-----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, JlyAJp8Os2Ke3m5lhzSVKp9AoGjOk/1O1PLe3tJ0n5xDqsBAkjt+59eKwvkKdqXd 2p1jXFZzsDuT0M8CDefYHw== 0000950114-97-000250.txt : 19970515 0000950114-97-000250.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950114-97-000250 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970513 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970514 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: 97603215 BUSINESS ADDRESS: STREET 1: 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 Date of Report (Date of earliest event reported): MAY 13, 1997 MERCANTILE BANCORPORATION INC. (Exact name of registrant as specified in its charter) MISSOURI 1-11792 43-0951744 (State or other (Commission File (I.R.S. Employer jurisdiction of Number) Identification organization) Number) 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 =============================================================================== 2 ITEM 5. OTHER EVENTS Effective April 25, 1997, Mercantile Bancorporation Inc. ("Corporation") acquired Mark Twain Bancshares, Inc. ("Mark Twain") in a transaction accounted for as a pooling-of-interests. Audited Supplemental Consolidated Financial Statements restating the Corporation's historical consolidated financial statements as of and for the years ended December 31, 1996, 1995 and 1994 to reflect the Mark Twain transaction are included herein. In addition, Unaudited Interim Consolidated Financial Statements restating the Corporation's historical consolidated financial statements as of and for the three-month periods ended March 31, 1997 and 1996 to reflect the Mark Twain transaction are included herein. 3 [ MERCANTILE LOGO ] MERCANTILE BANCORPORATION INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 4 MERCANTILE BANCORPORATION INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 Effective April 25, 1997, Mercantile Bancorporation Inc. ("Corporation") acquired Mark Twain Bancshares, Inc. in a transaction accounted for as a pooling-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, 1996, 1995 and 1994 to reflect this transaction. 1 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME (Thousands except per common share data)
YEAR ENDED DECEMBER 31 1996 1995 1994 ---------- ---------- ---------- INTEREST INCOME Interest and fees on loans and leases $1,229,656 $1,201,046 $ 999,069 Investments in debt and equity securities Trading 3,597 3,434 4,724 Taxable 280,174 264,857 264,649 Tax-exempt 22,571 25,141 26,537 ---------- ---------- ---------- Total 306,342 293,432 295,910 Due from banks--interest bearing 4,107 2,487 2,862 Federal funds sold and repurchase agreements 12,758 19,191 14,087 ---------- ---------- ---------- Total Interest Income 1,552,863 1,516,156 1,311,928 INTEREST EXPENSE Interest bearing deposits 593,488 567,781 431,112 Foreign deposits 10,501 13,088 5,398 Short-term borrowings 81,399 94,457 57,630 Bank notes 15,333 13,674 780 Long-term debt 24,189 26,466 26,622 ---------- ---------- ---------- Total Interest Expense 724,910 715,466 521,542 ---------- ---------- ---------- NET INTEREST INCOME 827,953 800,690 790,386 PROVISION FOR POSSIBLE LOAN LOSSES 73,015 41,533 48,791 ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 754,938 759,157 741,595 OTHER INCOME Trust 86,616 77,115 71,972 Service charges 88,916 82,459 80,057 Credit card fees 27,962 20,366 27,352 Securitization revenue 16,008 23,005 -- Mortgage banking 10,707 11,063 12,188 Investment banking and brokerage 32,244 28,445 29,225 Securities gains (losses) (83) 4,338 2,888 Other 75,110 64,858 48,686 ---------- ---------- ---------- Total Other Income 337,480 311,649 272,368 OTHER EXPENSE Salaries 296,712 282,433 274,492 Employee benefits 69,017 63,723 61,934 Net occupancy 49,428 47,383 45,960 Equipment 54,287 48,513 45,795 Intangible asset amortization 12,026 10,194 12,150 Other 237,198 188,273 204,680 ---------- ---------- ---------- Total Other Expense 718,668 640,519 645,011 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 373,750 430,287 368,952 INCOME TAXES 128,535 149,898 135,896 ---------- ---------- ---------- NET INCOME $ 245,215 $ 280,389 $ 233,056 ========== ========== ========== PER COMMON SHARE DATA Average shares outstanding 77,292,207 77,169,918 74,882,481 Net income $3.17 $3.62 $3.10 Dividends declared 1.64 1.32 1.12 Includes the following acquisition charges and special SAIF assessment: Provision for possible loan losses $13,666 $-- $ 7,775 Other income (securities losses) (3,114) -- -- Other expense 63,456 -- 12,664 Income tax benefit (23,697) -- (3,739) ---------- ----- ---------- Impact on Net Income $(56,539) $-- $(16,700) ========== ===== ========== Earnings per common share is calculated by dividing net income, less dividends on preferred stock, by weighted average common shares outstanding.
2 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEET (Thousands)
DECEMBER 31 1996 1995 1994 ----------- ----------- ----------- ASSETS Cash and due from banks $ 1,296,053 $ 1,268,295 $ 1,003,933 Due from banks--interest bearing 96,453 51,056 29,420 Federal funds sold and repurchase agreements 265,498 278,998 215,181 Investments in debt and equity securities Trading 31,272 67,256 47,208 Available-for-sale (Amortized cost of $4,139,525, $4,611,711 and $965,006, respectively) 4,149,674 4,652,887 929,100 Held-to-maturity (Estimated fair value of $567,152, $245,355 and $3,791,375, respectively) 565,045 244,094 3,919,177 ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,745,991 4,964,237 4,895,485 Loans held-for-sale 66,373 94,877 21,383 Loans and leases, net of unearned income 14,886,257 13,607,949 12,742,878 ----------- ----------- ----------- Total Loans and Leases 14,952,630 13,702,826 12,764,261 Reserve for possible loan losses (230,372) (232,288) (244,743) ----------- ----------- ----------- Net Loans and Leases 14,722,258 13,470,538 12,519,518 Bank premises and equipment 367,311 329,834 312,475 Due from customers on acceptances 5,019 2,893 6,766 Intangible assets 186,181 117,110 104,466 Other assets 345,615 400,438 309,932 ----------- ----------- ----------- Total Assets $22,030,379 $20,883,399 $19,397,176 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 3,003,972 $ 2,594,734 $ 2,442,126 Interest bearing 14,080,592 13,367,748 12,475,686 Foreign 251,887 209,170 219,135 ----------- ----------- ----------- Total Deposits 17,336,451 16,171,652 15,136,947 Federal funds purchased and repurchase agreements 1,781,011 1,716,909 1,612,330 Other short-term borrowings 206,253 212,558 373,869 Bank notes 175,000 250,000 100,000 Long-term debt 304,831 344,097 350,589 Bank acceptances outstanding 5,019 2,893 6,766 Other liabilities 276,163 269,797 173,936 ----------- ----------- ----------- Total Liabilities 20,084,728 18,967,906 17,754,437 Commitments and contingent liabilities -- -- --
SHAREHOLDERS' EQUITY 1996 1995 1994 ------- ------- ------- 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 79,214 79,257 75,187 396,072 396,287 375,935 Capital surplus 232,991 286,427 234,049 Retained earnings 1,392,218 1,255,848 1,053,628 Valuation on available- for-sale securities 8,571 25,335 (30,072) Treasury stock, at cost 1,728 1,380 94 (84,201) (60,557) (2,954) ----------- ----------- ----------- Total Shareholders' Equity 1,945,651 1,915,493 1,642,739 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $22,030,379 $20,883,399 $19,397,176 =========== =========== ===========
The accompanying notes to supplemental consolidated financial statements are an integral part of these statements. 3 7 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ in Thousands)
COMMON STOCK --------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ---------- -------- -------- -------- ---------- -------- ------------ BALANCE AT DECEMBER 31, 1993 74,448,501 $372,243 $ 12,153 $225,721 $ 900,098 $ -- $1,510,215 Net income 233,056 233,056 Common dividends declared: Mercantile Bancorporation Inc.--$1.12 per share (48,329) (48,329) Pooled companies prior to acquisition (25,229) (25,229) Preferred dividends declared (1,219) (1,219) Issuance of common stock for: Employee incentive plans 308,112 1,541 1,683 3,224 Convertible notes 284,413 1,422 4,999 6,421 Net fair value adjustment on available-for-sale securities (34,927) (34,927) Purchase of treasury stock (93,500) (2,954) (2,954) Pre-merger transactions of pooled companies and other 145,726 729 1,646 106 2,481 ---------- -------- -------- -------- ---------- -------- ----------- BALANCE AT DECEMBER 31, 1994 75,093,252 375,935 12,153 234,049 1,023,556 (2,954) 1,642,739 Net income 280,389 280,389 Common dividends declared: Mercantile Bancorporation Inc.--$1.32 per share (68,542) (68,542) Pooled companies prior to acquisition (32,235) (32,235) Preferred dividends declared (1,020) (1,020) Issuance of common stock in acquisitions of: Southwest Bancshares, Inc. 674,975 3,375 625 9,797 13,797 AmeriFirst Bancorporation, Inc. 661,356 3,307 5,367 3,781 12,455 Plains Spirit Financial Corporation 1,301,180 2,639 22,930 27,701 53,270 Wedge Bank 969,954 4,850 1,649 7,314 13,813 Issuance of common stock for: Employee incentive plans 664,748 3,300 10,932 170 14,402 Convertible notes 442,904 2,214 8,242 10,456 Net fair value adjustment on available-for-sale securities 58,143 58,143 Purchase of treasury stock (2,064,600) (85,474) (85,474) Pre-merger transactions of pooled companies and other 133,316 667 2,633 3,300 ---------- -------- -------- -------- ---------- -------- ---------- BALANCE AT DECEMBER 31, 1995 77,877,085 396,287 12,153 286,427 1,281,183 (60,557) 1,915,493 NET INCOME 245,215 245,215 COMMON DIVIDENDS DECLARED: MERCANTILE BANCORPORATION INC.--$1.64 PER SHARE (101,499) (101,499) POOLED COMPANIES PRIOR TO ACQUISITION (20,099) (20,099) PREFERRED DIVIDENDS DECLARED (408) (408) REDEMPTION OF PREFERRED STOCK (12,153) (531) (12,684) ISSUANCE OF COMMON STOCK IN ACQUISITIONS OF: TODAY'S BANCORP, INC. 1,127,058 (2,195) 52,321 50,126 FIRST FINANCIAL CORPORATION OF AMERICA 258,742 (1,226) 12,954 11,728 PEOPLES STATE BANK 325,837 849 14,791 15,640 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 274,517 1,091 (3,771) 2,397 (283) CONVERTIBLE NOTES 292,001 1,460 3,411 4,871 NET FAIR VALUE ADJUSTMENT ON AVAILABLE-FOR-SALE SECURITIES (17,217) (17,217) PURCHASE OF TREASURY STOCK (3,926,951) (186,811) (186,811) REISSUANCE AND RETIREMENT OF TREASURY STOCK (6,458) (50,708) 57,166 -- PRE-MERGER TRANSACTIONS OF POOLED COMPANIES AND OTHER 216,897 1,085 (1,804) 359 (59) (419) ---------- -------- -------- -------- ---------- -------- ---------- BALANCE AT DECEMBER 31, 1996 77,486,469 $396,072 $ -- $232,991 $1,400,789 $(84,201) $1,945,651 ========== ======== ======== ======== ========== ======== ========== Includes valuation on available-for-sale securities.
4 8 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS ($ in Thousands)
YEAR ENDED DECEMBER 31 1996 1995 1994 ---------- ---------- ---------- OPERATING ACTIVITIES Net income $ 245,215 $ 280,389 $ 233,056 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 73,015 41,533 48,791 Depreciation and amortization 45,579 43,238 39,645 Provision for deferred income tax credits (23,948) (14,571) (11,274) Net change in loans held-for-sale 28,504 (73,494) 232,389 Net change in accrued interest receivable 11,285 (9,687) (18,381) Net change in accrued interest payable (12,941) 30,273 8,203 Other, net 120,776 (8,870) 1,311 ---------- ---------- ---------- Net Cash Provided by Operating Activities 487,485 288,811 533,740 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (1,651,663) (1,323,080) (1,780,650) Proceeds from maturities 1,786,199 1,384,546 1,614,900 Proceeds from sales of: Held-to-maturity securities -- -- 1,985 Available-for-sale securities 305,961 237,086 430,166 Net change in loans and leases (786,454) (1,014,059) (1,662,343) Purchases of loans and leases (141,600) (128,361) (78,730) Proceeds from sales of loans and leases 255,043 759,626 302,580 Purchases of premises and equipment (67,837) (62,828) (50,310) Proceeds from sales of premises and equipment 4,928 8,279 5,908 Proceeds from sales of foreclosed property 31,212 25,656 48,955 Cash and cash equivalents from acquisitions, net of cash paid 57,152 47,126 48,196 Other, net 7,013 8,637 36,605 ---------- ---------- ---------- Net Cash Used by Investing Activities (200,046) (57,372) (1,082,738) FINANCING ACTIVITIES Net change in time certificates of deposit under $100,000 (395,839) 269,543 (23,491) Net change in time certificates of deposit $100,000 and over (5,620) 204,535 22,344 Net change in other time deposits 192,526 446 (10,745) Net change in foreign deposits 42,717 (9,965) 193,050 Net change in other deposits 371,640 (141,670) (533,653) Net change in short-term borrowings 2,702 (154,084) 621,831 Issuance of bank notes 25,000 150,000 100,000 Principal payments on bank notes (100,000) -- -- Issuance of long-term debt 2,607 14,676 82,151 Principal payments on long-term debt (37,413) (31,320) (64,492) Cash dividends paid (122,006) (101,797) (74,234) Net proceeds from issuance of common stock from employee incentive plans and pre-merger transactions of pooled companies (18,554) (525) 2,729 Purchase of treasury stock (175,036) (85,474) (2,954) Redemption of preferred stock (12,684) -- -- Other, net 2,176 4,011 (3,306) ---------- ---------- ---------- Net Cash Provided (Used) by Financing Activities (227,784) 118,376 309,230 ---------- ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,655 349,815 (239,768) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,598,349 1,248,534 1,488,302 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR $1,658,004 $1,598,349 $1,248,534 ========== ========== ==========
The accompanying notes to supplemental consolidated financial statements are an integral part of these statements. 5 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. Restatement: Effective April 25, 1997, the Corporation acquired Mark Twain Bancshares, Inc. ("Mark Twain"), in a transaction accounted for as a pooling-of-interests. The Supplemental Consolidated Financial Statements give retroactive effect to the transaction 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 become the historical consolidated financial statements upon issuance of the financial statements for the period that includes the date of the transaction.) The Supplemental Consolidated Statement of Changes in Shareholders' Equity reflects the accounts of Mercantile Bancorporation Inc. as if the common stock issued in the Mark Twain acquisition 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 1996 Annual Report on Form 10-K. Reclassification: Certain reclassifications have been made to the 1995 and 1994 historical financial statements to conform with the 1996 presentation. New Accounting Standards: Financial Accounting Standard ("FAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years ending after December 15, 1995, provides separate guidelines for establishing carrying values of long-lived assets and certain identifiable intangible assets based on intent to either hold and use an asset or dispose of an asset. The adoption of FAS 121 had no material effect on Mercantile's financial condition or results of operations. FAS 123, "Accounting for Stock Based Compensation," encourages an optional accounting method for stock based compensation based on the estimated fair value of employee stock options. The Corporation continues to use the current accounting methodology for stock based compensation plans. The Corporation has complied with the expanded footnote disclosures as set forth in FAS 123 which is included in Note M to the Supplemental Consolidated Financial Statements. The FASB issued Statement 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which requires an entity to recognize the financial and servicing assets it controls and the liabilities it has incurred and to derecognize financial assets when control has been surrendered in accordance with the criteria provided in the Statement. The Corporation has applied the new rules prospectively to transactions beginning in the first quarter of 1997. FAS 128, "Earnings per Share," was issued in February 1997. This statement is effective in the fourth quarter of 1997 and requires additional reporting of earnings per share which gives effect to dilutive common shares such as stock options or convertible notes. The Corporation does not anticipate a significant impact when reporting diluted earnings per share. Use of Estimates: Management of the Corporation has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the Supplemental Consolidated Financial Statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 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. 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 and brokerage 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, 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 (losses). Unrealized gains and losses are recorded, net of related income tax effects, in retained earnings. 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. Realized gains and losses, based on the amortized cost of the specific security, are included in other income as securities gains (losses). 6 10 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 is generally accrued on a simple interest basis. 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 (exclusive of certain consumer and credit card loans) 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. All non-accrual and renegotiated commercial-related loans are considered impaired. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. Mortgage servicing rights associated with loans originated and sold, where servicing is retained, are capitalized and amortized using the level-yield method over the estimated lives of the loans. The carrying value of such rights is subject to periodic adjustment based upon changing market conditions. 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. Mercantile charges off credit card loans after six cycles of nonpayment, or within 15 days of receipt of personal bankruptcy notice, if earlier. Foreclosed Assets: Foreclosed assets include real estate and other assets acquired through foreclosure or other proceedings, and 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 consist primarily of goodwill and core deposit premium. 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 liability method, are provided on temporary differences between the financial reporting basis and the tax basis of the assets and liabilities of the Corporation. Treasury Stock: The purchase of the Corporation's common stock is recorded at cost. Upon subsequent reissuance, the treasury stock account is reduced by the average cost basis of such stock. 7 11 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Cash Equivalents: Cash and due from banks, due from banks--interest bearing, and 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 As described in Note A, effective April 25, 1997, the Corporation acquired Mark Twain, a $3.2 billion-asset bank holding company headquartered in St. Louis, Missouri. The consideration for this acquisition was 16,059,142 shares of Mercantile common stock. The Mark Twain acquisition was accounted for as a pooling-of-interests. Net income and net income per common share for the Corporation and Mark Twain prior to this restatement was as follows: - ------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 ($ in thousands except per common share data) Corporation Net income $191,947 $232,676 $192,074 Net income per common share $3.10 3.74 3.19 Mark Twain Net income 53,268 47,713 40,982 Primary earnings per share 3.23 2.93 2.54
- ------------------------------------------------------------------------ The Corporation expects to record a one-time pre-tax expense approximating $40,000,000 to $50,000,000 in the second quarter of 1997 related to the merger with Mark Twain. These charges include accruals to substantially conform the accounting policies of Mark Twain as well as to account for one-time expenses associated with the transaction. Mark Twain completed two mergers in 1996. On December 27, 1996, Mark Twain acquired First City Bancshares, Incorporated of Springfield, Missouri, for an equivalent of 231,961 shares of Mercantile common stock. The acquisition of First City Bancshares, Incorporated was accounted for as a purchase. Mark Twain acquired Northland Bancshares, Inc., owner of the First National Bank of Platte County in the Kansas City, Missouri metropolitan area, on September 10, 1996. The acquisition of Northland Bancshares, Inc. was accounted for as a pooling-of-interests. However, Mark Twain did not restate prior period financial statements due to the immateriality of the financial condition and results of operations of Northland Bancshares, Inc. to that of Mark Twain. An equivalent of 345,541 shares of Mercantile common stock was issued in the acquisition. 8 12 - ------------------------------------------------------------------------------------------------------------------------------------ Listed below are the acquisitions completed by Mercantile during the years ended December 31, 1996, 1995 and 1994: ($ in Thousands)
ORIGINAL CONSIDERATION INTANGIBLE ------------------------ ACCOUNTING DATE ASSETS ASSET CASH SHARES METHOD -------------- ---------- ---------- ------- --------- ---------- ACQUISITIONS COMPLETED Today's Bancorp, Inc. Nov. 7, 1996 $ 501,418 $ 46,854 $34,912 1,127,058 Purchase First Financial Corporation of America Nov. 1, 1996 87,649 5,137 3,253 258,742 Purchase Peoples State Bank Aug. 22, 1996 95,657 7,552 -- 325,837 Purchase Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 3,016 5 197,902 Purchase Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 6,000 1 321,964 Purchase Hawkeye Bancorporation ("Hawkeye") Jan. 2, 1996 1,978,540 N/A 80 7,892,196 Pooling First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 N/A 1 521,417 Pooling Southwest Bancshares, Inc. Aug. 1, 1995 187,701 N/A 1 674,975 Pooling AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 N/A 1 661,356 Pooling Plains Spirit Financial Corporation July 7, 1995 400,754 17,820 6,697 1,301,180 Purchase TCBankshares, Inc. ("TCB") May 1, 1995 1,422,798 N/A -- 4,749,999 Pooling Central Mortgage Bancshares, Inc. ("Central") May 1, 1995 654,584 N/A 8 2,537,723 Pooling UNSL Financial Corp ("UNSL") Jan. 3, 1995 508,346 N/A 11 1,578,107 Pooling Wedge Bank Jan. 3, 1995 195,716 N/A 1 969,954 Pooling United Postal Bancorp, Inc. Feb. 1, 1994 1,260,765 N/A 39 5,631,953 Pooling Metro Bancorporation Jan. 3, 1994 370,175 N/A 6 1,638,278 Pooling 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 that of Mercantile. In addition to Mercantile common stock issued, the Corporation assumed, through an exchange, the outstanding, non-convertible preferred stock of TCB. The preferred stock was redeemed in the first quarter of 1996. - ------------------------------------------------------------------------------------------------------------------------------------
During the first and fourth quarters of 1996, certain adjustments were recorded by the Corporation to conform accounting and credit policies regarding loan, other real estate and other asset valuations of recently acquired companies to those of the Corporation. These adjustments consisted of a $13,666,000 increase in provision for loan losses, $3,114,000 in losses on securities sold in portfolio restructurings, a $51,071,000 charge to other expense and a related tax benefit of $19,362,000, resulting in an after-tax reduction to net income of $48,489,000. During the fourth quarter of 1994, certain adjustments were recorded by UNSL, Central and TCB 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. For all acquisitions accounted for as purchases, the unamortized excess of cost over the fair value of assets acquired was $157,788,000, $95,631,000 and $82,770,000 at December 31, 1996, 1995 and 1994, respectively. The Hawkeye, Central, TCB, and UNSL acquisitions were accounted for as poolings-of-interests. Net income and net income per common share for the Corporation, Central, TCB, UNSL and Hawkeye prior to restatement was as follows: - -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1995 1994 (Thousands except per common share data) Corporation prior to restatement Net income $216,835 $161,029 Net income per common share 4.00 3.74 Central Net income 2,851 Net income per common share .69 TCB Net income 8,729 Net income per common share 3,616.30 UNSL Net loss (4,280) Net loss per common share (2.71) Hawkeye Net income 15,841 23,745 Net income per common share 1.18 1.78
- ----------------------------------------------------------------------------- 9 13 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Other Pending Acquisitions at December 31, 1996: On December 22, 1996, Mercantile and Roosevelt Financial Group, Inc. ("Roosevelt") signed a definitive merger agreement. Roosevelt is a $7.5 billion-asset thrift holding company headquartered in St. Louis, Missouri. The Roosevelt acquisition is expected to be consummated in the second half of 1997, and will be accounted for as a purchase. A pre-tax charge of $38,000,000 to $45,000,000 is estimated relative to the Roosevelt transaction. This charge includes accruals to substantially conform the accounting and credit policies of Roosevelt as well as to account for one-time expenses associated with the transaction. The ultimate amount of one-time expenses may vary significantly from those included in the estimate above due to the substantial market overlaps and the associated final decisions affecting branch closings and severance. Unaudited pro forma combined consolidated financial data including the Corporation and Roosevelt for 1996 and 1995 is listed below. The unaudited pro forma combined consolidated financial data provided includes the impact of goodwill amortization and the reduction in net interest income due to: 1) interest lost on cash paid for share repurchases or paid directly to Roosevelt shareholders as purchase consideration; and 2) interest on debt which may be issued to finance the Roosevelt acquisition. There is no estimate of potential cost savings included in the following table. - -----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 (Thousands except per common share data) Total assets $30,210,572 $30,438,906 Net interest income 955,137 930,453 Other income 299,808 255,299 Net income 182,933 235,543 Net income per common share 2.21 2.84 - -----------------------------------------------------------------------------------
Mercantile entered into an agreement dated August 23, 1996 to acquire the capital stock of Regional Bancshares, Inc., a $172 million-asset bank holding company based in Alton, Illinois. The acquisition, which was accounted for as a purchase transaction, was consummated on March 5, 1997. NOTE C CASH FLOWS The Corporation paid interest on deposits, short-term borrowings, bank notes and long-term debt of $737,862,000, $681,559,000 and $513,339,000 in 1996, 1995 and 1994, respectively. The Corporation paid Federal income taxes of $142,404,000, $132,347,000 and $139,435,000 in 1996, 1995 and 1994, respectively. The following details cash and cash equivalents from acquisitions accounted for as purchases, net of cash paid: - ----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 (Thousands) Fair value of assets purchased $(1,260,315) $(952,585) $(52,979) Fair value of liabilities assumed 1,090,663 851,875 58,561 Issuance of common stock 136,124 95,490 835 ----------- --------- -------- Net Cash Received (Paid) for Acquisitions (33,528) (5,220) 6,417 Cash and cash equivalents acquired 90,680 52,346 41,779 ----------- --------- -------- Cash and Cash Equivalents from Acquisitions, Net of Cash Paid $ 57,152 $ 47,126 $ 48,196 =========== ========= ========
- ---------------------------------------------------------------------------- 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, 1996 was $221,098,000. 10 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, 1996 U.S. government $3,469,884 $19,900 $15,789 $3,473,995 State and political subdivisions Tax-exempt 396,544 8,285 896 403,933 Taxable 112,158 490 469 112,179 ---------- ------- ------- ---------- Total State and Political Subdivisions 508,702 8,775 1,365 516,112 Other 160,939 457 1,829 159,567 ---------- ------- ------- ---------- Total $4,139,525 $29,132 $18,983 $4,149,674 ========== ======= ======= ========== DECEMBER 31, 1995 U.S. government $3,917,631 $48,574 $16,955 $3,949,250 State and political subdivisions Tax-exempt 417,133 11,545 1,042 427,636 Taxable 134,400 1,034 714 134,720 ---------- ------- ------- ---------- Total State and Political Subdivisions 551,533 12,579 1,756 562,356 Other 142,547 211 1,477 141,281 ---------- ------- ------- ---------- Total $4,611,711 $61,364 $20,188 $4,652,887 ========== ======= ======= ========== DECEMBER 31, 1994 U.S. government $876,826 $ 830 $36,152 $841,504 State and political subdivisions--tax-exempt 13,983 161 33 14,111 Other 74,197 1,468 2,180 73,485 ---------- ------- ------- ---------- Total $965,006 $2,459 $38,365 $929,100 ========== ======= ======= ========== - -------------------------------------------------------------------------------------------------------------------------
11 15 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 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, 1996 U.S. government $556,696 $ 9,770 $7,748 $558,718 State and political subdivisions--tax-exempt 4,180 85 15 4,250 Other 4,169 190 175 4,184 ---------- ------- -------- ---------- Total $565,045 $10,045 $7,938 $567,152 ========== ======= ======== ========== DECEMBER 31, 1995 U.S. government $241,339 $1,940 $682 $242,597 State and political subdivisions--tax-exempt 2,269 14 12 2,271 Other 486 1 -- 487 ---------- ------- -------- ---------- Total $244,094 $1,955 $694 $245,355 ========== ======= ======== ========== DECEMBER 31, 1994 U.S. government $3,239,928 $ 9,170 $120,405 $3,128,693 State and political subdivisions Tax-exempt 446,602 4,504 10,806 440,300 Taxable 165,551 164 9,102 156,613 ---------- ------- -------- ---------- Total State and Political Subdivisions 612,153 4,668 19,908 596,913 Other 67,096 14 1,341 65,769 ---------- ------- -------- ---------- Total $3,919,177 $13,852 $141,654 $3,791,375 ========== ======= ======== ========== - ------------------------------------------------------------------------------------------------------------------------------------
In December 1995, the Corporation reclassified approximately $3.1 billion in held-to-maturity securities to the available-for-sale category. The unrealized gain on the securities transferred was approximately $31 million. The Financial Accounting Standards Board issued a Special Report titled, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities, Questions and Answers," which stated that reclassifications made no later than December 31, 1995 from the held-to-maturity category will not call into question the intent to hold other securities to maturity in the future. During the third quarter of 1996, 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 $370,014,000 and an estimated fair value of $373,557,000 on the transfer date. The unrealized gain on the date of the transfer remained in shareholders' equity and is being amortized over the remaining life of the transferred securities. The unamortized balance as of December 31, 1996 was $3,475,000. Securities with a carrying value of $2,979,248,000 at December 31, 1996, $2,502,207,000 at December 31, 1995 and $2,691,192,000 at December 31, 1994 were pledged to secure public and trust deposits, securities sold under agreements to repurchase, and for other purposes required by law. 12 16 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; the only transfer of securities from the held-to-maturity category to available-for-sale during 1995 and 1996 was the December 1995 reclassification discussed above. Held-to-maturity securities gains and losses resulted from portfolio restructurings in connection with subsidiary bank acquisitions or calls by the security issuer prior to maturity. - ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 (Thousands) Proceeds from sales of: Held-to-maturity securities $ -- $ -- $ 1,985 Available-for-sale securities 305,961 237,086 430,166 Securities gains on: Held-to-maturity securities $ 14 $ 111 $ 471 Available-for-sale securities 3,077 4,519 5,869 -------- -------- -------- Total Securities Gains 3,091 4,630 6,340 Securities losses on: Held-to-maturity securities -- 1 262 Available-for-sale securities 3,174 291 3,190 -------- -------- -------- Total Securities Losses 3,174 292 3,452 -------- -------- -------- Net Securities Gains (Losses) Before Income (Taxes) Benefit (83) 4,338 2,888 Applicable income (taxes) benefit 29 (1,518) (1,011) -------- -------- -------- Net Securities Gains (Losses) $ (54) $ 2,820 $ 1,877 ======== ======== ======== - ---------------------------------------------------------------------------------------------------
NOTE F LOANS AND LEASES Loans and leases consisted of the following: - ------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Commercial $ 4,185,755 $ 3,757,802 $ 3,545,468 Real estate--commercial 2,822,580 2,775,992 2,351,443 Real estate--construction 391,167 501,840 545,007 Real estate--residential 4,801,207 4,092,443 3,785,569 Consumer 1,841,275 1,715,550 1,671,187 Credit card 910,646 859,199 865,587 ----------- ----------- ----------- Total Loans and Leases $14,952,630 $13,702,826 $12,764,261 =========== =========== =========== - ------------------------------------------------------------------------------------------------------------------
Changes in the reserve for possible loan losses were as follows: - ------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 (Thousands) Beginning Balance $232,288 $244,743 $232,958 Provision 73,015 41,533 48,791 Charge-offs (104,589) (73,441) (72,851) Recoveries 19,852 17,623 35,398 -------- -------- -------- Net Charge-offs (84,737) (55,818) (37,453) Acquired Reserves 9,806 13,830 447 Transfer to Mercantile Credit Card Master Trust -- (12,000) -- -------- -------- -------- Ending Balance $230,372 $232,288 $244,743 ======== ======== ======== - ------------------------------------------------------------------------------------------------------
Non-performing loans consisted of the following: - -----------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Non-accrual $66,959 $92,868 $37,463 Renegotiated 5,260 3,203 6,847 ------- ------- ------- Non-performing Loans $72,219 $96,071 $44,310 ======= ======= ======= - -----------------------------------------------------------------------------------------------------
Effective January 1, 1995, the Corporation adopted FAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by FAS 118, which requires an impaired loan to be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate. By the Corporation's definition, all non-accrual and renegotiated commercial-related loans are considered impaired. As of December 31, 1996, impaired loans totaled $41,713,000, for which the related reserve for possible loan losses was $8,870,000. As of December 31, 1995, impaired loans totaled $40,222,000, for which the related reserve for possible loan losses was $16,795,000. For 1996 and 1995, the average recorded investment in impaired loans was $45,558,000 and $45,410,000, respectively. In 1996 and 1995, the Corporation recognized approximately $452,000 and $312,000, respectively, of interest income on impaired loans outstanding. Certain directors and executive officers of the Corporation were loan customers of the Corporation's banks during 1996, 1995 and 1994. 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 $19,525,000, $35,240,000 and $32,978,000, at December 31, 1994, 1995 and 1996, respectively. During 1996, $24,755,000 of new loans were made to these persons and repayments totaled $27,017,000. 13 17 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE G BANK PREMISES AND EQUIPMENT Bank premises and equipment were as follows: - ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Land $ 59,502 $ 57,631 $ 53,099 Bank premises 322,630 295,129 290,056 Leasehold improvements 50,300 46,572 42,709 Furniture and equipment 314,473 278,723 244,778 -------- -------- -------- Total Cost 746,905 678,055 630,642 Accumulated depreciation (379,594) (348,221) (318,167) -------- -------- -------- Net Carrying Value $367,311 $329,834 $312,475 ======== ======== ======== - -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 1996, 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) 1997 $13,435 1998 11,235 1999 9,667 2000 7,771 2001 6,103 2002 and later 26,898 ------- Total $75,109 =======
- ------------------------------------------------------------------------------- The minimum rental amounts listed above represent the Corporation's total obligation, including Mark Twain, as of December 31, 1996. This obligation may be reduced in the future due to branch closings in which facilities could be sublet. Net rental expense for all operating leases was $15,184,000 in 1996, $15,010,000 in 1995 and $14,908,000 in 1994. NOTE H DEPOSITS Deposits consisted of the following: - -------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Non-interest bearing $ 3,003,972 $ 2,594,734 $ 2,442,126 Interest bearing demand 2,562,065 2,420,273 2,467,329 Money market accounts 2,791,848 2,500,400 2,370,133 Savings 1,090,563 1,115,692 1,202,063 Consumer time certificates under $100,000 6,195,651 6,130,094 5,493,523 Other time 231,268 38,742 38,717 ----------- ----------- ----------- Total Core Deposits 15,875,367 14,799,935 14,013,891 Time certificates $100,000 and over 1,209,197 1,162,547 903,921 Foreign 251,887 209,170 219,135 ----------- ----------- ----------- Total Purchased Deposits 1,461,084 1,371,717 1,123,056 ----------- ----------- ----------- Total Deposits $17,336,451 $16,171,652 $15,136,947 =========== =========== =========== - -------------------------------------------------------------------------------------------------------
The scheduled maturities of Mercantile's consumer time certificates under $100,000, time certificates $100,000 and over and other time deposits were as follows: - ----------------------------------------------------------------------------------------------
SCHEDULED MATURITY AMOUNT PERIOD (Thousands) 1997 $5,372,579 1998 1,366,903 1999 515,481 2000 237,538 2001 113,829 2002 and later 29,786 ---------- Total $7,636,116 ========== - ----------------------------------------------------------------------------------------------
NOTE I SHORT-TERM BORROWINGS Short-term borrowings were as follows: - ---------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Federal funds purchased and repurchase agreements $1,781,011 $1,716,909 $1,612,330 Treasury tax and loan notes 117,750 118,183 172,362 Commercial paper 19,405 16,950 36,255 Other short-term borrowings 69,098 77,425 165,252 ---------- ---------- ---------- Total Short-term Borrowings $1,987,264 $1,929,467 $1,986,199 ========== ========== ========== - ---------------------------------------------------------------------------------------------------
14 18 The average balance of total short-term borrowings was $1,519,802,000, $1,704,149,000 and $1,373,793,000 during 1996, 1995 and 1994, respectively. The average rate on total short-term borrowings was 5.36% in 1996, 5.54% in 1995 and 4.19% in 1994. The maximum balances at month-end are listed below: - -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 (Thousands) Federal funds purchased and repurchase agreements $1,781,011 $1,854,611 $1,790,086 Treasury tax and loan notes 435,780 555,761 617,584 Commercial paper 21,660 31,157 46,861 Other short-term borrowings 102,007 84,456 165,252 - -------------------------------------------------------------------------------------------------------
The Corporation had unused lines of credit arrangements with unaffiliated banks for support of commercial paper and for other uses totaling $122,000,000 at December 31, 1996. NOTE J LONG-TERM DEBT AND BANK NOTES Long-term Debt: Long-term debt consisted of the following: - -------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) MERCANTILE BANCORPORATION INC. (PARENT COMPANY ONLY) 7.625% subordinated notes, due 2002 $150,000 $150,000 $150,000 8.000% convertible subordinated capital notes, due 1995 -- -- 8,822 -------- -------- -------- Total 150,000 150,000 158,822 SECOND-TIER HOLDING COMPANIES 2,036 18,490 47,743 BANKS AND OTHER SUBSIDIARIES 6.375% subordinated debt, due 2004 75,000 75,000 75,000 9.000% mortgage-backed notes, due 1999 53,450 53,450 53,450 Federal Home Loan Bank advances 24,267 47,021 15,501 Other 78 136 73 -------- -------- -------- Total 152,795 175,607 144,024 -------- -------- -------- Total Long-term Debt $304,831 $344,097 $350,589 ======== ======== ======== - -------------------------------------------------------------------------------------------------------
On October 15, 1992, the Corporation issued $150,000,000 of non-callable 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. As of December 31, 1994, $16,035,000 of the debt issued by second-tier holding companies was a term loan of Hawkeye, which was paid in full on December 26, 1995. Other second-tier holding company long-term debt consisted of 8.500% debentures and 7.000% convertible subordinated capital notes, both issued by Mark Twain. The 8.500% debentures due in 1999, were called for redemption at a premium over par of 1% effective March 1, 1996. The 7.000% convertible subordinated capital notes, which are due in 1999, were issued on June 23, 1987, and are convertible into common stock at a conversion price equivalent to $15.13 per Mercantile share. On January 25, 1994, Mercantile Bank 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 9.000% mortgage-backed notes were collateralized by U.S. government securities at December 31, 1996, and mature in July 1999. Federal Home Loan Bank advances at December 31, 1996 consisted of various debt instruments with rates varying from 5.000% to 7.070%. This debt was collateralized by certain loans and securities, with maturities through June 2010. A summary of annual principal reductions of long-term debt is presented below: - ---------------------------------------------------------------------------------------------------
ANNUAL PRINCIPAL REDUCTIONS PERIOD (Thousands) 1997 $ 8,002 1998 5,876 1999 57,226 2000 1,359 2001 1,239 2002 and later 231,129 -------- Total $304,831 ======== - ----------------------------------------------------------------------------------------------------
On January 29, 1997, the Corporation formed Mercantile Capital Trust I. Through this trust, the Corporation obtained $150,000,000 of floating-rate debt which for regulatory purposes is part of Tier I capital. Proceeds are expected to be utilized for share repurchases relating to the Roosevelt transaction as well as for general corporate purposes. On April 24, 1997, the Corporation filed a Registration Statement on Form S-3, in which up to $500 million in senior and/or subordinated debt will be issued, primarily to finance the Roosevelt acquisition. 15 19 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Bank Notes: Beginning in 1994, certain subsidiary banks could offer unsecured bank notes. Note maturities can range from 30 days to 15 years from the date of issue and may 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. It is anticipated that the bank note program will be restructured in 1997. Bank notes are presented below with December 31, 1996 coupon rates: - ----------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) MERCANTILE BANK N.A. 5.693% floating-rate bank notes, due 1998 $150,000 $150,000 $ -- 6.000% floating-rate bank notes, due 1996 -- 100,000 100,000 5.650% floating-rate bank notes, due 1999 25,000 -- -- -------- -------- -------- Total Bank Notes $175,000 $250,000 $100,000 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
NOTE K INCOME TAXES The Corporation's results include income tax expense as follows: - ----------------------------------------------------------------------------------------------------------
CURRENT DEFERRED TOTAL (Thousands) YEAR ENDED DECEMBER 31, 1996 U.S. FEDERAL $136,751 $(22,936) $113,815 STATE AND LOCAL 15,732 (1,012) 14,720 -------- -------- -------- TOTAL $152,483 $(23,948) $128,535 ======== ======== ======== Year ended December 31, 1995 U.S. Federal $145,976 $(11,272) $134,704 State and local 18,493 (3,299) 15,194 -------- -------- -------- Total $164,469 $(14,571) $149,898 ======== ======== ======== Year ended December 31, 1994 U.S. Federal $130,835 $(10,575) $120,260 State and local 16,335 (699) 15,636 -------- -------- -------- Total $147,170 $(11,274) $135,896 ======== ======== ======== - ---------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities are presented below. - ----------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Deferred tax assets Reserve for possible loan losses $ 73,097 $ 78,177 $ 80,882 Foreclosed property 1,448 720 2,560 Deferred compensation 5,869 5,451 3,240 Net operating losses from pooled subsidiary -- -- 1,494 Expenses not currently allowable for tax purposes 22,327 12,732 11,079 State tax liabilities 1,595 2,554 2,239 Investments in debt and equity securities--FAS 115 -- -- 17,598 Retirement expenses in excess of tax deduction 11,209 8,930 7,287 Other 7,154 3,496 7,445 -------- -------- -------- Total Gross Deferred Tax Assets 122,699 112,060 133,824 Deferred tax liabilities Leasing (29,956) (39,828) (58,420) Pension settlement gain (6,005) (6,079) (6,005) Intangible assets (5,637) (6,466) (9,865) Depreciation (1,718) (2,281) (2,803) Investments in debt and equity securities--FAS 115 (3,231) (14,577) -- Other (11,257) (13,228) (9,526) -------- -------- -------- Total Gross Deferred Tax Liabilities (57,804) (82,459) (86,619) -------- -------- -------- Net Deferred Tax Assets $ 64,895 $ 29,601 $ 47,205 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
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 1996 1995 1994 (Thousands) Computed "expected" tax expense $130,813 $150,600 $129,133 Increase (reduction) in income taxes resulting from Tax-exempt income (9,856) (10,783) (10,876) State and local income taxes, net of federal income tax benefit 9,568 9,882 10,131 Thrift bad debt recapture -- -- 3,615 Other, net (1,990) 199 3,893 -------- -------- -------- Total Tax Expense $128,535 $149,898 $135,896 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
16 20 NOTE L 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 the five highest consecutive years of compensation. 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 1996, 1995 or 1994. 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 1996 1995 1994 (Thousands) Service cost--benefits earned during the period $ 9,849 $ 6,922 $ 7,461 Interest cost on projected benefit obligation 11,515 10,223 9,137 Actual (return) loss on plan assets (15,928) (28,628) 2,099 Net amortization and deferral 1,401 15,547 (14,557) -------- -------- -------- Net Periodic Pension Expense $ 6,837 $ 4,064 $ 4,140 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
The table below sets forth the funded status and amounts recognized in the Supplemental Consolidated Balance Sheet for the qualified plan: - ----------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Actuarial present value of Vested benefit obligation $123,641 $109,550 $ 86,258 ======== ======== ======== Accumulated benefit obligation $136,399 $121,169 $ 95,262 ======== ======== ======== Projected benefit obligation $167,082 $150,929 $116,164 Plan assets at fair value 171,879 154,890 128,339 -------- -------- -------- Projected benefit obligation in excess of plan assets (4,797) (3,961) (12,175) Unrecognized net loss (10,196) (15,311) (9,643) Unrecognized prior service cost 1,228 1,405 1,603 Unrecognized net asset 1,532 2,342 3,398 -------- -------- -------- Prepaid Pension Expense $(12,233) $(15,525) $(16,817) ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
Assumptions used were as follows: - ----------------------------------------------------------------------------------------------------------
1996 1995 1994 Discount rate in determining benefit obligations 7.50% 7.50% 8.50% Rate of increase in compensation levels 5.00 5.00 5.00 Expected long-term rate on assets 9.50 9.50 9.00 - ----------------------------------------------------------------------------------------------------------
At December 31, 1996, approximately 59% of the plan's assets was invested in listed common stocks, 38% was invested in government and corporate bonds rated A or better, and the remaining 3% was 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 years ended December 31, 1996, 1995 and 1994. The expense related to these plans was $2,517,000 in 1996, $2,228,000 in 1995 and $2,279,000 in 1994. 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. FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires 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 1996 1995 1994 (Thousands) Service cost--benefits earned during the period $ 820 $ 610 $ 734 Interest cost on accumulated postretirement benefit obligation 2,748 2,716 2,539 Net amortization and deferral 1,713 1,475 1,633 ------ ------ ------ Net Periodic Postretirement Benefit Cost $5,281 $4,801 $4,906 ====== ====== ====== - ----------------------------------------------------------------------------------------------------------
17 21 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) The table below sets forth the funded status and the amount recognized in the Supplemental Consolidated Balance Sheet regarding other postretirement benefits: - ----------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Accumulated postretirement benefit obligation ("APBO") Retirees $ 26,736 $ 27,041 $ 24,493 Active employees fully eligible for benefits 1,446 1,301 1,085 Other active employees 10,028 7,862 6,609 -------- -------- -------- Total 38,210 36,204 32,187 Assets at fair value -- -- -- -------- -------- -------- APBO in excess of assets 38,210 36,204 32,187 Unrecognized net gain (loss) (1,988) (1,241) 2,436 Unrecognized prior service cost (140) (147) (155) Unrecognized transition obligation (25,308) (26,889) (28,470) -------- -------- -------- Accrued Postretirement Benefit Obligation $ 10,774 $ 7,927 $ 5,998 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
Assumptions used were as follows: - ----------------------------------------------------------------------------------------------------------
1996 1995 1994 Discount rate in determining benefit obligations 7.50% 7.50% 8.50% Health care cost trend First year 9.50 10.50 11.00 Ultimate (2001 and after) 5.50 5.50 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 $112,000 in 1996, and $120,000 in 1995 and 1994. The APBO would increase by $1,542,000 as of December 31, 1996, $1,448,000 as of December 31, 1995 and $1,443,000 as of December 31, 1994. NOTE M SHAREHOLDERS' EQUITY Common Stock: The authorized common stock of the Corporation consisted of 100,000,000 shares, $5.00 par value, of which 77,486,469, 77,877,085 and 75,093,252 shares were outstanding at December 31, 1996, 1995 and 1994, respectively. At Mercantile's Annual Meeting on April 24, 1997, the Corporation's shareholders approved an amendment to its Restated Articles of Incorporation which reduced the par value of the Corporation's common stock from $5.00 per share to $.01 per share and increased the authorized number of shares to 200,000,000. 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, 1995 and 1994. As of December 31, 1995 and 1994, there were two series of non-voting preferred stock issued. Series B-1 consisted of 5,306 shares which had non-cumulative dividends as declared by Mercantile's Board of Directors. Series B-2 represented 9,500 shares with a cumulative annual dividend at the rate of $85 per share. The Series B-1 and B-2 preferred shares were redeemed by the Corporation in March 1996. At December 31, 1996, 1,000,000 shares were reserved for issuance pursuant to the Preferred Share Purchase Rights Plan. 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. 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. 18 22 Stock Options: The Corporation had stock options outstanding under various plans at December 31, 1996, 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. As of December 31, 1996, there were 1,487,171 options available for grant. The per share price range for options exercisable was $5.41 to $45.25 as of December 31, 1996. The following table summarizes stock options outstanding as of December 31, 1996: - ----------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING ----------------------------------------------------- WEIGHTED AVERAGE RANGE OF REMAINING WEIGHTED AVERAGE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE -------------- ----------- ---------------- ---------------- $ 5.41-14.61 218,661 4.30 $ 8.14 14.62-32.42 1,491,355 2.91 23.01 32.43-32.50 1,046,161 6.62 32.50 32.51-45.63 640,103 6.23 38.38 45.64-53.38 322,674 9.11 46.14 --------- 5.41-53.38 3,718,954 5.15 29.46 ========= - ----------------------------------------------------------------------------------------------------------
Changes in options outstanding were as follows: - ----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE EXERCISE SHARES PRICE --------- -------- BALANCE AT DECEMBER 31, 1993 3,095,367 $18.16 Granted 956,151 31.22 Exercised (390,692) 11.04 Canceled (62,224) 27.36 --------- BALANCE AT DECEMBER 31, 1994 3,598,602 22.25 Granted 648,319 33.89 Exercised (639,747) 13.50 Canceled (71,995) 31.32 Assumed 98,358 15.80 --------- BALANCE AT DECEMBER 31, 1995 3,633,537 25.44 GRANTED 616,216 43.74 EXERCISED (495,563) 15.64 CANCELED (86,228) 37.83 ASSUMED 50,992 22.91 --------- BALANCE AT DECEMBER 31, 1996 3,718,954 29.46 ========= - ----------------------------------------------------------------------------------------------------------
The number of shares exercisable under stock options as of December 31, 1996, 1995 and 1994 were 1,998,675, 1,817,820 and 1,668,919, respectively, with a weighted average exercise price of $23.80, $19.53 and $16.02, respectively. The fair value of the option grants excluding options from Mark Twain was estimated on the date of grant using an option-pricing model based upon the following assumptions: dividend yield of 3.30%; expected volatility of 31.7%; average risk-free interest rate of 5.15% and 7.28% for the 1996 and 1995 grants, respectively; and expected option life of 1.26 years from the vesting date. The weighted average fair value of stock options granted in 1995 and 1996 was $9.48 and $10.72, respectively. The fair value of Mark Twain's stock options was estimated on the date of grant using an option-pricing model based upon the following assumptions: dividend yield of 3.28%; expected volatility of 17%; average risk-free interest rate of 6%; and expected option life of 4.5 years from the vesting date. The weighted average fair value of stock options granted in 1995 and 1996 was $5.14 and $7.34, respectively. The Corporation applies Accounting Principles Board Opinion 25 in accounting for its stock option plans. The compensation cost that has been charged against income for stock based compensation plans was $1,438,000, $3,628,000 and $4,081,000 for 1994, 1995 and 1996, respectively. Had the Corporation adopted FAS 123's optional accounting method, the Corporation's net income and earnings per common share would have been reduced to the pro forma amounts noted below: - -------------------------------------------------------------------------------
EARNINGS NET PER COMMON INCOME SHARE For the Year Ended December 31, 1996: As Reported $245,215 $3.17 Pro Forma 242,030 3.13 For the Year Ended December 31, 1995: As Reported $280,389 $3.62 Pro Forma 278,373 3.59
- ------------------------------------------------------------------------------- Debt and Dividend Restrictions: Consolidated retained earnings at December 31, 1996 were not restricted under any 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, 1996, approximately $304,180,000 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 $172,150,000 would be available for loans to the Parent Company 19 23 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) under Federal Reserve regulations. The remaining equity of bank subsidiaries approximating $1,320,813,000 was restricted as to transfers to the Parent Company. NOTE N REGULATORY MATTERS The Corporation and its subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's Supplemental Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Mercantile and its subsidiary banks must meet specific capital guidelines that involve quantitative measures of the Corporation and its subsidiary banks' assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Mercantile and subsidiary banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulations to ensure capital adequacy require the Corporation and its subsidiary banks to maintain minimum amounts and ratios, as set forth in the table below, of Tier I and Total capital to risk-weighted assets, and of Tier I capital to average assets, the leverage ratio. Management believes, as of December 31, 1996, the Corporation and its subsidiary banks meet all capital adequacy requirements to which it is subject. As of December 11, 1996, the date of the most recent notification from regulatory agencies, the subsidiary banks were categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the subsidiary banks' category. The actual and required capital amounts and ratios as of December 31, 1996 for the Corporation and Mercantile Bank N.A. are listed in the following table: - ---------------------------------------------------------------------------------------------------
MINIMUM CAPITAL ACTUAL REQUIREMENTS AMOUNT RATIO AMOUNT RATIO ($ in Thousands) Tier I capital (to risk- weighted assets): Corporation $1,749,466 11.00% $636,225 4.00% Mercantile Bank N.A. 499,602 9.51 210,225 4.00 Total capital (to risk- weighted assets): Corporation 2,175,712 13.68 1,272,450 8.00 Mercantile Bank N.A. 620,308 11.80 420,450 8.00 Leverage (to average assets): Corporation 1,749,466 8.12 861,990 4.00 Mercantile Bank N.A. 499,602 6.97 286,873 4.00 - ---------------------------------------------------------------------------------------------------
NOTE O CONCENTRATIONS OF CREDIT The Corporation's primary market area is the state of Missouri and the lower Midwest. At December 31, 1996, approximately 94% of the total loan portfolio, and 92% 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 and credit card lending constituted the two other areas of significant concentration of credit risk. Real estate-related financial instruments (loans, commitments and standby letters of credit) comprised 37% of all such instruments of the Corporation. However, of this total, approximately 59% was consumer-related in the form of residential real estate mortgages and home equity lines of credit. Credit card-related financial instruments comprised approximately 26% of all such instruments of the Corporation. The Corporation is, in general, a secured lender. At December 31, 1996, approximately 88% 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. 20 24 NOTE P 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. 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 securities were based upon quoted market prices where available. Fair values for trading and available-for-sale 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 all 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. 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 $242,000,000 to $509,000,000 at December 31, 1996, 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. 21 25 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) The estimated fair values of the Corporation's financial instruments were as follows: - ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 ------------------------- ------------------------- ------------------------- (Thousands) CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE FINANCIAL ASSETS Cash and due from banks and short-term investments $ 1,658,004 $ 1,658,004 $ 1,598,349 $ 1,598,349 $ 1,248,534 $ 1,248,534 Trading securities 31,272 31,272 67,256 67,256 47,208 47,208 Held-to-maturity securities 565,045 567,152 244,094 245,355 3,919,177 3,791,375 Available-for-sale securities 4,149,674 4,149,674 4,652,887 4,652,887 929,100 929,100 Net loans and leases 14,722,258 15,158,912 13,470,538 13,990,522 12,519,518 12,523,169 FINANCIAL LIABILITIES Deposits 17,336,451 17,549,176 16,171,652 16,426,177 15,136,947 15,082,953 Short-term borrowings 1,987,264 1,987,264 1,929,467 1,929,467 1,986,199 1,986,199 Bank notes and long-term debt 479,831 484,283 594,097 613,277 450,589 428,286 OFF-BALANCE-SHEET Foreign exchange contracts purchased $ (428) $ 2,389 $ 6,850 Foreign exchange contracts sold 39 (2,022) (6,239) Interest rate contracts (143) 2,009 (184) Commitments to extend credit (16,423) (12,349) (11,102) Standby letters of credit (2,758) (2,842) (2,521) Commercial letters of credit (5,102) (4,268) (4,109) - ------------------------------------------------------------------------------------------------------------------------------------
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 1996 1995 1994 (Thousands) Commitments to extend credit Commercial $3,087,583 $2,392,878 $2,162,768 Consumer 6,126,854 5,613,283 4,534,262 ---------- ---------- ---------- Total $9,214,437 $8,006,161 $6,697,030 ========== ========== ========== Standby letters of credit $ 444,347 $ 410,201 $ 305,795 ========== ========== ========== Interest rate contracts $ 391,000 $ 192,000 $ 21,000 ========== ========== ========== - ---------------------------------------------------------------------------------------------------
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 long-term, fixed-rate liabilities into short-term, variable-rate liabilities, to secure interest margins and to hedge against interest rate movements. 22 26 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 $3,916,000, $3,084,000 and $2,670,000 in 1996, 1995 and 1994, respectively. The notional amounts of interest options written, foreign exchange contracts purchased and foreign exchange contracts sold were as follows: - -------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) Interest options written $ 16,456 $ 25,225 $ 62,725 Foreign exchange contracts purchased 243,800 219,526 246,845 Foreign exchange contracts sold 193,179 172,073 161,370
- ------------------------------------------------------------------------------- These transactions are generally entered into on behalf of customers and are subsequently matched off by the Corporation. As a consequence, these matched transactions do not represent exposure to market risk. The Corporation manages the potential credit exposure through established credit approvals, risk control limits and other monitoring procedures. Credit risk to the Corporation could result from non-performance by a counterparty to a contract; however, currently that credit risk is minimal. Held or Issued for Purposes Other Than Trading: Of the commitments to extend credit discussed in the preceding paragraphs, $303,729,000, $129,627,000 and $88,368,000 were entered into with fixed rates for commercial loan customers at December 31, 1996, 1995 and 1994, respectively. Fixed-rate commitments for consumer (residential mortgage) loan customers totaled $77,312,000 at December 31, 1996, $64,224,000 at December 31, 1995 and $38,825,000 at December 31, 1994. 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. Forward delivery contracts outstanding totaled $62,823,000 as of December 31, 1996 and $68,000,000 as of December 31, 1995. NOTE Q 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 R 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 $12,420,000, $12,828,000 and $14,856,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 23 27 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) STATEMENT OF INCOME - ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 (Thousands) INCOME Dividends from subsidiaries $444,136 $215,580 $104,950 Other interest and dividends 4,359 4,355 4,644 Management fees 16,987 13,637 13,879 Other 5,159 11,702 3,546 -------- -------- -------- Total Income 470,641 245,274 127,019 EXPENSE Interest on commercial paper 987 1,249 1,199 Interest on long-term debt 11,681 11,697 12,607 Personnel expense 18,503 16,869 14,463 Other operating expenses 46,372 12,410 16,019 -------- -------- -------- Total Expense 77,543 42,225 44,288 INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 393,098 203,049 82,731 Income tax benefit 16,514 2,926 6,482 -------- -------- -------- INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 409,612 205,975 89,213 Equity in undistributed income of subsidiaries (164,397) 74,414 143,843 -------- -------- -------- NET INCOME $245,215 $280,389 $233,056 ======== ======== ======== - ---------------------------------------------------------------------------------------------------
BALANCE SHEET - ---------------------------------------------------------------------------------------------------
DECEMBER 31 1996 1995 1994 (Thousands) ASSETS Cash $ 33 $ 21 $ -- Short-term investments 128,480 40,358 82,405 Available-for-sale securities 30,167 22,669 12,539 Investment in subsidiaries 1,876,682 1,955,432 1,678,859 Goodwill 123,913 64,812 48,557 Loans and advances to subsidiaries 19,405 16,950 26,849 Other assets 11,642 14,871 3,849 ---------- ---------- ---------- Total Assets $2,190,322 $2,115,113 $1,853,058 ========== ========== ========== LIABILITIES Commercial paper $ 19,405 $ 16,950 $ 26,800 Long-term debt 150,000 150,000 158,822 Other liabilities 75,266 32,670 24,697 ---------- ---------- ---------- Total Liabilities 244,671 199,620 210,319 SHAREHOLDERS' EQUITY 1,945,651 1,915,493 1,642,739 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $2,190,322 $2,115,113 $1,853,058 ========== ========== ========== - ---------------------------------------------------------------------------------------------------
24 28 STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1996 1995 1994 (Thousands) OPERATING ACTIVITIES Net income $ 245,215 $ 280,389 $ 233,056 Adjustments to reconcile net income to net cash provided by operating activities Net income of subsidiaries (279,739) (289,994) (248,793) Dividends from subsidiaries 421,299 211,485 98,666 Other, net 33,386 363 14,263 --------- --------- --------- Net Cash Provided by Operating Activities 420,161 202,243 97,192 INVESTING ACTIVITIES Investments in debt and equity securities Purchases (8,339) (9,914) (948) Proceeds from maturities -- 4,501 5,417 Contributions of capital to subsidiaries -- (70,352) (21,505) Acquisitions (33,082) (6,700) -- Other, net (2,943) (3,601) 25,143 --------- --------- --------- Net Cash Provided (Used) by Investing Activities (44,364) (86,066) 8,107 FINANCING ACTIVITIES Cash dividends paid (101,907) (69,562) (48,329) Net issuance of common stock for employee incentive plans (327) 6,839 2,923 Purchase of treasury stock (175,036) (85,474) (2,954) Redemption of preferred stock (12,684) -- -- Principal payments on long-term debt -- (156) (30,552) Net change in commercial paper 2,455 (9,850) 8,410 Other, net (164) -- (777) --------- --------- --------- Net Cash Used by Financing Activities (287,663) (158,203) (71,279) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88,134 (42,026) 34,020 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 40,379 82,405 48,385 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 128,513 $ 40,379 $ 82,405 ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------
25 29 INDEPENDENT AUDITORS' REPORT [KPMG LOGO] KPMG PEAT MARWICK LLP 1010 Market Street Telephone 314 444 1400 Telefax 314 444 1470 St. Louis, MO 63101-2085 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, 1996, 1995, and 1994, 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 supplemental consolidated financial statements based on our audits. The supplemental consolidated financial statements give retroactive effect to the merger of Mark Twain Bancshares, Inc. on April 25, 1997, which has been accounted for using the pooling of interests method as described in the notes to the supplemental consolidated financial statements. Generally accepted accounting principles prescribe giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not include the dates of consummation. These financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of Mercantile Bancorporation Inc. and subsidiaries after financial statements covering the date of consummation of the business combination 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, 1996, 1995, and 1994, 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 combination. /S/ KPMG PEAT MARWICK LLP May 13, 1997 26 30 Note A to Supplemental Unaudited Interim Consolidated Financial Statements -- Basis of Presentation Effective April 25, 1997, Mercantile Bancorporation Inc. ("Corporation") acquired Mark Twain Bancshares, Inc. ("Mark Twain"), in a transaction accounted for as a pooling-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, 1997 and 1996 to reflect the Mark Twain transaction. The Unaudited Supplemental 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. 31 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (THOUSANDS EXCEPT PER COMMON SHARE DATA)
THREE MONTHS ENDED MARCH 31 1997 1996 ---- ---- INTEREST INCOME Interest and fees on loans and leases $321,271 $301,389 Investments in debt and equity securities Trading 1,164 1,290 Taxable 66,764 68,643 Tax-exempt 5,354 5,950 -------- -------- Total 73,282 75,883 Due from banks--interest bearing 1,236 836 Federal funds sold and repurchase agreements 2,673 3,815 -------- -------- Total Interest Income 398,462 381,923 INTEREST EXPENSE Interest bearing deposits 149,045 151,224 Foreign deposits 4,717 2,501 Short-term borrowings 22,872 17,262 Bank notes 2,540 3,972 Long-term debt 7,327 6,426 -------- -------- Total Interest Expense 186,501 181,385 -------- -------- NET INTEREST INCOME 211,961 200,538 PROVISION FOR POSSIBLE LOAN LOSSES 18,443 34,149 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 193,518 166,389 OTHER INCOME Trust 22,801 21,059 Service charges 22,798 21,214 Credit card fees 5,399 1,561 Securitization revenue 7,292 4,502 Mortgage banking 2,778 3,168 Investment banking and brokerage 7,982 8,567 Securities gains (losses) 1,049 (2,722) Other 18,001 12,446 -------- -------- Total Other Income 88,100 69,795 OTHER EXPENSE Salaries 78,140 73,728 Employee benefits 19,582 18,532 Net occupancy 12,712 11,956 Equipment 13,816 12,472 Intangible asset amortization 4,379 2,822 Other 36,966 84,186 -------- -------- Total Other Expense 165,595 203,696 -------- -------- INCOME BEFORE INCOME TAXES 116,023 32,488 INCOME TAXES 41,028 15,403 -------- -------- NET INCOME $ 74,995 $ 17,085 ======== ======== PER COMMON SHARE DATA Average shares outstanding 76,574,752 78,483,581 Net income $ .98 $ .21 Dividends declared .43 .41 Includes the following nonrecurring acquisition charges: 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.
32 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (THOUSANDS)
MARCH 31 MARCH 31 1997 1996 ------- ------- ASSETS Cash and due from banks $ 941,549 $ 1,029,832 Due from banks--interest bearing 112,905 77,671 Federal funds sold and repurchase agreements 200,011 242,849 Investments in debt and equity securities Trading 65,934 85,797 Available-for-sale (Amortized cost of $4,253,823 and $4,750,945, respectively) 4,246,090 4,767,514 Held-to-maturity (Estimated fair value of $533,648 and $247,921, respectively) 534,994 249,190 ----------- ----------- Total Investments in Debt and Equity Securities 4,847,018 5,102,501 Loans held-for-sale 62,857 88,416 Loans and leases, net of unearned income 15,149,826 13,772,805 ----------- ----------- Total Loans and Leases 15,212,683 13,861,221 Reserve for possible loan losses (231,496) (242,806) ----------- ----------- Net Loans and Leases 14,981,187 13,618,415 Bank premises and equipment 373,189 333,895 Due from customers on acceptances 2,954 6,458 Intangible assets 198,142 123,733 Other assets 421,346 397,634 ----------- ----------- Total Assets $22,078,301 $20,932,988 =========== =========== LIABILITIES Deposits Non-interest bearing $ 2,896,268 $ 2,482,155 Interest bearing 14,180,186 13,780,174 Foreign 277,560 160,478 ----------- ----------- Total Deposits 17,354,014 16,422,807 Federal funds purchased and repurchase agreements 1,675,864 1,475,982 Other short-term borrowings 197,905 223,025 Bank notes 175,000 275,000 Long-term debt 451,982 327,710 Bank acceptances outstanding 2,954 6,458 Other liabilities 338,662 319,441 ----------- ----------- Total Liabilities 20,196,381 19,050,423 Commitments and contingent liabilities -- -- MARCH 31 MARCH 31 1997 1996 -------- -------- SHAREHOLDERS' EQUITY Preferred stock--no par value Shares authorized 5,000 5,000 Shares issued and outstanding -- -- -- -- Common stock--$5.00 par value Shares authorized 100,000 100,000 Shares issued 79,392 78,576 396,963 392,884 Capital surplus 233,384 232,363 Retained earnings 1,435,417 1,254,409 Valuation on available-for-sale securities (2,593) 6,311 Treasury stock, at cost 3,377 87 (181,251) (3,402) ----------- ----------- Total Shareholders' Equity 1,881,920 1,882,565 ----------- ----------- Total Liabilities and Shareholders' Equity $22,078,301 $20,932,988 =========== ===========
33 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK ---------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ----------- ------- --------- ------- ------------ -------- ------------ BALANCE AT DECEMBER 31, 1995 77,877,085 $396,287 $ 12,153 $286,427 $1,281,183 $ (60,557) $1,915,493 Net income 17,085 17,085 Common dividends declared: Mercantile Bancorporation Inc. --$.41 per share (25,885) (25,885) Pooled companies prior to acquisition (5,066) (5,066) 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 Convertible notes 186,678 933 2,182 3,115 Net fair value adjustment for available-for-sale securities (19,444) (19,444) Purchase of treasury stock (525,000) (23,825) (23,825) Reissuance and retirement of treasury stock (6,458) (50,708) 57,166 -- Pre-merger transactions of pooled companies and other (194,239) (971) (7,244) (59) (8,274) ---------- -------- -------- -------- ----------- --------- ---------- BALANCE AT MARCH 31, 1996 78,489,340 $392,884 $ -- $232,363 $1,260,720 $ (3,402) $1,882,565 ========== ======== ======== ======== ========== ========= ========== BALANCE AT DECEMBER 31, 1996 77,486,469 $396,072 $ -- $232,991 $1,400,789 $ (84,201) $1,945,651 Net income 74,995 74,995 Common dividends declared: Mercantile Bancorporation Inc. --$.43 per share (25,892) (25,892) Pooled companies prior to acquisition (5,895) (5,895) Issuance of common stock in acquisition of Regional Bancshares, Inc. 600,417 (474) 361 28,813 28,700 Issuance of common stock for: Employee incentive plans 99,247 200 (532) 2,596 2,264 Convertible notes 2,811 14 33 47 Net fair value adjustment for available-for-sale securities (11,812) (11,812) Purchase of treasury stock (2,309,033) (129,029) (129,029) Pre-merger transactions of pooled companies and other 135,533 677 1,366 278 570 2,891 ---------- -------- -------- -------- ---------- --------- ---------- BALANCE AT MARCH 31, 1997 76,015,444 $396,963 $ -- $233,384 $1,432,824 $(181,251) $1,881,920 ========== ======== ======== ======== ========== ========= ========== Includes valuation on available-for-sale securities.
34 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
THREE MONTHS ENDED MARCH 31 1997 1996 ---------- ---------- OPERATING ACTIVITIES Net income $ 74,995 $ 17,085 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 18,443 34,149 Depreciation and amortization 12,020 11,068 Provision for deferred income taxes 719 8,905 Net change in loans held-for-sale 3,516 6,461 Net change in accrued interest receivable 3,682 2,424 Net change in accrued interest payable 1,330 (11,008) Other, net (19,731) 48,321 ---------- ---------- Net Cash Provided by Operating Activities 94,974 117,405 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (601,357) (472,298) Proceeds from maturities 464,866 317,043 Proceeds from sales of available-for-sale securities 167,779 95,610 Net change in loans and leases (256,495) (39,042) Purchases of loans and leases (33,686) (16) Proceeds from sales of loans and leases 39,806 43,779 Purchases of premises and equipment (14,534) (15,717) Proceeds from sales of premises and equipment 1,444 2,714 Proceeds from sales of foreclosed property 7,322 7,616 Cash and cash equivalents from acquisitions, net of cash paid (8,132) 42,907 Other, net (3,899) 689 ---------- ---------- Net Cash Used by Investing Activities (236,886) (16,715) FINANCING ACTIVITIES Net change in time certificates of deposit under $100,000 (91,306) (76,350) Net change in time certificates of deposit $100,000 and over 87,832 57,366 Net change in other time deposits (68,066) 6,748 Net change in foreign deposits 25,673 (48,692) Net change in other deposits (72,524) 25,009 Net change in short-term borrowings (122,950) (250,256) Issuance of bank notes -- 25,000 Issuance of long-term debt 150,000 1,500 Principal payments on long-term debt (2,802) (13,286) Cash dividends paid (31,787) (31,359) Net proceeds from issuance of common stock from employee incentive plans and pre-merger transactions of pooled companies 1,934 (9,133) Purchase of treasury stock (140,804) (23,825) Redemption of preferred stock -- (12,684) Other, net 3,174 1,275 ---------- ---------- Net Cash Used by Financing Activities (261,626) (348,687) ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (403,538) (247,997) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,658,003 1,598,349 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,254,465 $1,350,352 ========== ==========
35 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 Schedule * * * 36 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. Dated: May 13, 1997 MERCANTILE BANCORPORATION INC. By: /s/ Michael T. Normile ---------------------------------------- Michael T. Normile Senior Vice President Finance and Control 37 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (23) Consent of KPMG Peat Marwick LLP (27) Financial Data Schedule
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. 33-50579, No. 33-50981, No. 33-55439, No. 33-56603, No. 33-58467, No. 33-63609, No. 33-65087, No. 333-09803, No. 333-17757 and No. 333-23607, each on Form S-4, of Mercantile Bancorporation Inc. of our report dated May 13, 1997, relating to the supplemental consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1996, 1995, and 1994, 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, 1996, which report appears in the Current Report on Form 8-K dated May 13, 1997 of Mercantile Bancorporation Inc. s/ KPMG Peat Marwick LLP St. Louis, Missouri May 13, 1997 EX-27.1 3 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1,296,053 96,453 265,498 31,272 4,149,674 565,045 567,152 14,952,630 230,372 22,030,379 17,336,451 1,987,264 281,182 304,831 0 0 311,871 1,633,780 22,030,379 1,229,656 306,342 16,865 1,552,863 603,989 724,910 827,953 73,015 (83) 718,668 373,750 373,750 0 0 245,215 3.17 3.17 4.34 66,959 33,960 5,260 55,268 232,288 104,589 19,852 230,372 230,372 0 51,338
EX-27.2 4 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 941,459 112,905 200,011 65,934 4,246,090 534,994 533,648 15,212,683 231,496 22,078,301 17,354,014 1,873,769 341,616 451,982 0 0 215,712 1,666,208 22,078,301 321,271 73,282 3,909 398,462 153,762 186,501 211,961 18,443 1,049 165,595 116,023 116,023 0 0 74,995 .98 .98 4.36 79,545 31,856 5,196 0 230,372 24,797 5,863 231,496 231,496 0 0 Only reported at fiscal year-end date.
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