of common stock for employee incentive plans 103,533 486 (302) 276 460 Net fair value adjustment for available- for-sale securities (16,254) (16,254) Purchase of treasury stock (525,000) (23,825) (23,825) Reissuance and retirement of treasury stock (6,458) (50,708) 57,166 -- Other (2,299) (11) 403 (59) 333 ---------- -------- ------- -------- ---------- -------- ---------- BALANCE AT MARCH 31, 1996 63,124,053 $316,058 $ - $234,689 $1,060,542 $ (3,402) $1,607,887 ========== ======== ======= ======== ========== ======== ==========
5 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
THREE MONTHS ENDED MARCH 31 1996 1995 ---- ---- OPERATING ACTIVITIES Net income $ 4,565 $ 55,433 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 33,168 13,990 Depreciation and amortization 10,301 8,841 Provision for deferred income taxes 8,905 (2,704) Net change in loans held-for-sale 6,461 (29,927) Net change in accrued interest receivable 3,354 851 Net change in accrued interest payable (10,998) 6,514 Other, net 42,194 32,693 ---------- ---------- Net Cash Provided by Operating Activities 97,950 85,691 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (387,386) (276,360) Proceeds from maturities 291,716 347,011 Proceeds from sales of available-for-sale securities 59,435 15,453 Net change in loans and leases 10,943 (265,059) Purchases of loans and leases (16) (48,289) Proceeds from sales of loans and leases 43,779 21,713 Purchases of premises and equipment (13,748) (14,615) Proceeds from sales of premises and equipment 2,714 692 Proceeds from sales of foreclosed property 7,393 3,758 Cash and cash equivalents from acquisitions, net of cash paid 42,907 8,362 Other, net 145 3,898 ---------- ---------- Net Cash Provided (Used) by Investing Activities 57,882 (203,436) FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts 78,400 (382,752) Net change in time certificates of deposit under $100,000 (96,712) 131,620 Net change in time certificates of deposit $100,000 and over 63,089 117,941 Net change in other time deposits 4,589 98,228 Net change in foreign deposits (48,692) 20,364 Net change in short-term borrowings (342,320) (42,498) Issuance of bank notes 25,000 150,000 Issuance of long-term debt 1,500 3,830 Principal payments on long-term debt (1,706) (909) Cash dividends paid (26,293) (18,980) Proceeds from issuance of common stock 411 352 Purchase of treasury stock (23,825) (24,358) Redemption of preferred stock (12,684) - Other, net 336 - ---------- ---------- Net Cash Provided (Used) by Financing Activities (378,907) 52,838 ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (223,075) (64,907) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,434,242 1,106,933 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,211,167 $1,042,026 ========== ==========
6 7 NOTE 1 The consolidated financial statements include all adjustments which are, in the opinion of management, necessary for the fair statement of the results of these periods and are of a normal recurring nature. NOTE 2 Effective January 2, 1996, Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") acquired Hawkeye Bancorporation ("Hawkeye"), a $2 billion-asset holding company headquartered in Des Moines, Iowa. The Hawkeye acquisition was accounted for as a pooling- of-interests. The historical consolidated financial statements have been restated to reflect this transaction. Net income and net income per common share for Mercantile and Hawkeye prior to restatement were as follows:
(THOUSANDS EXCEPT PER COMMON SHARE DATA) THREE MONTHS ENDED MARCH 31, 1995 ------------ MERCANTILE Net income $49,703 Net income per common share .93 HAWKEYE Net income 5,730 Net income per common share .43
7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. - --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 1 HIGHLIGHTS
FIRST QUARTER ($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA) 1996 1995 CHANGE - --------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Net income $ .07 $ .91 (92.3)% Dividends declared .41 .33 24.2 Book value at March 31 25.47 23.82 6.9 Market price at March 31 45 3/4 36 1/2 25.3 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS AND SELECTED RATIOS EXCLUDING NONRECURRING MERGER-RELATED EXPENSE Net income $44,577 $55,433 (19.6)% Net income per common share .70 .91 (23.1) Return on assets 1.00% 1.30% Return on equity 10.65 15.35 Efficiency ratio 59.78 56.87 Other expense to average assets 3.16 3.20 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Taxable-equivalent net interest income $173,657 $176,318 (1.5)% Tax-equivalent adjustment 3,921 4,405 (11.0) Net interest income 169,736 171,913 (1.3) Provision for possible loan losses 33,168 13,990 - Other income 59,284 62,701 (5.4) Other expense 182,770 135,926 34.5 Income taxes 8,517 29,265 (70.9) Net income 4,565 55,433 (91.8) - --------------------------------------------------------------------------------------------------------------------------------- SELECTED RATIOS AND DATA Return on assets .10% 1.30% Return on equity 1.09 15.35 Efficiency ratio 78.46 56.87 Other expense to average assets 4.09 3.20 Net interest rate margin 4.23 4.48 Equity to assets 8.98 8.52 Tier I capital to risk-adjusted assets 11.90 11.79 Total capital to risk-adjusted assets 14.99 15.00 Leverage 8.28 8.08 Reserve for possible loan losses to outstanding loans 1.79 1.92 Reserve for possible loan losses to non-performing loans 259.41 548.87 Non-performing assets to outstanding loans and foreclosed assets .77 .48 Banks 72 75 Banking offices 441 426 Full-time equivalent employees 7,798 7,649 - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Total assets $17,865,247 $17,009,093 5.0% Earning assets 16,410,663 15,740,174 4.3 Loans and leases 11,798,364 11,106,397 6.2 Deposits 13,921,394 13,238,869 5.2 Shareholders' equity 1,674,780 1,444,772 15.9 - --------------------------------------------------------------------------------------------------------------------------------- All previously reported financial information has been restated to reflect the January 2, 1996 merger with Hawkeye Bancorporation, which was accounted for as a pooling-of-interests. Nonrecurring merger-related expense reduced net income and net income per common share by $40,012,000 and $.63, respectively, in the first quarter of 1996. Includes nonrecurring merger-related expense noted in (2) above. - ---------------------------------------------------------------------------------------------------------------------------------
8 9 PERFORMANCE SUMMARY Reported net income for Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") in the first quarter of 1996 was $4,565,000 compared with the $55,433,000 earned in the same period a year ago. On a per common share basis, net income was $.07 compared with the $.91 earned in last year's first quarter. Included in first-quarter 1996 results were nonrecurring merger-related amounts which lowered net income and net income per common share by $40,012,000 and $.63, respectively. Net income excluding merger-related items was $44,577,000 or $.70 per common share. Two additional items negatively impacted first-quarter 1996 earnings. First, $10,000,000 was added to the provision for loan losses to substantially cover an $11,000,000 charge-off of a non-accrual exposure to a specialty retailer that declared bankruptcy in late 1995. After taxes, this addition to the provision reduced earnings per common share by $.10. Second, the co-branded credit card launched in May 1995 by SBC Communications Inc. ("SBC") and Mercantile negatively impacted earnings per common share by approximately $.09 from original forecasts. While market acceptance of the co-branded card has surpassed expectations, cardholder performance, particularly in the post-holiday period, has differed from original forecasts. Mercantile has identified actions to ensure the card's ongoing profitability and will be implementing some of these actions in the second quarter. All prior year figures have been restated to include the pre- acquisition accounts and results of operations of Hawkeye Bancorporation ("Hawkeye"), a 23-bank holding company with assets totaling $2 billion, headquartered in Des Moines, Iowa. Hawkeye was merged with Mercantile on January 2, 1996 in a transaction accounted for as a pooling-of-interests. Also effective January 2, 1996, Mercantile completed a merger with First Sterling Bancorp, Inc. ("Sterling"), based in Sterling, Illinois. The Sterling transaction met the requirements for treatment as a pooling-of-interests; however, due to the immateriality of Sterling's financial condition and results of operations to those of Mercantile, the historical financial statements of the Corporation were not restated. On February 9, 1996, the Corporation acquired Security Bank of Conway, F.S.B. ("Conway"), located in Conway, Arkansas, and on March 7, 1996, acquired Metro Savings Bank, F.S.B. ("Metro"), headquartered in Wood River, Illinois. The Conway and Metro acquisitions were accounted for as purchases; accordingly, - --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 2 ACQUISITIONS ($ IN THOUSANDS)
CONSIDERATION ------------------ ACCOUNTING DATE ASSETS DEPOSITS CASH SHARES METHOD ---- ------ -------- ---- ------ ---------- ACQUISITIONS COMPLETED Metro Savings Bank, F.S.B. Mar. 7, 1996 $ 80,857 73,843 $ 5 197,902 Purchase Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 321,964 Purchase Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 7,892,196 Pooling First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 521,417 Pooling Southwest Bancshares, Inc. Aug. 1, 1995 187,701 155,628 1 674,975 Pooling AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 130,179 1 661,356 Pooling Plains Spirit Financial Corporation July 7, 1995 400,754 276,887 6,697 1,301,180 Purchase TCBankshares, Inc. May 1, 1995 1,422,798 1,217,740 - 4,749,999 Pooling Central Mortgage Bancshares, Inc. May 1, 1995 654,584 571,105 8 2,537,723 Pooling UNSL Financial Corp Jan. 3, 1995 508,346 380,716 11 1,578,107 Pooling Wedge Bank Jan. 3, 1995 195,716 152,865 1 969,954 Pooling ACQUISITIONS PENDING Peoples State Bank 3rd Qtr. 1996 96,824 74,361 - 325,843 Purchase Today's Bancorp, Inc. 4th Qtr. 1996 509,669 434,097 Purchase The historical financial statements of the Corporation were not restated for the acquisition due to the immateriality of the acquiree's financial condition and results of operations to those of Mercantile. In addition to Mercantile common stock issued, the Corporation assumed, through an exchange, the outstanding, non-convertible preferred stock of TCBankshares, Inc. The preferred stock was redeemed in the first quarter of 1996. Estimated shares to be issued in acquisition. The value of the consideration will total $87 million, which includes up to 1,177,066 shares of Mercantile common stock. - ---------------------------------------------------------------------------------------------------------------------------------
9 10 the results of operations were included in the Consolidated Financial Statements from the acquisition date. Exhibit 2 details acquisitions completed during 1995 and 1996 as well as two pending acquisitions. Net interest income for the first quarter of 1996 was $169,736,000 compared with $171,913,000 in the year-earlier period, a decrease of 1.3%. The net interest rate margin of 4.23% was stable in comparison with the fourth quarter of 1995, yet was 25 basis points lower than the 4.48% margin of last year. Average earning assets of $16.4 billion grew 4.3% from $15.7 billion in the first quarter of 1995, as average loan volume increased 6.2%. This loan growth was funded largely through an increase in average core deposits. Other income was $59,284,000 in the first quarter of 1996, a decrease of 5.4% from a year ago. Included in 1996's first quarter was $3,082,000 in nonrecurring merger-related securities losses. Other income in the first quarter of 1995 included a $5,155,000 gain on the sale of the Corporation's interest in a joint venture that provided the St. Louis market with ATM switching capabilities. Total non- interest income increased by 8.4% in 1996 after excluding these items, led by trust revenue, mortgage banking income, investment banking and brokerage fees and letters of credit fees. Non-interest expenses in 1996 included $41,678,000 in nonrecurring merger-related costs. Excluding these costs, total other expense was $141,092,000, up 3.8% from a year ago. Excluding merger costs, the efficiency ratio was 59.78% compared with 56.87% last year, and the other expense to average assets ratio improved to 3.16% from 3.20% in the first quarter of 1995. On April 3, 1996, the Corporation announced plans to reduce its bank charters during the next year by approximately 80% through consolidations in order to achieve greater operational efficiencies. The amount of cost savings is not known at this time, but it is believed that fewer legal charters will lower administrative costs, accelerate the deployment of technology and allow staff more time to serve customers. The provision for possible loan losses for the quarter was $33,168,000 compared with $13,990,000 in 1995. In addition to $10,851,000 in nonrecurring merger-related provision, $10,000,000 was recorded to offset a charge-off on a specialty retailer credit as previously discussed. Net charge-offs for 1996 and 1995 were $25,478,000 and $14,664,000, respectively, and on an annualized basis were .86% of average loans this quarter compared with .53% last year. Excluding the 1996 specialty retailer charge-off discussed above, net charge-offs to average loans for the first quarter of 1996 was .49%. At March 31, 1996, the reserve for possible loan losses was $211,608,000, and provided coverage of 259.41% of non-performing loans compared with 245.18% at year-end 1995 and 548.87% last March 31. Non-performing loans as of March 31, 1996 were $81,573,000 or .69% of total loans compared with the year-end 1995 figures of $82,299,000 or .70% and $39,591,000 or .35% at March 31, 1995. Foreclosed assets declined to $10,102,000 compared with $12,591,000 at year's end and $14,269,000 last March 31. The decrease in non-performing loans caused by the charge-off discussed above was offset by increases in non- accrual loans at the Community Banks and in the Kansas City bank, due primarily to the reclassification of certain loans to non-accrual status following acquisition by Mercantile. Consolidated assets of $17.9 billion were up 4.7% from last March 31. Core deposits declined by 7.6% to $12.8 billion, loans were up 4.6% to $11.8 billion, and shareholders' equity of $1.6 billion was 10.4% higher than at March 31, 1995. Tier I capital to risk-adjusted assets improved to 11.90% compared with 11.79% last year, while Total capital to risk-adjusted assets was 14.99%, which is the same level as last year. Tangible equity to assets was 8.38% at this quarter's end compared to 8.58% at year-end 1995. The following financial commentary presents a more thorough discussion and analysis of the results of operations and financial condition of the Corporation for the first quarter of 1996. NET INTEREST INCOME Net interest income for the first quarter of 1996 was $169,736,000, a 1.3% decrease from the $171,913,000 earned last year. This was the net result of a 25-basis-point reduction in the net interest rate margin to 4.23% and a 4.3% growth in 10 11 average earning assets. Factors contributing to the lower net interest rate margin in 1996 included the May 1995 credit card securitization, continued competitive pricing for both loans and deposits, the movement of retail deposits to higher-cost certificates of deposit, and introductory interest rates on SBC co-branded credit card balances. Average loans grew by $691,967,000 or 6.2%, while investment securities were relatively even with last year. When compared with the first quarter of 1995, average commercial loans grew by $204,252,000 or 7.3%, while average commercial real estate mortgage and construction loans increased by $205,478,000 or 9.2%. Net of a $225,000,000 loan sale in the fourth quarter of 1995, residential mortgage loans on average grew by $262,564,000 or 7.4% as the mix of production throughout 1995 moved largely to adjustable-rate loans which were retained in the portfolio. Average credit card loans decreased by $41,549,000 or 4.8%. Excluding the impact of the $400,000,000 in credit card loans securitized during May 1995, credit card loans increased on average by 41.0%. The SBC co-branded credit card added significantly to this growth while the core MasterCard(R) and VISA(R) portfolio declined. Other consumer loans increased on average by $61,222,000 or 3.8% due to growth in indirect auto loans. - --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 3 LOANS AND LEASES ($ IN THOUSANDS)
MARCH 31 1996 1995 CHANGE ---- ---- ------ Commercial $ 3,028,211 $ 2,892,135 4.7% Real estate-commercial 2,144,374 1,939,184 10.6 Real estate-construction 293,380 330,840 (11.3) Real estate-residential 3,856,530 3,622,713 6.5 Consumer 1,688,650 1,642,721 2.8 Credit card loans issued 1,229,097 894,198 37.5 Securitized credit card loans (400,000) - - ----------- ----------- Total Loans and Leases $11,840,242 $11,321,791 4.6 =========== =========== - ---------------------------------------------------------------------------------------------------------------------------
The $28,903,000 or .7% decline in average investment securities came both through maturities and sales. The majority of sales were made by recently acquired companies, which resulted in nonrecurring securities losses of $3,082,000. In December 1995, the Corporation redesignated the entire investment portfolio as available-for-sale, as allowed by the Financial Accounting Standards Board. Short-term investments are primarily used for short-term excess liquidity or balancing the interest rate sensitivity of the Corporation, and on average increased by $7,425,000 or 2.4% during the first quarter of 1996. Average core deposits increased by $493,354,000 or 4.0% in the first quarter of 1996; Mercantile was substantially core funded at 91.36% of total deposits and 77.51% of earning assets. Changes in average core deposits for the past five quarters are shown in the Consolidated Quarterly Average Balance Sheet on Page 18 of this report. Average non-interest bearing deposits declined by $76,627,000 or 3.6%, while average other time deposits were down by $95,781,000 or 70.9%. The United States Government is a significant cash management customer of Mercantile Bank of St. Louis N.A. and pays for services rendered via compensating balances. In response to the lack of an approved fiscal 1996 federal government budget, the Government withdrew all balances out of the Corporation in November 1995 to help finance its funding requirements. The withdrawal reduced anticipated average balances during the first quarter by $400,000,000. The funds were redeposited with Mercantile Bank of St. Louis N.A. on April 9, 1996. Accruals were made in the first quarter of 1996 as if the funds were on deposit in order to better match revenues with services delivered, so there was no effect on net interest income. Average short-term borrowings decreased by $246,127,000 in the first quarter of 1996, due primarily to the credit card securitization and an increase in bank note funding. All borrowings are in accordance with current liquidity guidelines and the relative levels of short- term borrowings are expected to be further reduced in the second quarter of 1996 due to the return of the U.S. Government deposits. Average shareholders' equity grew by $230,008,000 or 15.9%, due largely to net earnings retained during 1995 and stock issued in acquisitions accounted for as purchases and unrestated poolings-of- interests. 11 12 The factors discussed previously are consistent with Mercantile's overall corporate policy relative to rate sensitivity and liquidity, which is to produce the optimal yield and maturity mix consistent with interest rate expectations and projected liquidity needs. The Consolidated Quarterly Average Balance Sheet, with rates earned and paid, is summarized by quarter on Page 18. OTHER INCOME Non-interest income decreased 5.4% during the first quarter of 1996 to $59,284,000. Current quarter other income was negatively impacted by securities losses of $3,082,000 realized by recently acquired banks in routine investment portfolio restructurings. In 1995, the Corporation recorded a gain of $5,155,000 on the sale of its interest in a joint venture that provided the St. Louis market with ATM switching capabilities. Excluding these items, total non-interest income was up $4,820,000 or 8.4% from the first quarter of 1995. Trust fees were the largest source of non-interest income in 1996, and were $19,354,000 compared with $16,717,000 during the first quarter of 1995, an increase of 15.8%. Personal trust fees earned by Mercantile Trust Company N.A. were the largest source of trust revenue and increased 25.5% from last year. Trust income from Mississippi Valley Advisors Inc., the investment management subsidiary of Mercantile, rose by 30.7%. Mississippi Valley Advisors Inc. manages the eleven Mercantile proprietary mutual funds-the ARCH funds. These funds had assets of $2.3 billion at March 31, 1996 compared with $1.7 billion a year earlier, a growth of 36.5%. Increases in the value of assets managed as well as repricing and successful new business development efforts largely accounted for the growth in trust fees. - --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 4 OTHER INCOME ($ IN THOUSANDS)
FIRST QUARTER 1996 1995 CHANGE ---- ---- ------ Trust $19,354 $16,717 15.8% Service charges 19,272 18,500 4.2 Credit card fees 1,449 7,069 (79.5) Securitization revenue 4,502 - - Mortgage banking 3,120 2,078 50.1 Investment banking and brokerage 3,143 2,304 36.4 Letters of credit fees 2,015 1,518 32.7 Securities gains (losses) 126 (54) - Nonrecurring merger-related securities losses (3,082) - - Other 9,385 14,569 (35.6) ------- ------- Total Other Income $59,284 $62,701 (5.4) ======= ======= - ---------------------------------------------------------------------------------------------------------------------------
Service charges grew by 4.2%, due largely to selective fee increases and better pricing of low-balance, high-transaction accounts. Mortgage banking income increased by $1,042,000 or 50.1%. Servicing revenue and gains on the sale of loans have improved over 1995 levels. Also, $309,000 of the increase was attributable to the additional servicing volume of Mercantile Bank, FSB, previously part of Plains Spirit Financial Corporation, which was acquired by Mercantile on July 7, 1995 in a purchase transaction. Mortgages serviced totaled $5.4 billion at March 31, 1996. Investment banking and brokerage fees were $3,143,000 compared with $2,304,000 last year, an increase of 36.4%. This income is derived from transaction fees for services performed for both individual and corporate customers, including sales of annuities and mutual funds, profits earned on limited trading positions and foreign exchange revenue. Mercantile Investment Services, Inc., Mercantile's brokerage services subsidiary, experienced strong growth in fees from sales of investment products in the first quarter of 1996. Credit card fee income was $1,449,000 for the first quarter of 1996, a 79.5% decrease from the 1995 level. Credit card income primarily represents fees charged merchants for processing credit card transactions, interchange fees received on transactions of Mercantile cardholders and cardholders' miscellaneous fees. Miscellaneous cardholder income increased, while interchange fees and merchant revenue declined. Transaction-based rebates paid to SBC co-branded cardholders are netted against credit card fee income; these rebates totaled $6,621,000 in the first quarter of 1996 and were the primary reason for the decline in credit card fees. Finally, certain fees relating to the securitized loans were reclassified to securitization revenue. 12 13 Securitization revenue of $4,502,000 in the first quarter represents amounts accruing to Mercantile on the $400,000,000 in credit card loans securitized in the Mercantile Credit Card Master Trust during May 1995. For securitized loans, amounts that would previously have been reported as interest income, interest expense, credit card fees and provision for loan losses are instead netted in non-interest income as securitization revenue. Because credit losses are absorbed against credit card servicing income over the life of these transactions, such income may vary depending upon the credit performance of the securitized loans. Mercantile acts as servicing agent and receives loan servicing fees equal to two percent per annum of the securitized receivables. As servicing agent, Mercantile continues to provide customer service to collect past due accounts and to provide other services typically performed for its customers. Accordingly, Mercantile's relationship with its credit card customers is not affected by the securitization. Other miscellaneous income in 1995 included the $5,155,000 gain previously noted as well as a $1,291,000 gain earned on the renewal of a large leveraged lease. Also included in other income are letters of credit fees, which improved by $497,000 or 32.7% over 1995. OTHER EXPENSE Expenses other than interest expense and the provision for possible loan losses for the first quarter of 1996 totaled $182,770,000. Included in other expense in the first quarter of 1996 was $41,678,000 in expenses associated with mergers, largely for investment banking and other professional services, change in control and severance payments, and obsolete equipment write-offs. Excluding nonrecurring merger costs, total operating expenses increased by 3.8% over 1995, yet declined to 3.16% of average assets compared with 3.20% last year. The efficiency ratio, defined as operating expenses as a percentage of taxable-equivalent net interest income and other income, was 59.78% versus 56.87% last year. Salary expense increased by 8.6% during the first quarter, reflecting the costs of merit increases and employees added in acquisitions accounted for as purchases or poolings without restatement. Benefit costs were up by 11.7% due to the generally higher costs of employee benefit programs. In 1996, the Corporation lowered the discount rate used in pension and postretirement actuarial assumptions by one percent, which increased pension expense by 12.9% this quarter in comparison with the first quarter of 1995. Occupancy and equipment costs increased by 9.9% in the first quarter, reflecting the costs of maintaining additional offices and an ongoing program of upgrading systems and equipment to further enhance productivity. Exhibit 5 details the composition of all other operating expenses. The communications and postage expense increases in 1996 were due primarily to the costs of servicing SBC co-branded credit card customers. FDIC insurance decreased by 82.6% from last year. Exclusive of insurance premiums assessed on approximately $2.1 billion in thrift deposits insured by the SAIF fund, Mercantile affiliates paid the minimum in FDIC insurance during the first quarter of 1996. - --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 5 OTHER EXPENSE ($ IN THOUSANDS)
FIRST QUARTER 1996 1995 CHANGE ---- ---- ------ Salaries $ 62,732 $ 57,748 8.6% Employee benefits 16,524 14,795 11.7 -------- -------- Total Personnel Expense 79,256 72,543 9.3 Net occupancy 9,742 8,896 9.5 Equipment 11,574 10,495 10.3 Marketing/business development 2,319 2,847 (18.5) Postage and freight 5,439 4,688 16.0 Office supplies 3,330 3,185 4.6 Communications 2,699 2,261 19.4 Legal and professional 2,785 2,686 3.7 Credit card 3,830 2,606 47.0 FDIC insurance 1,256 7,207 (82.6) Foreclosed property expense 193 549 (64.8) Intangible asset amortization 2,646 2,205 20.0 Nonrecurring merger-related expense 41,678 - - Other 16,023 15,758 1.7 -------- -------- Total Other Expense $182,770 $135,926 34.5 ======== ======== RATIOS EXCLUDING NONRECURRING MERGER-RELATED EXPENSE Efficiency ratio 59.78% 56.87% Other expense to average assets 3.16 3.20 - ---------------------------------------------------------------------------------------------------------------------------
13 14 RESERVE FOR POSSIBLE LOAN LOSSES The reserve for possible loan losses was $211,608,000 or 1.79% of loans outstanding at March 31, 1996. This compared with $201,780,000 or 1.72% at year's end and $217,302,000 or 1.92% at March 31, 1995. The reserve coverage of non-performing loans was 259.41% compared with 245.18% at year-end and 548.87% last year. The provision for possible loan losses for the first quarter of 1996 was $33,168,000 compared with $13,990,000 last year. The first quarter of 1996 included a nonrecurring merger-related provision of $10,851,000, which was recorded largely to conform the credit policies of the recently acquired entities to those of Mercantile. An additional $10,000,000 in provision was recorded in the first quarter of 1996 to offset an $11,000,000 charge-off of a credit to a St. Louis-based specialty retailer that declared bankruptcy in late 1995. The annualized ratio of net charge-offs to average loans for the first quarter was .86% compared with .53% last year, while the corresponding net charge-off figures were $25,478,000 and $14,664,000, respectively. The $11,000,000 charge-off mentioned above increased the 1996 annualized ratio of net charge-offs to average loans by 37 basis points. Partially offsetting charge-offs in the current quarter was a $2,154,000 recovery on a commercial real estate loan. Net credit card charge-offs were $13,447,000 in 1996 versus $10,527,000 last year, which represented 6.46% of average loans this quarter compared with 4.82% in 1995. Excluding credit card net charge-offs and the $11,000,000 nonrecurring loss, net charge-offs were only $1,031,000 or .03% of average loans for the first quarter of 1996. - --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 6 RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 1996 1995 ---- ---- BEGINNING BALANCE $201,780 $215,849 PROVISION 33,168 13,990 Charge-offs (31,721) (18,767) Recoveries 6,243 4,103 -------- -------- NET CHARGE-OFFS (25,478) (14,664) Acquired Reserves 2,138 2,127 -------- -------- ENDING BALANCE $211,608 $217,302 ======== ======== LOANS AND LEASES March 31 balance $11,840,242 $11,321,791 =========== =========== Average balance $11,798,364 $11,106,397 =========== =========== RATIOS Reserve balance to outstanding loans 1.79% 1.92% Reserve balance to non-performing loans 259.41 548.87 Net charge-offs to average loans .86 .53 Earnings coverage of net charge-offs 1.82x 6.73x - ---------------------------------------------------------------------------------------------------------------------------
Mercantile evaluates the reserves of all banks on a quarterly basis to ensure the timely charge-off of loans and to determine the adequacy of those reserves. Management believes the consolidated reserve of 1.79% of loans and 259.41% of non-performing loans as of March 31, 1996 was adequate based on the risks identified at such date in the respective portfolios. NON-PERFORMING ASSETS Non-performing loans (non-accrual and renegotiated loans) were $81,573,000 or .69% of total loans at March 31, 1996, compared with $82,299,000 or .70% at December 31, 1995 and $39,591,000 or .35% at March 31, 1995. By the Corporation's definition, all non-accrual and renegotiated commercial-related loans are considered impaired as defined by FAS 114. Foreclosed assets were $10,102,000 at March 31, 1996 compared with $12,591,000 at year's end and $14,269,000 last year. The ratio of non-performing assets to outstanding loans and foreclosed assets was .77% at March 31, 1996 compared with .81% at December 31, 1995 and .48% last year. Loans past due 90 days and still accruing interest were $31,108,000 at March 31, 1996 versus $27,242,000 at year-end and $23,401,000 at March 31, 1995. 14 15 As noted in Exhibit 7, non-accrual loans decreased slightly from the year-end level. Non-accrual loans were reduced in the first quarter of 1996 due to the $11,000,000 charge-off of the loan exposure previously discussed. Partially offsetting this decline was an increase in the level of non-accrual loans at the Community Banks and in the Kansas City bank, caused primarily by the reclassification of certain loans to non-accrual status following acquisition by Mercantile. As of March 31, 1996, Mercantile had only five non-accrual loans with balances in excess of $1,000,000, and only one of these had a balance greater than $5,000,000. As significant, the Corporation held one foreclosed asset with a book value in excess of $1,000,000, and that property was subsequently disposed of in April 1996. All loans classified as renegotiated were paying in accordance with their modified terms at March 31, 1996. Loans past due 90 days and still accruing interest consisted largely of credit card loans, consumer loans and residential real estate mortgage loans. CAPITAL RESOURCES Mercantile maintains a strong capital base which provides a solid foundation for anticipated future asset growth and promotes depositor and investor confidence. Capital management is a continuous process at Mercantile, and is intended to ensure that adequate capital is provided for current needs and anticipated growth. Mercantile's capital position has enabled it to profitably expand its balance sheet, while maintaining capital ratios stronger than those of other quality banking organizations, and well in excess of regulatory standards. At March 31, 1996, shareholders' equity was $1.6 billion, an increase of 10.4% from March 31, 1995. Net earnings retained, as well as stock issued under various employee benefit plans and in acquisitions accounted for as purchases or poolings-of-interests without restatement, increased shareholders' equity. The equity to assets ratio was 8.98% at March 31, 1996 compared with 8.52% a year earlier. Exhibit 8 details significant capital ratios and intangible assets. As interest rates declined during 1995, the Corporation recorded a favorable adjustment to equity of $47,494,000 through December 31, 1995 for the available-for-sale investment securities held. In the first quarter of 1996, the net fair value adjustment lowered equity by $16,254,000, due to minimal interest rate increases, thus reducing the equity to assets ratio at March 31, 1996 in comparison with year-end. - --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 7 NON-PERFORMING ASSETS ($ IN THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1996 1995 1995 -------- ------- -------- NON-ACCRUAL LOANS Commercial $30,929 $39,222 $ 9,134 Real estate-commercial 21,584 17,953 13,744 Real estate-construction 617 342 308 Real estate-residential 20,581 17,327 8,662 Consumer 4,625 4,361 3,743 ------- ------- ------- Total Non-accrual Loans 78,336 79,205 35,591 RENEGOTIATED LOANS 3,237 3,094 4,000 ------- ------- ------- TOTAL NON-PERFORMING LOANS $81,573 $82,299 $39,591 ======= ======= ======= FORECLOSED ASSETS Foreclosed real estate $ 7,640 $ 9,951 $12,128 Other foreclosed assets 2,462 2,640 2,141 ------- ------- ------- TOTAL FORECLOSED ASSETS $10,102 $12,591 $14,269 ======= ======= ======= TOTAL NON-PERFORMING ASSETS $91,675 $94,890 $53,860 ======= ======= ======= PAST-DUE LOANS (90 DAYS OR MORE) $31,108 $27,242 $23,401 ======= ======= ======= RATIOS Non-performing loans to outstanding loans .69% .70% .35% Non-performing assets to outstanding loans and foreclosed assets .77 .81 .48 Non-performing assets to total assets .51 .53 .32 - ---------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 8 RISK-BASED CAPITAL ($ IN THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1996 1995 1995 -------- ------- -------- Capital Tier I $ 1,471,081 $ 1,509,061 $ 1,366,968 Total 1,852,681 1,890,362 1,738,975 Risk-adjusted assets 12,360,988 12,352,966 11,596,091 Tier I capital to risk-adjusted assets 11.90% 12.22% 11.79% Total capital to risk-adjusted assets 14.99 15.30 15.00 Leverage 8.28 8.54 8.08 Double leverage 109.25 107.93 108.82 Long-term debt to total capitalization 16.77 16.57 18.21 Intangible assets $117,328 $110,529 $94,196 - ---------------------------------------------------------------------------------------------------------------------------
15 16 During the first quarter of 1996, Mercantile repurchased 525,000 shares of its common stock via a designated broker dealer at an average cost of $45.38 per share. The stock was largely reissued in the Conway and Metro acquisitions while some was held for reissuance in conjunction with the 1994 Stock Incentive Plan. In conjunction with the acquisition of TCBankshares, Inc. on May 1, 1995, the Corporation assumed, through an exchange, 14,806 shares of preferred stock with a book value of $12,153,000. These preferred shares were redeemed in March 1996. On February 8, 1996, the Board of Directors declared a quarterly cash dividend of $.41 per common share which was paid April 1, 1996. This represented an increase of 24.2% over the prior quarterly rate of $.33 per common share. Book value per common share was $25.47 at March 31, 1996 compared with $23.82 a year earlier, an increase of 6.9%. Public debt ratings of the Corporation and Mercantile Bank of St. Louis N.A. are shown in Exhibit 9. - --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 9 DEBT RATINGS
THOMSON STANDARD MOODY'S FITCH BANKWATCH & POOR'S ------- ----- --------- -------- MERCANTILE BANCORPORATION INC. Issuer Rating B Commercial Paper F1 TBW-1 7.625% Subordinated Notes, due 2002 Baa1 BBB + BBB MERCANTILE BANK OF ST. LOUIS N.A. Bank Notes A1/P-1 A 6.375% Subordinated Notes, due 2004 A3 A A- BBB + 9.000% Mortgage-backed Notes, due 1999 AAA Certificates of Deposit TBW-1 A-/A-2 Letters of Credit TBW-1 A-/A-2 - ---------------------------------------------------------------------------------------------------------------------------
16 17 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME (THOUSANDS EXCEPT PER COMMON SHARE DATA)
1995 1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. -------- -------- -------- -------- -------- INTEREST INCOME Interest and fees on loans and leases $246,749 $251,438 $259,097 $263,768 $257,044 Investments in debt and equity securities 62,784 62,811 64,016 62,554 63,581 Short-term investments 4,663 4,851 5,952 5,261 4,615 -------- -------- -------- -------- -------- Total Interest Income 314,196 319,100 329,065 331,583 325,240 Tax-equivalent adjustment 4,405 4,230 4,125 3,810 3,921 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 318,601 323,330 333,190 335,393 329,161 INTEREST EXPENSE Deposits 110,577 121,798 130,959 132,529 131,386 Borrowed funds 31,706 31,905 32,487 28,573 24,118 -------- -------- -------- -------- -------- Total Interest Expense 142,283 153,703 163,446 161,102 155,504 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT NET INTEREST INCOME 176,318 169,627 169,744 174,291 173,657 PROVISION FOR POSSIBLE LOAN LOSSES 13,990 6,683 8,504 7,353 33,168 OTHER INCOME Trust 16,717 17,594 17,831 18,609 19,354 Service charges 18,500 18,820 19,011 19,077 19,272 Credit card fees 7,069 4,698 3,855 4,068 1,449 Securitization revenue - 4,523 8,397 10,085 4,502 Mortgage banking 2,078 2,340 2,342 4,062 3,120 Investment banking and brokerage 2,304 2,873 3,194 2,995 3,143 Securities gains (losses) (54) 2,152 1,678 266 (2,956) Other 16,087 11,910 15,697 14,875 11,400 -------- -------- -------- -------- -------- Total Other Income 62,701 64,910 72,005 74,037 59,284 OTHER EXPENSE Personnel expense 72,543 71,192 75,805 79,085 79,256 Net occupancy and equipment 19,391 19,741 21,239 22,303 21,316 Other 43,992 44,355 38,862 45,240 82,198 -------- -------- -------- -------- -------- Total Other Expense 135,926 135,288 135,906 146,628 182,770 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 89,103 92,566 97,339 94,347 17,003 INCOME TAXES Income taxes 29,265 30,449 30,450 33,945 8,517 Tax-equivalent adjustment 4,405 4,230 4,125 3,810 3,921 -------- -------- -------- -------- -------- Adjusted Income Taxes 33,670 34,679 34,575 37,755 12,438 -------- -------- -------- -------- -------- NET INCOME $ 55,433 $ 57,887 $ 62,764 $ 56,592 $ 4,565 ======== ======== ======== ======== ======== NET INCOME PER COMMON SHARE $.91 $.95 $.99 $.89 $.07 SIGNIFICANT RATIOS Return on assets 1.30% 1.35% 1.41% 1.27% .10% Return on equity 15.35 15.64 15.75 13.91 1.09
17 18 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET ($ IN THOUSANDS)
1995 1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. ---------------- ---------------- ---------------- ---------------- ---------------- VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 2,802,058 8.67% $ 2,951,939 8.85% $ 3,027,078 8.74% $ 2,994,035 8.66% $ 3,006,310 8.38% Real estate-commercial 1,905,988 8.75 1,938,588 9.08 2,017,018 9.04 2,070,714 8.99 2,133,882 8.69 Real estate-construction 323,263 8.62 343,408 8.75 331,093 8.99 309,843 9.27 300,847 8.99 Real estate-residential 3,570,859 7.83 3,675,443 7.98 4,062,840 8.11 4,023,306 8.15 3,833,423 8.14 Consumer 1,630,222 8.18 1,629,008 8.55 1,674,574 8.93 1,676,466 8.99 1,691,444 8.84 Credit card 874,007 16.16 729,319 15.21 715,349 11.95 788,126 13.45 832,458 12.77 ----------- ----------- ----------- ----------- ----------- Total Loans and Leases 11,106,397 8.93 11,267,705 8.97 11,827,952 8.80 11,862,490 8.93 11,798,364 8.75 Investments in debt and equity securities Trading 12,375 5.27 6,907 6.25 4,203 5.42 7,646 5.39 7,610 4.99 Taxable 3,843,721 5.83 3,814,295 5.92 3,842,518 6.03 3,758,841 6.03 3,854,326 5.98 Tax-exempt 469,011 8.42 456,124 8.12 440,220 8.18 427,748 8.08 434,268 8.02 ----------- ----------- ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,325,107 6.11 4,277,326 6.16 4,286,941 6.25 4,194,235 6.24 4,296,204 6.19 Short-term investments 308,670 6.04 318,263 6.10 380,509 6.26 342,903 6.14 316,095 5.84 ----------- ----------- ----------- ----------- ----------- Total Earning Assets 15,740,174 8.10 15,863,294 8.15 16,495,402 8.08 16,399,628 8.18 16,410,663 8.02 Non-earning Assets 1,268,919 1,351,717 1,343,947 1,374,196 1,454,584 ----------- ----------- ----------- ----------- ----------- Total Assets $17,009,093 $17,215,011 $17,839,349 $17,773,824 $17,865,247 =========== =========== =========== =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,114,066 $ 2,280,010 $ 2,275,567 $ 2,116,886 $ 2,037,439 Interest bearing demand 2,217,850 2.08 2,123,323 2.22 2,088,349 2.24 2,133,652 2.22 2,238,451 2.19 Money market accounts 1,736,985 3.70 1,723,328 3.94 1,834,507 4.03 1,902,852 4.06 1,971,778 3.89 Savings 1,140,850 2.38 1,106,774 2.37 1,102,394 2.36 1,062,972 2.35 1,073,847 2.29 Consumer time certificates under $100,000 4,881,040 4.94 5,011,839 5.41 5,311,979 5.64 5,307,637 5.67 5,358,411 5.59 Other time 135,037 5.51 139,721 5.69 135,658 5.76 78,808 9.80 39,256 19.88 ----------- ----------- ----------- ----------- ----------- Total Core Deposits 12,225,828 3.82 12,384,995 4.16 12,748,454 4.34 12,602,807 4.37 12,719,182 4.28 Time certificates $100,000 and over 806,918 5.36 912,163 5.88 957,153 5.93 978,293 5.97 1,027,545 5.63 Foreign 206,123 6.20 207,590 6.38 206,349 6.21 223,291 6.06 174,667 5.73 ----------- ----------- ----------- ----------- ----------- Total Purchased Deposits 1,013,041 5.53 1,119,753 5.97 1,163,502 5.98 1,201,584 5.99 1,202,212 5.65 ----------- ----------- ----------- ----------- ----------- Total Deposits 13,238,869 3.98 13,504,748 4.34 13,911,956 4.50 13,804,391 4.54 13,921,394 4.42 Short-term borrowings 1,680,362 5.69 1,465,439 5.92 1,529,304 5.86 1,519,706 4.75 1,434,235 3.94 Bank notes 106,667 6.26 250,000 6.54 250,000 6.43 250,000 6.24 265,385 5.99 Long-term debt 327,972 7.52 321,633 7.62 341,550 7.09 338,135 7.85 325,149 7.42 ----------- ----------- ----------- ----------- ----------- Total Acquired Funds 15,353,870 4.30 15,541,820 4.64 16,032,810 4.75 15,912,232 4.67 15,946,163 4.47 Other liabilities 210,451 193,131 212,413 234,157 244,304 SHAREHOLDERS' EQUITY 1,444,772 1,480,060 1,594,126 1,627,435 1,674,780 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $17,009,093 $17,215,011 $17,839,349 $17,773,824 $17,865,247 =========== =========== =========== =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.80% 3.51% 3.33% 3.51% 3.55% Net interest rate margin 4.48 4.28 4.12 4.25 4.23 Taxable-equivalent basis.
18 19 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders of Registrant was held on April 25, 1996. Of 63,119,043 shares issued, outstanding and eligible to be voted at the meeting, 52,321,079 shares, constituting a quorum, were represented in person or by proxy. Three (3) matters were submitted to a vote of the security-holders at the meeting. 1. ELECTION OF CLASS II DIRECTORS. The first matter was the election of three Class II director nominees to the Board of Directors, each to continue in office until 1999. The Restated Articles of Incorporation of the Registrant allow cumulative voting in all director elections and all shareholders were accordingly allowed to cumulate their votes for directors if they so desired. Upon tabulation of the votes cast, it was determined that all three director nominees had been elected. The voting results are set forth below:
NAME FOR WITHHELD ---- --- -------- William A. Hall 51,824,499 506,569 Edward A. Mueller 51,802,604 506,569 Robert W. Murray 51,816,426 506,569
2. ELECTION OF CLASS I DIRECTOR. The second matter was the election of one director nominee, Robert L. Stark, to the Board of Directors in Class I, to continue in office until 1998. Mr. Stark was previously elected and served as a Class III director whose term would have expired as of the 1997 annual meeting. Mr. Stark, however, stood for election at the 1996 annual meeting in Class I. Because only one director stood for election in Class I, cumulative voting was not applicable. Upon tabulation of the votes cast it was determined that Mr. Stark had been elected as a Class I director. The voting results are set forth below:
NAME FOR WITHHELD ---- --- -------- Robert L. Stark 51,623,288 697,791
3. ELECTION OF CLASS III DIRECTOR. The third matter was the election of one director nominee, Patrick T. Stokes, to the Board of Directors in Class III, to continue in office until 1997. Mr. Stokes was previously elected and served as a Class I director. Because only one director stood for election in Class III, cumulative voting was not applicable. Upon tabulation of the votes cast it was determined that Mr. Stokes had been elected as a Class III director. The voting results are set forth below:
NAME FOR WITHHELD ---- --- -------- Patrick T. Stokes 51,644,636 676,442
Because Registrant has a staggered Board, the term of office of the following named Class I and Class III directors, who were not up for election at the 1996 annual meeting, continued after the meeting: Class I (to continue in office until 1998) Thomas A. Hays Harvey Saligman Frank Lyon, Jr. John A. Wright Class III (to continue in office until 1997) Harry M. Cornell, Jr. Craig D. Schnuck Thomas H. Jacobsen Former Class II directors Richard P. Conerly, Earl K. Dille, Charles H. Price II and Francis A. Stroble completed their terms in 1996 and did not stand for reelection at the 1996 annual meeting. Former Class II director J. Cliff Eason retired from the Board effective in August of 1995 and former Class III director Bernard A. Edison retired in October of 1995. Former Class II director William G. Heckman died on November 26, 1995. 19 20 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 27. Financial Data Schedule (b) Reports on Form 8-K: The Registrant filed a Current Report on Form 8-K dated March 11, 1996 under Item 5, which contained supplemental consolidated financial statements for the years ended December 31, 1995, 1994 and 1993. Said statements restated Registrant's historical consolidated financial statements for those years to reflect the acquisition of Hawkeye on January 2, 1996. The Hawkeye acquisition was accounted for under the pooling-of-interests method of accounting. In addition, under Item 7, Registrant filed the consent of KPMG Peat Marwick LLP to incorporation by reference of its report on the Supplemental Financial Statements into active registration statements of the Registrant. The March 11, 1996 Form 8-K included the financial statements, notes and auditor's report listed below: Independent Auditor's Report of KPMG Peat Marwick LLP dated March 11, 1996. Supplemental Consolidated Statement of Income for the years ended December 31, 1995, 1994 and 1993. Supplemental Consolidated Balance Sheet as of December 31, 1995, 1994 and 1993. Supplemental Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993. Supplemental Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993. Notes to Supplemental Consolidated Financial Statements. 20 21 SIGNATURE 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 thereunto duly authorized. MERCANTILE BANCORPORATION INC. (Registrant) Date May 9, 1996 /s/ JOHN Q. ARNOLD --------------------------- ----------------------------------- John Q. Arnold Chief Financial Officer 21 22 EXHIBIT INDEX
Exhibit No. Description Location - ----------- ----------- -------- 27 Financial Data Schedule Included herein
22 EX-27 2
9 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 888,924 77,206 245,037 13,245 4,307,504 0 0 11,840,242 211,608 17,902,326 14,002,008 1,441,212 252,304 323,915 0 0 312,656 1,295,231 17,902,326 257,044 63,581 4,615 325,240 131,386 155,504 169,736 33,168 (2,956) 182,770 13,082 4,565 0 0 4,565 .07 .07 4.23 78,336 31,108 3,237 0 201,780 31,721 6,243 211,608 211,608 0 0 Information only reported at fiscal year-end date.
-----END PRIVACY-ENHANCED MESSAGE-----