-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ENZ/6K6g/1aHJ7gHA6ajHH3r6rLcnxRhQXT4bnAuxPpZwRCN+6kkKV+zhf9tbUD/ E5dIte0zsBxDwOn/pz9dAA== 0000950114-94-000050.txt : 19940404 0000950114-94-000050.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950114-94-000050 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-11792 FILM NUMBER: 94519671 BUSINESS ADDRESS: STREET 1: ONE MECANTILE CENTER STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P.O. BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 10-K 1 MERCANTILE BANCORPORATION'S FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-K ----------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NO. 1-11792 MERCANTILE BANCORPORATION INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 43-0951744 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.) P.O. BOX 524 63166-0524 ST. LOUIS, MISSOURI (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-425-2525 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EXCHANGE ON WHICH REGISTERED: (1) COMMON STOCK ($5.00 PAR VALUE) (1) NEW YORK STOCK EXCHANGE (2) PREFERRED STOCK PURCHASE RIGHTS (2) NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [X] STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON- AFFILIATES OF THE REGISTRANT AS OF MARCH 10, 1994: COMMON STOCK, $5.00 PAR VALUE, $1,197,523,121 INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF MARCH 10, 1994: COMMON STOCK $5.00 PAR VALUE, 28,670,845 SHARES OUTSTANDING (EQUAL TO 43,006,267 SHARES, AS ADJUSTED FOR THREE-FOR-TWO STOCK SPLIT EFFECTIVE APRIL 11, 1994) DOCUMENTS INCORPORATED BY REFERENCE AS PROVIDED HEREIN, PORTIONS OF THE DOCUMENTS BELOW ARE INCORPORATED BY REFERENCE: DOCUMENT PART--FORM 10-K -------- --------------- ANNUAL REPORT OF THE REGISTRANT TO ITS SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1993 PARTS I, II, IV PROXY STATEMENT FOR THE 1994 ANNUAL MEETING OF SHAREHOLDERS. PART III 2 PART I ITEM I. BUSINESS THE COMPANY Mercantile Bancorporation Inc. ("Mercantile" or "Registrant") is a holding company which, as of March 10, 1994, owned all the stock (except for directors' qualifying shares) of Mercantile Bank of St. Louis National Association ("Mercantile Bank"), 40 commercial banks located throughout Missouri, southern Illinois, eastern Kansas, and northern Iowa, one savings and loan association located in St. Louis, Missouri and other non-banking subsidiaries. At December 31, 1993, Mercantile's consolidated assets were $10,513,114,000, consolidated loans were $6,286,445,000, consolidated deposits were $8,235,480,000 and consolidated shareholders' equity was $841,116,000. At December 31, 1993, Mercantile Bank and its consolidated subsidiaries had assets of $5,055,237,000, loans of $2,707,374,000, deposits of $3,318,631,000 and shareholder's equity of $378,193,000. On February 10, 1994 the Board of Directors declared a three-for-two stock split in the form of a stock dividend. The dividend is payable April 11, 1994 to shareholders of record as of close of business on March 10, 1994. All share amounts have been restated to give effect to the stock dividend. Mercantile has its principal offices at P.O. Box 524, St. Louis, Missouri 63166-0524 (telephone number 314-425-2525). BUSINESS GENERAL Mercantile was organized on March 10, 1970, as a Missouri corporation for the purpose of becoming a multi-bank holding company. Mercantile commenced operations as a bank holding com- pany in March 1971. Since then Mercantile has acquired and organized additional banks, bank holding companies and a savings and loan, located throughout Missouri, southern Illinois, eastern Kansas, and northern Iowa. FINANCIAL SUMMARY OF MERCANTILE A financial summary of Mercantile and its consolidated subsidiaries is detailed below:
DECEMBER 31 ---------------------------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (THOUSANDS) Total assets $10,513,114 $10,577,811 $9,116,049 $8,561,854 $7,874,708 Total loans and leases 6,286,445 6,512,093 5,985,211 5,983,991 5,438,656 Investments in debt 2,938,076 2,803,454 1,900,784 1,376,742 1,328,232 and equity securities Deposits 8,235,480 8,487,592 7,382,576 6,987,728 6,273,260 Shareholders' equity 841,116 732,014 606,238 490,375 451,588
SUBSIDIARIES The table setting forth the names and locations of Mercantile's subsidiary financial institutions as well as their total assets, shareholder's equity and return on assets as of December 31, 1993, is included on page 10 in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, and is incorporated herein by reference. 1 3 Mercantile acquired a number of subsidiaries in transactions that closed in 1993 and in the first two months of 1994. Most recently, effective February 1, 1994, Mercantile acquired United Postal Bancorp, Inc. ("UPBI"), the holding company for United Postal Savings Association ("UPSA"), with assets totalling $1.3 billion. UPSA is a Missouri-chartered savings association which offers a wide variety of financial services to retail customers. UPSA is headquartered in St. Louis, Missouri, with 21 branch offices, concentrated primarily in the St. Louis metropolitan area. Approximately 5,626,000 shares of Mercantile common stock were issued in the transaction, which was accounted for as a pooling-of-interests. Effective January 3, 1994, Mercantile acquired Metro Bancorporation ("Metro"), a Waterloo, Iowa-based holding company for The Waterloo Savings Bank, with assets totaling $370 million. A total of 1,638,278 shares of Mercantile common stock was issued in the transaction, which was accounted for as a pooling-of- interests. On September 1, 1993, Mercantile completed a merger with Mt. Vernon Bancorp, Inc. ("Mt. Vernon"), a $113,128,000- asset holding company for First Bank and Trust Co. in Mt. Vernon, Illinois. The total cost of the acquisition was $1,805,000 in cash and 216,936 shares of Mercantile common stock. On April 1, 1993, Mercantile completed its acquisition of the $70,725,000- asset First National Bank of Flora ("Flora") in Clay County, Illinois. The total cost of the acquisition was $3,004,000 in cash and 232,503 shares of Mercantile common stock. The Mt. Vernon and Flora acquisitions were accounted for as purchases. On January 4, 1993, Mercantile consummated its acquisition of MidAmerican Corporation ("MidAmerican"), Crown Bancshares II, Inc. ("Crown II"), and Johnson County Bankshares, Inc. ("JCB"), each a Kansas corporation and a bank holding company registered under the Bank Holding Company Act of 1956, as amended (collectively the "Kansas Companies"). Total assets of the Kansas Companies at acquisition were $1,102,906,000. The total cost of the acquisition was 4,736,424 shares of Mercantile common stock. The acquisition of the Kansas companies was accounted for as a pooling-of-interests. SERVICES AND TRANSACTIONS WITH SUBSIDIARIES Mercantile provides its subsidiaries with advice and specialized services in the areas of accounting and taxation, budgeting and strategic planning, employee benefits and human resources, insurance, operations, marketing, credit analysis and administration, loan support and participations, investments, auditing, trust, data processing, bank security and banking and corporate law. A fee is charged by Mercantile for these services. The responsibility for the management of each subsid- iary remains with its Board of Directors and with the officers elected by each Board. Intercompany transactions between Mercantile and its sub- sidiaries are subject to restrictions of existing banking and savings and loan laws and accepted principles of fair dealing. Mercantile had 149 full-time equivalent employees at December 31, 1993. Mercantile uses the premises of Mercantile Bank for its offices. Mercantile pays Mercantile Bank a fee for services furnished to it. EMPLOYEES At December 31, 1993, Mercantile and its subsidiaries had 5,261 full-time equivalent employees. Mercantile provides a variety of employment benefits and believes it enjoys a good relationship with its employees. OPERATIONS Financial Services. Through its subsidiary financial institutions, Mercantile offers complete banking and trust services to the commercial, industrial and agricultural areas which it serves. Services include commercial, real estate, installment and credit card loans, checking, savings and time deposits, trust and other fiduciary services, and various other customer services such as bond trading, direct equipment lease financing, international banking and safe deposit services. Most subsidiary financial institutions serve only the general area in which they are located, predominantly in the 7th, 8th and 10th Federal Reserve Districts. In general, UPSA and the smaller subsidiary banks are engaged primarily in retail banking, with most of the business and commercial activities centered in the larger subsidiary banks. Membership in Mercantile's subsidiary group provides each subsidiary institution with a means of satisfying the credit needs of its customers beyond its own legal lending limit. 2 4 Correspondent Banking. In addition to Mercantile's services for individuals and corporations, its largest subsidiary bank, Mercantile Bank, is a bankers' bank. Mercantile Bank is a correspondent bank for 598 commercial banks located throughout the United States. Correspondent banking services to banks in Kansas and western Missouri are provided through Mercantile Bank of Kansas City and Mercantile Bank of Topeka National Association. In addition, Mercantile Bank of Joplin National Association provides correspondent services for banks in its area. Correspondent banking services include the processing of checks and collection items, overline loan assistance, investment advice and assistance with training and operations. Trust and Investment Advisory Services. Mercantile, through its subsidiaries, offers clients all types of fiduciary services, ranging from the management of funds for individuals, corporate retirement plans and charitable foundations to the administration of estates and trusts. To investors it offers portfolio manage- ment, advisory and custodian services. For corporations, governmental bodies and public authorities, Mercantile subsidiaries act as fiscal and paying agent, transfer agent, registrar and trustee under corporate indentures and pension and profit sharing trust agreements. Mercantile Trust Company National Association is a newly-formed, nationally-chartered bank which provides individual trust services. All of the accounts in the Individual Trust Services divisions of Mercantile Bank were transferred to Mercantile Trust Company National Association on February 2, 1994. Mississippi Valley Advisors Inc., a subsidiary of Mercantile Bank, provides investment advisory services for employee benefit funds, including pension and profit-sharing plans, endowment funds and registered mutual funds. At December 31, 1993, Mercantile subsidiaries managed investments with a market value of approximately $12.1 billion and administered an additional $4.8 billion in custody accounts. Certain of Mercantile's subsidiary banks provide trust and investment services to individual and corporate customers with assistance from Mercantile Bank. Investment and Underwriting Activities. Mercantile Bank offers a wide range of investment services to individuals, corporations, correspondent banks and others. Included in those services are foreign exchange, derivative products, money market and bond trading operations which serve banks and corporations in the purchase and sale of the various investments and/or hedging instruments. In addition, Mercantile Bank is registered as a municipal securities dealer and is an underwriter and distributor of state and local government securities. Brokerage Services. Mercantile Investment Services, Inc. ("MISI"), a subsidiary of Mercantile Bank, is a registered broker/dealer and a member of both the National Association of Securities Dealers, Inc. ("NASD") and the Securities Investors Protection Corporation ("SIPC"). MISI currently offers brokerage services, including execution of transactions involving stocks, bonds, options, mutual funds and other securities. International. Mercantile Bank maintains accounts at 37 foreign banks, and 42 foreign banks maintain accounts at Mercantile Bank. In addition, Mercantile Bank is engaged in providing its customers with international banking services. Mercantile Bank and Mercantile Bank of Kansas City offer a wide range of services to their customers involved in international business including currency exchange and letters of credit. Customers of other subsidiary banks with a need for such services are referred to these banks. Mercantile Bank maintains a branch in the City of Georgetown in the Grand Cayman Islands. This branch enables Mercantile Bank to participate in the Eurodollar market for deposits and loans. At December 31, 1993, total deposits of the foreign branch amounted to $44,475,000. COMPETITION Mercantile's subsidiary financial institutions are subject to intense competition from other banks and financial institutions in their service areas, predominantly the 7th, 8th and 10th Federal Reserve Districts. In making loans, substantial competi- tion is encountered from banks and other lending institutions such as savings and loan associations, insurance companies, finance companies, credit unions, factors, small loan companies and pension trusts. In addition, Mercantile subsidiaries compete for retail deposits with savings and loan associations, credit unions and money market mutual funds. The competition provided by other financial institutions is not limited to those institutions with offices located in the area served by the particular subsidiary. Many other institutions also offer some or all of the trust and fiduciary services performed by Mercantile's subsidiaries. Mercantile Bank competes with all local institutions and, in the field of corporate pension trust services, competition is nationwide. 3 5 Missouri law allows Missouri banks and bank holding companies to acquire, and be acquired by, similar entities in states contiguous to Missouri which have reciprocal laws. To date, Mercantile has made acquisitions in Illinois, Kansas and Iowa. At March 10, 1994, all states contiguous to Missouri had enacted laws permitting interstate acquisitions on a regional or nationwide, reciprocal or nonreciprocal basis, and all such laws were in effect as of such date. In addition, a number of other non-contiguous states have enacted laws which allow acquisitions of banks and bank holding companies located therein by similar entities regardless of location or reciprocity of law in such entities' domicile state. 4 6 STATISTICAL DISCLOSURES The following statistical disclosures, except as noted, are included in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, and incorporated herein by reference.
ANNUAL REPORT SCHEDULE REFERENCE -------- ------------- I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL A. Average Balance Sheets Page 64 B. Analysis of Net Interest Earnings (included herein at page 6) N/A C. Taxable-equivalent Rate-Volume Analysis (included herein at page 6) N/A II. INVESTMENT PORTFOLIO A. Book Value by Type of Security Footnote E, Page 52 B. Maturity Distribution (included herein at page 7) N/A III. LOAN PORTFOLIO A. Types of Loans Exhibit 23, Page 30 B. Maturities and Sensitivities to Changes in Interest Rates Exhibit 23, Page 30 C. Risk Elements 1. Non-accrual, Past Due and Restructured Loans Exhibit 28, Page 34 Exhibit 29, Page 35 Footnote A, Pages 48, 49 2. Potential Problem Loans Commentary, Page 36 3. Foreign Outstandings Commentary, Page 24 IV. SUMMARY OF LOAN LOSS EXPERIENCE A. Reserve for Possible Loan Losses Exhibit 25, Page 31 Commentary, Page 32 Footnote A, Pages 48, 49 B. Allocation of the Reserve for Possible Loan Losses Exhibit 27, Page 33 V. DEPOSITS A. Average Balances and Rates Paid by Deposit Category Page 64 B. Maturity Distribution of Certain CDs and Time Deposits Exhibit 13, Page 23 VI. RETURN ON EQUITY AND ASSETS Exhibit 2, Page 13 VII. SHORT-TERM BORROWINGS (included herein at page 8) N/A
5 7 - ------------------------------------------------------------------------------------------------------------------------------------ TAXABLE-EQUIVALENT RATE-VOLUME ANALYSIS ($ IN MILLIONS)
INCREASE (DECREASE) ---------------------------------------- AVERAGE VOLUME AVERAGE RATE(1) INTEREST 1992 TO 1993 1991 TO 1992 - --------------------- -------------------- ---------------- ---------------------------------------- 1993 1992 1991 1993 1992 1991 1993 1992 1991 RATE(2) VOL. TOTAL RATE(2) VOL. TOTAL - ---- ---- ---- ---- ---- ---- ---- ---- ---- ------- ---- ----- ------- ---- ----- INTEREST INCOME Loans and leases(3) $1,964 $2,009 $1,931 6.50% 7.04% 8.70% Commercial $128 $141 $168 $(10) $ (3) $(13) $ (33) $ 6 $(27) 1,257 1,262 1,097 7.98 8.31 9.74 Real estate--commercial 100 105 107 (4) (1) (5) (18) 16 (2) 151 163 146 7.47 7.95 9.70 Real estate--construction 11 13 14 (1) (1) (2) (3) 2 (1) 1,548 1,683 1,460 8.12 8.83 10.08 Real estate--residential 126 148 147 (11) (11) (22) (21) 22 1 828 840 820 8.97 9.74 10.71 Consumer 74 82 88 (6) (2) (8) (8) 2 (6) 643 504 413 16.38 16.40 16.16 Credit card 105 83 67 - 22 22 1 15 16 1 2 2 6.72 6.91 9.46 Foreign - - - - - - - - - - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- 6,392 6,463 5,869 8.52 8.86 10.07 Total Loans and Leases 544 572 591 (32) 4 (28) (82) 63 (19) Investments in debt and equity securities 14 12 19 5.30 5.75 6.95 Trading 1 1 1 - - - - - - 2,657 2,256 1,357 5.77 6.88 8.60 Taxable 154 155 116 (29) 28 (1) (38) 77 39 204 168 119 7.99 9.29 9.82 Tax-exempt 16 16 12 (3) 3 - (1) 5 4 - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- 2,875 2,436 1,495 5.93 7.04 8.67 Total 171 172 129 (32) 31 (1) (39) 82 43 Short-term investments Federal funds sold and 236 182 181 3.24 4.02 5.71 repurchase agreements 7 7 11 (2) 2 - (4) - (4) Due from banks--interest 74 117 158 3.54 5.04 6.99 bearing 3 6 11 (1) (2) (3) (2) (3) (5) - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- Total Short-term 310 299 339 3.32 4.42 6.31 Investments 10 13 22 (3) - (3) (6) (3) (9) - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- $9,577 $9,198 $7,703 7.57 8.23 9.63 Total Interest Income(1) $725 $757 $742 $(67) $ 35 $(32) $(127) $142 $ 15 ====== ====== ====== ==== ==== ==== ==== ==== ==== ===== ==== ==== INTEREST EXPENSE Interest Bearing Deposits $1,349 $1,132 $ 798 2.10 2.96 4.57 Interest bearing demand $ 28 $ 34 $ 36 $(12) $ 6 $ (6) $ (17) $ 15 $ (2) 1,435 1,342 986 2.76 3.39 5.28 Money market accounts 40 46 52 (9) 3 (6) (25) 19 (6) 676 571 401 2.54 3.31 4.68 Savings 17 19 19 (5) 3 (2) (8) 8 - Consumer time certificates 2,815 3,138 2,949 4.54 5.58 7.11 under $100,000 128 175 209 (29) (18) (47) (47) 13 (34) 82 106 78 2.75 3.27 4.80 Other time 2 3 4 - (1) (1) (1) - (1) - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- Total Interest Bearing 6,357 6,289 5,212 3.39 4.40 6.15 Core Deposits 215 277 320 (55) (7) (62) (98) 55 (43) Time certificates 428 522 542 3.79 4.65 6.24 $100,000 and over 16 24 34 (4) (4) (8) (8) (2) (10) 31 23 31 4.38 3.71 6.14 Foreign 2 1 2 1 - 1 (1) - (1) - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- 459 545 573 3.83 4.61 6.24 Total Purchased Deposits 18 25 36 (3) (4) (7) (9) (2) (11) - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- Total Interest Bearing 6,816 6,834 5,785 3.42 4.42 6.16 Deposits 233 302 356 (58) (11) (69) (107) 53 (54) 776 742 688 2.86 3.45 5.50 Short-term borrowings 22 25 38 (4) 1 (3) (15) 2 (13) 222 177 134 7.74 8.96 10.11 Long-term debt 17 16 14 (3) 4 1 (2) 4 2 - ------ ------ ------ ---- ---- ---- ---- ---- ---- ----- ---- ---- $7,814 $7,753 $6,607 3.48 4.43 6.17 Total Interest Expense $272 $343 $408 $(65) $ (6) $(71) $(124) $ 59 $(65) ====== ====== ====== ==== ==== ==== ==== ==== ==== ===== ==== ==== 4.09 3.80 3.46 NET INTEREST RATE SPREAD NET INTEREST RATE MARGIN AND NET INTEREST 4.73 4.50 4.34 INCOME(1) $453 $414 $334 ==== ==== ==== (1) Taxable-equivalent basis. Includes tax-equivalent adjustments of $7,766,000, $8,784,000 and $7,709,000 for 1993, 1992 and 1991, respectively, based on Federal income tax rates of 35% for 1993 and 34% for 1992 and 1991. (2) The rate-volume variance is allocated entirely to rate. (3) Income from loans on non-accrual status is included in loan income on a cash basis, while non-accrual loan balances are included in average volume. - -----------------------------------------------------------------------------------------------------------------------------------
6 8 - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENTS IN DEBT AND EQUITY SECURITIES(1) ($ IN THOUSANDS)
DECEMBER 31, 1993 AVAILABLE-FOR-SALE HELD-TO-MATURITY -------------------------------------- --------------------------------------- ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE YIELD(2) COST VALUE YIELD(2) --------- --------- -------- --------- --------- -------- U.S. TREASURY Within one year $ 302 $ 303 4.13% $ 591,724 $ 596,458 4.99% One to five years 52,113 52,704 4.80 617,616 621,478 4.67 Five to 10 years - - - 519 533 7.62 After 10 years - - - - - - -------- ------- --------- --------- Total 52,415 53,007 4.79 1,209,859 1,218,469 4.83 Average Maturity 1 yr. 6 mo. 1 yr. 5 mo. U.S. GOVERNMENT AGENCIES(3) Within one year 6,110 6,218 7.33 258,587 260,897 5.47 One to five years 126,977 127,924 5.60 696,168 704,800 5.54 Five to 10 years 7,862 7,900 6.42 136,277 149,643 9.42 After 10 years - - - 5,854 6,249 6.44 -------- ------- ---------- ---------- Total 140,949 142,042 5.72 1,096,886 1,121,589 6.01 Average Maturity 2 yr. 6 mo. 2 yr. 7 mo. OBLIGATIONS OF STATE AND POLITICAL SUBDIVISIONS Within one year 1,110 1,133 9.06 15,645 15,798 7.55 One to five years 4,961 5,223 8.69 202,542 205,440 6.16 Five to 10 years 5,147 5,527 8.42 69,542 73,115 8.52 After 10 years 3,041 3,290 9.01 14,187 14,621 10.38 -------- -------- ---------- ---------- Total 14,259 15,173 8.69 301,916 308,974 6.97 Average Maturity 6 yr. 4 mo. 4 yr. 6 mo. OTHER(2) Within one year 359 351 6.30 55,128 55,707 6.16 One to five years - - - 15,871 16,070 5.62 Five to 10 years - - - 2,782 2,842 6.78 After 10 years - - - - - - -------- ------- --------- --------- Total 359 351 6.30 73,781 74,619 6.07 -------- -------- ---------- ---------- Average Maturity 5 mo. 10 mo. TOTAL INTEREST-EARNING INVESTMENTS(3) Within one year 7,881 8,005 7.40 921,084 928,860 5.24 One to five years 184,051 185,851 5.46 1,532,197 1,547,788 5.27 Five to 10 years 13,009 13,427 7.21 209,120 226,133 9.08 After 10 years 3,041 3,290 9.01 20,041 20,870 9.23 -------- -------- ---------- ---------- Total 207,982 210,573 5.69 2,682,442 2,723,651 5.59 Average Maturity 2 yr. 6 mo. 2 yr. 3 mo. FEDERAL RESERVE BANK STOCK AND OTHER EQUITY INVESTMENTS 13,565 16,569 7.64 12,757 12,757 3.76 -------- -------- ---------- ---------- TOTAL PORTFOLIO $221,547 $227,142 5.81 $2,695,199 $2,736,408 5.58 ======== ======== ========== ========== (1) This exhibit excludes trading securities, which are reported at estimated fair value on the Consolidated Balance Sheet. Trading securities totaled $15,735,000, $17,684,000 and $23,637,000 at December 31, 1993, 1992 and 1991, respectively. (2) Taxable-equivalent basis. (3) Maturities of asset-backed obligations are based on the remaining weighted average maturities. - -------------------------------------------------------------------------------------------------------------------------------
7 9 - ------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM BORROWINGS ($ IN THOUSANDS)
1993 1992 1991 -------------------------- -------------------------- ------------------------- AVERAGE AVERAGE AVERAGE AMOUNT RATE MATURITY AMOUNT RATE MATURITY AMOUNT RATE MATURITY ------ ---- -------- ------ ---- -------- ------ ---- -------- AT YEAR-END Federal funds purchased and repurchase agreements $ 551,824 2.52% 3 DAYS $715,331 2.62% 10 days $572,245 3.72% 2 days Treasury tax and loan notes 502,260 2.75 3 DAYS 215,521 2.62 4 days 253,074 3.69 2 days Commercial paper 18,390 3.25 18 DAYS 9,198 3.32 19 days 7,928 4.75 10 days Other short-term borrowings - - N/A 574 5.08 4 days 434 5.67 2 days ---------- -------- -------- Total Short-term Borrowings $1,072,474 2.64 3 DAYS $940,624 2.63 8 days $833,681 3.73 2 days ========== ======== ======== AVERAGE FOR THE YEAR Federal funds purchased and repurchase agreements $512,982 2.94% $588,407 3.49% $549,014 5.49% Treasury tax and loan notes 239,643 2.65 129,618 3.24 116,780 5.46 Commercial paper 22,629 3.24 11,924 3.49 19,293 5.89 Other short-term borrowings 569 5.27 11,510 3.99 3,515 4.64 -------- -------- -------- Total Short-term Borrowings $775,823 2.86 $741,459 3.45 $688,602 5.50 ======== ======== ======== MAXIMUM MONTH-END BALANCE Federal funds purchased and repurchase agreements $ 729,487 $ 801,319 $693,778 Treasury tax and loan notes 506,836 213,262 228,969 Commercial paper 32,621 16,025 17,291 Other short-term borrowings 14,390 297 3,376 - -------------------------------------------------------------------------------------------------------------------------------
8 10 ITEM 2. PROPERTIES Mercantile and Mercantile Bank occupy 22 stories of the Mercantile Tower, a 35-story building owned by Mercantile Bank and located at Seventh and Washington Streets in St. Louis, Missouri. Among the other properties owned by Mercantile Bank are a four story, 91,170 usable square foot off-site office building located at 12443 Olive Boulevard, Creve Coeur, Missouri, which houses Mercantile's credit card, mortgage loan, and asset- based lending operations; a four-story, 222,400 usable square foot off-site processing center located at 1005 Convention Plaza in St. Louis, Missouri, which houses most other operational functions of Mercantile; and a four-story building located at 721 Locust Street, St. Louis, Missouri, which has 101,827 square feet of usable office space and houses Mercantile Bank. Mercantile's subsidiaries own and lease other facilities in Missouri, Illinois, Kansas and Iowa. See Note G to the consolidated financial statements included on page 53 in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, which is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT See Part III, Item 10. 9 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Information concerning the Common Stock of the Registrant, included on page 66 in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data, included as Exhibit 1 on page 12 in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations, included on pages 12 through 41 in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements, included in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, are incorporated herein by reference.
ANNUAL REPORT STATEMENT REFERENCE --------- ------------- Independent Auditors' Report Page 43 Consolidated Statement of Income - Years ended December 31, 1993, 1992 and 1991. Page 44 Consolidated Balance Sheet - December 31, 1993, 1992 and 1991. Page 45 Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 1993, 1992 and 1991. Page 46 Consolidated Statement of Cash Flows - Years ended December 31, 1993, 1992 and 1991. Page 47 Notes to Consolidated Financial Statements. Pages 48 - 61
Selected Quarterly Financial Data, included as Exhibit 34 on page 41 in the Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993, is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 10 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors is contained in "Election of Directors" and "Beneficial Ownership of Stock by Management," included in the Proxy Statement for the 1994 Annual Meeting of Shareholders, which information is incorporated herein by reference. The following is a list, as of March 10, 1994, of the names and ages of the executive officers of Mercantile and all positions and offices with Mercantile presently held by the person named. There is no family relationship between any of the named persons.
ALL POSITIONS AND OFFICES NAME AGE HELD WITH MERCANTILE ---- --- ------------------------- Thomas H. Jacobsen 54 Chairman of the Board and Chief Executive Officer Ralph W. Babb, Jr. 45 Vice Chairman W. Randolph Adams 49 Executive Vice President and Chief Financial Officer John Q. Arnold 50 Executive Vice President and Chief Credit Officer John H. Beirise 48 President and Chief Institutional Banking Officer, Mercantile Bank John W. McClure 48 Executive Vice President Michael J. Gorman 57 Chairman, Mercantile Bank Arthur G. Heise 45 Senior Vice President and Auditor Richard C. King 49 President, CEO and Director, Mercantile Bank of Kansas City President, CEO and Director, Mercantile Bank of Kansas Michael T. Normile 44 Senior Vice President and Treasurer Jon P. Pierce 53 Senior Vice President Patrick Strickler 50 Senior Vice President Jon W. Bilstrom 47 General Counsel and Secretary
The executive officers were appointed by and serve at the pleasure of the Board of Directors of Mercantile. Each of the officers named above, except Messrs. Heise, Normile and Strickler, serve on the Mercantile Management Executive Committee. Messrs. Jacobsen, Babb, McClure, Heise and Normile have served as executive officers of either Mercantile or Mercantile Bank for the last five years. From 1974 until his start with Mercantile in February 1991, Mr. Adams was employed by the international consulting firm, CRESAP, a Towers Perrin Company, most recently as Vice President/Partner in charge of its financial institutions practice. Mr. Arnold was employed by Harris Trust & Savings Bank for twenty-four years, most recently as Senior Vice President and Deputy Chief Credit Officer, before joining Mercantile in February 1991. Prior to joining Mercantile in April 1992, Mr. Beirise was employed by Continental Bank N.A. for twenty-four years, most recently as Managing Director, Corporate Banking. Mr. Gorman was Executive Vice President and Secretary of UPSA from 1971 through July 1991. From August 1991 through January 1994, he was President and Chief Executive Officer of UPSA. Mr. King served as Chairman of the Board, Chief Executive Officer and President of MidAmerican Corporation from 1989 until January 1993. Prior to 1989, Mr. King held the same positions with MidAmerican Corporation's predecessor, Merchants Bancorporation. Mr. Pierce was employed by Kaiser Aluminum and Chemical Corporation from 1973 until he was hired by Mercantile in October 11 13 1989, most recently as Corporate Vice President, Human Resources. Mr. Strickler was the President of Patrick Strickler & Associates from August 1985 through September 1988. From September 1988 until starting with Mercantile in April 1990, Mr. Strickler served as Senior Vice President of Golin-Harris Company. Mr. Bilstrom was a partner in the law firm of Katten Muchin & Zavis from 1983 through May 1990, when he joined Mercantile as General Counsel and Secretary. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is contained in "Compensation of Executive Officers," included in the Proxy Statement for the 1994 Annual Meeting of Shareholders, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is contained in "Voting Securities and Principal Holders Thereof" and "Beneficial Ownership of Stock by Management," included in the Proxy Statement for the 1994 Annual Meeting of Shareholders, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is contained in "Interest of Management and Others in Certain Transactions" included in the Proxy Statement for the 1994 Annual Meeting of Shareholders, which is incorporated herein by reference. 12 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements: Incorporated herein by reference, are listed in Item 8 hereof. (2) Financial Statement Schedules: None. (3) Exhibits: No. 3-1 Restated Articles of Incorporation of the Registrant, as amended and currently in effect, filed as Exhibit 3.1 to Regis- trant's Registration Statement No. 33- 63196, are incorporated herein by reference. No. 3-2 By-Laws of the Registrant, as amended and currently in effect, filed as Exhibit 3(ii) to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, are incorporated herein by reference. No. 4-1 Form of Indenture Regarding Subordinated Securities between the Registrant and The First National Bank of Chicago as Trustee, filed on March 31, 1992 as Exhibit 4.1 to Registrant's Report on Form 8-K dated September 24, 1992, is incorporated herein by reference. No. 4-2 Rights Agreement dated as of May 23, 1988, between Registrant and Mercantile Bank, as Rights Agent (including as exhibits thereto the form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock and the form of Rights Certificate) filed on May 24, 1988, as Exhibits 1 and 2 to Registrant's Registration Statement on Form 8-A, is incorporated herein by reference. No. 10-1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed as Exhibit 10-3 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. No. 10-2 Deferred Compensation Plan for Directors of Mercantile Bancorporation Inc. and Subsidiaries, filed as Exhibit 10-3 to Registrant's Report on Form 10-K for the year ended December 31, 1983, is incor- porated herein by reference. No. 10-3 Retirement Plan for Directors of Mercantile Bancorporation Inc, filed as Exhibit 10-5 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. No. 10-4 The Mercantile Bancorporation Inc. Execu- tive Incentive Compensation Plan, filed as Exhibit 10-6 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. No. 10-5 The Mercantile Bancorporation Inc. Employ- ee Stock Purchase Plan, filed as Exhibit 10-7 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. No. 10-6 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-7 to Registrant's Report on Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. No. 10-7 Form of Employment Agreement for Thomas H. Jacobsen, as amended, filed as Exhibit 10-8 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. No. 10-8 Form of Employment Agreement for Ralph W. Babb, Jr., John W. McClure, W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-9 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. 13 15 No. 10-9 Form of Change of Control Employment Agreement for Ralph W. Babb, Jr., John W. McClure, W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-10 to Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. No. 10-10 Agreement and Plan of Reorganization dated August 17, 1993, by and among Registrant and United Postal Bancorp, Inc., filed as Exhibit 2.1 to Registration Statement No. 33-50981, is incorporated herein by reference. No. 10-11 Agreement and Plan of Reorganization dated July 1, 1992, by and among Registrant and MidAmerican Corporation, Crown Bancshares II, Inc. and Johnson County Bankshares, Inc., filed as Exhibit 2.1 to Registration Statement No. 33-52986, is incorporated herein by reference. No. 10-12 Mercantile Bancorporation Inc. Supplemental Retirement Plan, filed as Exhibit 10-12 to Registrant's Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. No. 13 Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993. No. 21 Subsidiaries of the Registrant as of March 10, 1994. No. 23 Consent of KPMG Peat Marwick. No. 24 Power of Attorney. (b) Reports on Form 8-K: Registrant filed one report on Form 8-K during the quarter ended December 31, 1993. The Form 8-K, dated November 15, 1993, included, pursuant to Item 5 and Item 7, updated financial statements and pro forma financial information as listed below: (I) HISTORICAL FINANCIAL STATEMENTS OF UPBI Consolidated Balance Sheet as of September 30, 1993 (Unaudited) Consolidated Statements of Operations for the nine months ended September 30, 1993 and 1992 (Unaudited) Consolidated Statements of Cash Flows for the nine months ended September 30, 1993 and 1992 (Unaudited) Notes to Consolidated Financial Statements (Unaudited) (II) PRO FORMA FINANCIAL INFORMATION OF REGISTRANT SHOWING THE COMBINED EFFECT OF THE CONSUMMATED ACQUISITION OF MT. VERNON AND THE THEN PENDING ACQUISITIONS OF METRO AND UPBI: Pro Forma Combined Consolidated Balance Sheet as of September 30, 1993 (Unaudited) Pro Forma Combined Consolidated Income Statement for the nine months ended September 30, 1993 (Unaudited) Pro Forma Combined Consolidated Income Statement for the nine months ended September 30, 1992 (Unaudited) Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited) 14 16 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERCANTILE BANCORPORATION INC. (Registrant) Date: March 29, 1994 By: s/Thomas H. Jacobsen -------------------------- Thomas H. Jacobsen Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- s/Thomas H. Jacobsen Chairman of the Board March 29, 1994 - ---------------------------- and Chief Executive Officer (Thomas H. Jacobsen) Principal Executive Officer s/W. Randolph Adams Chief Financial Officer March 29, 1994 - ---------------------------- (W. Randolph Adams) Principal Financial Officer s/Michael T. Normile Treasurer March 29, 1994 - ---------------------------- (Michael T. Normile) Principal Accounting Officer * Director March 29, 1994 - ---------------------------- (Richard P. Conerly) * Director March 29, 1994 - ---------------------------- (Harry M. Cornell, Jr.) * Director March 29, 1994 - ---------------------------- (Earl K. Dille) * Director March 29, 1994 - ---------------------------- (J. Cliff Eason) * Director March 29, 1994 - ---------------------------- (Bernard A. Edison) * Director March 29, 1994 - ---------------------------- (William A. Hall) 15 17 * Director March 29, 1994 - ---------------------------- (Thomas A. Hays) * Director March 29, 1994 - ---------------------------- (William G. Heckman) * Director March 29, 1994 - ---------------------------- (James B. Malloy) * Director March 29, 1994 - ---------------------------- (Charles H. Price II) * Director March 29, 1994 - ---------------------------- (Harvey Saligman) * Director March 29, 1994 - ---------------------------- (Craig D. Schnuck) * Director March 29, 1994 - ---------------------------- (Robert W. Staley) * Director March 29, 1994 - ---------------------------- (Robert L. Stark) * Director March 29, 1994 - ---------------------------- (Patrick T. Stokes) * Director March 29, 1994 - ---------------------------- (Francis A. Stroble) * Director March 29, 1994 - ---------------------------- (Joseph G. Werner) * Director March 29, 1994 - ---------------------------- (John A. Wright)
*By s/Thomas H. Jacobsen -------------------------- Thomas H. Jacobsen Attorney-in-Fact *Thomas H. Jacobsen, by signing his name hereto, does sign this document on behalf of the persons named above, pursuant to a power of attorney duly executed by such persons, filed herewith as Exhibit 24. 16 18 INDEX TO EXHIBITS FILED WITH THIS DOCUMENT
EXHIBIT NO. DESCRIPTION ----------- ----------- No. 13 Annual Report of the Registrant to its Shareholders for the year ended December 31, 1993. No. 21 Subsidiaries of the Registrant as of March 10, 1994. No. 23 Consent of KPMG Peat Marwick. No. 24 Power of Attorney.
17 EX-13 2 ANNUAL REPORT 1 MERCANTILE BANCORPORATION INC. ANNUAL REPORT 1993 2 CORPORATE DESCRIPTION At the end of 1993, Mercantile Bancorporation Inc., headquartered in St. Louis, was the parent company of 40 banks in Missouri, eastern Kansas and southern Illinois, and other subsidiaries providing specialized financial services. Early in 1994, Mercantile completed the affiliation of its first bank in Iowa, and a merger with a St. Louis based savings and loan association. The organization's focus is on retail, institutional and corporate markets in its primary midwest market area and clients with ties to the Midwest. Mercantile's main subsidiary is Mercantile Bank of St. Louis N.A., which traces its beginnings to 1855, when its first predecessor opened for business. The holding company was organized in 1971, providing the vehicle to expand the Mercantile banking concept. Mercantile's first acquisition outside its home state was completed in early 1987, just after Missouri adopted limited interstate banking legislation. Mercantile banks deliver services to customers through a network of 220 banking offices and 188 Fingertip Banking(R) Automated Teller Machines, which also belong to the regional BankMate(R) and international Cirrus(R) networks. Mercantile's broad range of services are concentrated in four major lines of business-retail, corporate and investment banking, and trust. Non-banking subsidiaries which provide related financial services include Mississippi Valley Advisors Inc., for investment research and asset management, Mercantile Investment Services, Inc., for brokerage services, and Mercantile Business Credit, Inc., an asset-based lender. CORPORATE ADDRESS GENERAL COUNSEL Mercantile Tower Thompson & Mitchell P.O. Box 524 One Mercantile Center St. Louis, MO 63166-0524 St. Louis, MO 63101-1693 INDEPENDENT ACCOUNTANTS TRANSFER AGENT KPMG Peat Marwick Society National Bank 1010 Market Street P.O. Box 6477 St. Louis, MO 63101-2085 Cleveland, OH 44101-1477 TABLE OF CONTENTS Highlights................................................... 1 Letter to Shareholders....................................... 2 The Face of Success at Mercantile............................ 4 Banks and Other Subsidiaries.................................10 Financial Discussion and Report..............................11 Investor Information.........................................66 Directors and Executive Officers.............................67
3 HIGHLIGHTS
PERCENT CHANGE ------------------- 1992 TO 1991 TO ($ IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992 1991 1993 1992 ------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA(1) Net income $ 3.32 $ 2.53 $ 2.40 31.2% 5.4% Dividends declared .99 .93 .93 6.5 - Book value at December 31 23.67 21.00 18.94 12.7 10.9 Market price at December 31 30 1/8 32 1/8 25 1/8 (6.2) 27.9 Average common shares outstanding 35,265,911 33,693,885 30,111,266 4.7 11.9 ----------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Taxable-equivalent net interest income $453,312 $413,884 $334,038 9.5% 23.9% Tax-equivalent adjustment 7,766 8,784 7,709 (11.6) 13.9 Net interest income 445,546 405,100 326,329 10.0 24.1 Provision for possible loan losses 50,432 68,488 53,445 (26.4) 28.1 Other income 175,272 163,398 136,479 7.3 19.7 Other expense 386,419 369,981 302,496 4.4 22.3 Income taxes 66,995 44,734 34,549 49.8 29.5 Net income 116,972 85,295 72,318 37.1 17.9 ----------------------------------------------------------------------------------------------------------------------------- ENDING BALANCES Total assets $10,513,114 $10,577,811 $9,116,049 (.6)% 16.0% Total loans and leases 6,286,445 6,512,093 5,985,211 (3.5) 8.8 Deposits 8,235,480 8,487,592 7,382,576 (3.0) 15.0 Shareholders' equity 841,116 732,014 606,238 14.9 20.7 Reserve for possible loan losses 148,297 154,666 136,542 (4.1) 13.3 ----------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Total assets $10,573,588 $10,150,599 $8,508,686 4.2% 19.3% Earning assets 9,576,806 9,197,547 7,703,290 4.1 19.4 Total loans and leases 6,391,704 6,463,064 5,868,992 (1.1) 10.1 Deposits 8,612,729 8,370,349 6,981,929 2.9 19.9 Shareholders' equity 786,753 684,280 544,828 15.0 25.6 ----------------------------------------------------------------------------------------------------------------------------- SELECTED RATIOS Return on assets 1.11% .84% .85% Return on equity 14.87 12.46 13.27 Overhead ratio 61.47 64.09 64.29 Net interest rate margin 4.73 4.50 4.34 Equity to assets 8.00 6.92 6.65 Tier I capital to risk-adjusted assets 10.74 9.28 8.22 Total capital to risk-adjusted assets 14.47 13.11 9.92 Leverage 7.40 6.30 6.21 Reserve for possible loan losses to outstanding loans 2.36 2.38 2.28 Reserve for possible loan losses to non-performing loans 371.98 173.43 124.06 Non-performing assets to outstanding loans and foreclosed assets 1.14 2.08 2.78 Dividend payout 29.82 36.76 38.75 ----------------------------------------------------------------------------------------------------------------------------- SELECTED DATA Shareholders of record 11,721 11,984 11,464 Employees(2) 5,261 5,243 4,803 Banks 40 39 32 Banking offices 220 207 142 Automated Teller Machines(3) 188 170 122 ----------------------------------------------------------------------------------------------------------------------------- (F) (1) All per share amounts and average shares outstanding have been restated to give effect to a three-for-two stock split declared February 10, 1994 and payable April 11, 1994. (2) Full-time equivalent employees. (3) Member of BankMate(R) and Cirrus(R) Automated Teller Machine networks.
MERCANTILE BANCORPORATION INC. 1 4 BANKS AND OTHER SUBSIDIARIES
DECEMBER 31, 1993 ($ IN THOUSANDS) --------------------------------- LOCATIONS SHARE- RETURN ON -------------------------- HOLDER'S AVERAGE BANK CHIEF EXECUTIVE OFFICER MAIN OFFICE TOTAL ASSETS EQUITY ASSETS ---- ----------------------- ----------- ----- -------- -------- --------- Mercantile Bank of St. Louis N.A. Thomas H. Jacobsen St. Louis, MO 46 $5,055,237 $378,193 1.12% Mercantile Bank of Kansas City Richard C. King Kansas City, MO 18 787,999 67,437 .97 Mercantile Bank of Kansas Richard C. King Overland Park, KS 18 586,759 49,120 1.07 Mercantile Bank of Illinois N.A. A. Jesse Hopkins Alton, IL 14 457,887 39,381 2.44 Mercantile Bank of Joplin N.A. Larry L. Gilb Joplin, MO 10 389,684 34,132 1.58 Mercantile Bank of St. Joseph N.A. Thomas B. Fitzsimmons St. Joseph, MO 8 337,480 28,458 .64 Mercantile Bank of Lawrence N.A. John R. Elmore Lawrence, KS 10 226,254 25,603 1.53 Mercantile Bank of Springfield David W. Felske Springfield, MO 6 216,224 18,101 1.44 Mercantile Bank of Topeka N.A. O. Dean Hodges Topeka, KS 10 210,953 17,444 1.38 Mercantile Bank of Cape Girardeau O. J. Miller Cape Girardeau, MO 3 165,430 14,409 1.02 Mercantile Bank of North Central Missouri Loren E. Jensen Macon, MO 5 160,978 13,186 1.31 Mercantile Bank of West Central Missouri Phillip M. Hunt Sedalia, MO 8 160,825 14,755 .95 Mercantile Bank of the Mineral Area Lowell C. Peterson Farmington, MO 3 158,525 14,583 1.83 Mercantile Bank of Franklin County Charles N. Johns Washington, MO 4 150,672 12,470 1.52 Mercantile Bank of Lake of the Ozarks Jerry A. Setser Eldon, MO 4 133,095 10,703 1.47 Mercantile Bank of Jefferson County William C. Heady High Ridge, MO 3 121,768 10,180 1.60 Mercantile Bank of Poplar Bluff Melvin D. Brown Poplar Bluff, MO 3 109,489 9,514 1.02 Mercantile Bank of Centralia N.A. Harry N. Harrison Centralia, IL 3 101,274 10,772 1.41 Mercantile Bank of Mt. Vernon David P. Strautz Mt. Vernon, IL 5 100,438 9,333 .99 Mercantile Bank of Missouri Valley R. Scott Weston Richmond, MO 2 87,270 7,648 1.15 Mercantile Bank of Trenton N.A. Jan O. Humphreys Trenton, MO 3 86,277 8,700 1.35 Mercantile Bank of Monett N.A. Jerry L. LeClair Monett, MO 4 84,454 7,543 1.52 Mercantile Bank of Stoddard/Bollinger Counties N.A. John S. Davis Dexter, MO 4 83,025 7,154 .72 Mercantile Bank of Perryville Mark D. Grieshaber Perryville, MO 1 72,649 6,489 .91 Mercantile Bank of Flora N.A. Martin P. Tudor Flora, IL 1 68,659 8,691 .34 Mercantile Bank of Phelps County Robert R. Thompson Rolla, MO 2 64,631 5,185 .76 Mercantile Bank of Table Rock Lake Douglas K. Lasley Branson West, MO 1 54,297 4,797 1.84 Mercantile Bank of Memphis Robert L. Henselman Memphis, MO 1 52,672 4,760 1.85 Mercantile Bank of Doniphan N.A. Allen L. Schaper Doniphan, MO 2 50,201 5,183 1.27 Mercantile Bank of Ste. Genevieve Samuel F. Berendzen Ste. Genevieve, MO 1 49,118 4,157 1.08 Mercantile Bank of Montgomery City N.A. Stanley B. Bonnes Montgomery City, MO 1 48,500 4,121 1.74 Mercantile Bank of Pike County Darrell L. Denish Bowling Green, MO 1 47,725 4,019 1.49 Mercantile Bank of Northwest Missouri Coby D. Lamb Maryville, MO 4 45,988 4,108 .53 Mercantile Bank of Carlyle Gregory A. Meyer Carlyle, IL 3 42,927 3,766 1.03 Mercantile Bank of Wright County Thomas F. Zinnert Hartville, MO 1 42,296 4,169 .46 Mercantile Bank of Boone County Terry W. Coffelt Columbia, MO 2 41,485 3,910 .48 Mercantile Bank of Plattsburg Alan L. Hall Plattsburg, MO 3 40,358 3,976 1.35 Mercantile Bank of Willow Springs Jerry H. Abbott Willow Springs, MO 1 39,392 3,705 2.20 Mercantile Bank of Sikeston Mark E. Nelson Sikeston, MO 1 38,853 4,139 1.68 Mercantile Trust Company N.A. W. Randolph Adams St. Louis, MO - 6,384 5,853 - -----------------------------------------------------------------------------------------------------------------------------
ASSET-BASED LENDING Mercantile Business Credit, Inc. 12443 Olive Blvd. St. Louis, MO 63141-6432 BROKERAGE SERVICES Mercantile Investment Services, Inc. Mercantile Tower St. Louis, MO 63101-1643 CREDIT CARD SERVICES Mercantile Card Services Inc. 12443 Olive Blvd. St. Louis, MO 63141-6432 CREDIT LIFE INSURANCE Mississippi Valley Life Insurance Co. Mercantile Tower St. Louis, MO 63101-1643 INSURANCE AGENCY Mercantile Insurance Services, Inc. Mercantile Tower St. Louis, MO 63101-1643 INVESTMENT MANAGEMENT Mississippi Valley Advisors Inc. Mercantile Tower St. Louis, MO 63101-1643 OFF-SHORE BRANCH Mercantile Bank of St. Louis N.A. Cayman Branch Grand Cayman, B.W.I. RECENT MERGERS United Postal Bancorp, Inc. St. Louis, MO (completed February 1, 1994) Metro Bancorporation Waterloo, IA (completed January 3, 1994) 10 MERCANTILE BANCORPORATION INC. 5 FINANCIAL DISCUSSION AND REPORT TABLE OF CONTENTS Financial Commentary.........................................12 Performance Summary.........................................12 Net Interest Income.........................................16 Liquidity...................................................19 Interest Rate Sensitivity...................................20 Deposits....................................................22 Short-Term Borrowed Funds and Short-Term Investments.................................24 Capital Resources...........................................24 Investments in Debt and Equity Securities...................27 Loans.......................................................29 Risk Management and the Reserve for Possible Loan Losses...........................31 Non-Performing Assets.......................................34 Off-Balance-Sheet Risk......................................36 Other Income................................................36 Other Expense...............................................38 Income Taxes................................................39 Fourth Quarter Results......................................40 Management Report on Consolidated Financial Statements........................................42 Audited Financial Statements Independent Auditors' Report................................43 Mercantile Bancorporation Inc. and Subsidiaries Consolidated Financial Statements.......................................44 Notes to Consolidated Financial Statements..................48 Six Year Consolidated Financial Statements...................62 Investor Information.........................................66
11 6 FINANCIAL COMMENTARY PERFORMANCE SUMMARY Net income for Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") was a record $116,972,000 in 1993, a 37.1% improvement from the $85,295,000 recorded in 1992. On a per share basis, net income was $3.32, up 31.2% from the $2.53 earned last year. When compared with last year, 1993 overall results reflected continued improvement in the levels of net interest income and non- interest income, as well as a decline in the provision for possible loan losses, partially offset by increased operating expenses and higher income taxes. The key measurements of profitability also showed improvement in 1993, as return on assets was 1.11% compared with .84% in 1992, while return on equity was 14.87% versus 12.46% last year. During the fourth quarter of 1993, return on assets was 1.20% and return on equity reached 15.18%. ----------------------------------------------------------------------------------------------------------------------------- EXHIBIT 1 SELECTED FINANCIAL DATA
GROWTH RATES --------------------- 1993 1992 1991 1990 1989 1988 ONE YEAR FIVE YEARS ---- ---- ---- ---- ---- ---- -------- ---------- PER SHARE DATA Net income $ 3.32 $ 2.53 $ 2.40 $ 2.19 $ .17 $ 1.19 31.2% 22.8% Dividends declared .99 .93 .93 .93 .93 .93 6.5 1.3 Book value at year-end 23.67 21.00 18.94 17.19 15.91 17.02 12.7 6.8 Market price at year-end 30 1/8 32 1/8 25 1/8 14 17 3/8 17 (6.2) 12.1 Average common shares outstanding (thousands) 35,266 33,694 30,111 28,466 27,414 26,780 4.7 5.7 EARNINGS (THOUSANDS) Taxable-equivalent net interest income $453,312 $413,884 $334,038 $299,247 $279,733 $257,149 9.5 12.0 Tax-equivalent adjustment 7,766 8,784 7,709 10,494 13,529 15,556 (11.6) (13.0) -------- -------- -------- -------- -------- -------- Net interest income 445,546 405,100 326,329 288,753 266,204 241,593 10.0 13.0 Provision for possible loan losses 50,432 68,488 53,445 48,009 97,150 63,293 (26.4) (4.4) Other income 175,272 163,398 136,479 119,964 106,639 102,730 7.3 11.3 Other expense 386,419 369,981 302,496 273,025 273,885 245,204 4.4 9.5 Income taxes (credits) 66,995 44,734 34,549 25,328 (2,921) 3,872 49.8 76.9 -------- -------- -------- -------- --------- -------- Net income $116,972 $ 85,295 $ 72,318 $ 62,355 $ 4,729 $ 31,954 37.1 29.6 ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET (MILLIONS) Total assets $10,574 $10,151 $8,509 $7,909 $7,240 $7,025 4.2 8.5 Earning assets 9,577 9,198 7,703 7,091 6,423 6,295 4.1 8.8 Loans and leases 6,392 6,463 5,869 5,565 5,109 5,028 (1.1) 4.9 Investments in debt and equity securities 2,875 2,436 1,495 1,327 1,163 1,029 18.1 22.8 Deposits 8,613 8,370 6,982 6,472 5,839 5,771 2.9 8.3 Long-term debt 222 177 134 139 142 141 25.0 9.4 Shareholders' equity 787 684 545 471 456 448 15.0 11.9 ENDING BALANCE SHEET (MILLIONS) Total assets $10,513 $10,578 $9,116 $8,562 $7,875 $7,020 (.6) 8.4 Earning assets 9,552 9,590 8,276 7,575 6,945 6,156 (.4) 9.2 Loans and leases 6,286 6,512 5,985 5,984 5,439 4,996 (3.5) 4.7 Investments in debt and equity securities 2,938 2,803 1,901 1,377 1,328 990 4.8 24.3 Deposits 8,235 8,488 7,383 6,988 6,273 5,813 (3.0) 7.2 Long-term debt 220 246 134 135 143 139 (10.7) 9.7 Shareholders' equity 841 732 606 490 452 450 14.9 13.3 Reserve for possible loan losses 148 155 137 139 135 92 (4.1) 10.1 -----------------------------------------------------------------------------------------------------------------------------
12 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 7 All prior year figures have been restated to include the results of operations and financial conditions of MidAmerican Corporation and Johnson County Bankshares, Inc., which were merged with Mercantile on January 4, 1993 in a transaction accounted for as a pooling-of-interests. Included in those restated 1992 figures was an $8,000,000 after-tax charge for the acquired companies to conform their accounting and credit policies regarding loans, other real estate and other asset valuations to those of Mercantile. The restatement also incorporates the three-for-two stock split that was declared on February 10, 1994 and payable April 11, 1994 to shareholders of record on March 10, 1994. ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 2 SELECTED RATIOS
1993 1992 1991 1990 1989 1988* ---- ---- ---- ---- ---- ----- Return on assets 1.11% .84% .85% .79% .07% .45% Return on equity 14.87 12.46 13.27 13.25 1.04 7.13 Overhead ratio 61.47 64.09 64.29 65.13 70.89 68.14 Dividend yield 3.29 2.89 3.70 6.64 5.35 5.47 Dividend payout 29.82 36.76 38.75 42.47 - 78.15 Equity to assets 8.00 6.92 6.65 5.73 5.73 6.41 Tier I capital to risk-adjusted assets* 10.74 9.28 8.22 6.55 6.66 - Total capital to risk-adjusted assets* 14.47 13.11 9.92 8.45 8.82 - Leverage* 7.40 6.30 6.21 5.39 5.43 - Loans to deposits (average) 74.21 77.21 84.06 85.99 87.49 87.12 Reserve for possible loan losses to outstanding loans 2.36 2.38 2.28 2.32 2.48 1.84 Reserve for possible loan losses to non-performing loans 371.98 173.43 124.06 134.81 141.07 112.02 Non-performing loans to outstanding loans .63 1.37 1.84 1.72 1.76 1.64 Non-performing assets to outstanding loans and foreclosed assets 1.14 2.08 2.78 2.41 2.40 2.18 Net interest rate margin 4.73 4.50 4.34 4.22 4.35 4.08 (F) *Certain risk-based capital information is not available for 1988. ------------------------------------------------------------------------------------------------------------------------
Despite the effects of continued uncertainties in the local and national economies in 1993, Mercantile again met its objective of emphasis on profitability, while remaining receptive to opportunities for growth. Mercantile's corporate strategy for growth is to concentrate on its existing natural markets. To this end, Mercantile continually evaluates and pursues expansion opportunities to enhance its competitive position in Missouri, southern Illinois, eastern Kansas, Iowa and other major markets in the states contiguous to Missouri. Such opportunities may include the acquisition of banks or thrift institutions, the acquisition of assets and liabilities of banks or thrifts in assisted transactions through the Resolution Trust Corporation or the Federal Deposit Insurance Corporation, and the establishment of new branches. On April 1 of this year, Mercantile completed the merger with the $71 million First National Bank of Flora in Clay County, Illinois, while on September 1, Mercantile completed the merger with Mt. Vernon Bancorp, Inc., a $113 million holding company for First Bank and Trust Co. in Mt. Vernon, Illinois. Both of these 1993 transactions were accounted for as purchases, as were the Ameribanc, Inc. transaction, which closed on April 30, 1992, and two Resolution Trust Corporation-assisted transactions in March and April of 1992. In all purchase transactions, the results of operations and financial conditions of the acquired entities were included in the Consolidated Financial Statements subsequent to the respective dates of acquisition. Due to purchase accounting, average and ending figures discussed in this commentary may not always portray relevant comparisons. When appropriate, the commentary discusses the impact of these transactions so meaningful comparisons can be made. 13 8 FINANCIAL COMMENTARY (CONT'D) ---------------------------------------------------------------------------------------------------------------------------- EXHIBIT 3 ACQUISITIONS ($ IN THOUSANDS)
ORIGINAL CONSIDERATION INTANGIBLE ----------------- ACCOUNTING DATE ASSETS DEPOSITS ASSET CASH SHARES METHOD ---- ------ -------- ---------- ---- ------ ---------- ACQUISITIONS COMPLETED Mt. Vernon Bancorp, Inc. Sept. 1, 1993 $ 113,128 $ 100,695 $4,515 $1,805 216,936 Purchase First National Bank of Flora Apr. 1, 1993 70,725 61,661 2,734 3,004 232,503 Purchase MidAmerican Corporation and Johnson County Bankshares, Inc. Jan. 4, 1993 1,102,906 956,578 - 12 4,736,424 Pooling Ameribanc, Inc. Apr. 30, 1992 1,177,825 1,035,561 - 8,851 1,975,421 Purchase Old National Bancshares, Inc. Dec. 5, 1991 169,205 154,018 8,759 5,027 742,265 Purchase RESOLUTION TRUST CORPORATION TRANSACTIONS COMPLETED First State Savings Association of Sedalia Apr. 3, 1992 156,818 163,055 2,186 2,186 - Purchase Home Federal Savings Association branches Mar. 27, 1992 470 222,304 3,227 3,227 - Purchase Germania Bank FSB Jul. 26, 1991 108,483 296,408 - 6,144 - Purchase RECENTLY COMPLETED ACQUISITIONS United Postal Bancorp, Inc. Feb. 1, 1994 1,260,765 1,025,252 - - 5,626,000* Pooling Metro Bancorporation Jan. 3, 1994 370,175 333,183 - 6 1,638,278 Pooling (F) *Estimated shares to be issued in acquisition. ----------------------------------------------------------------------------------------------------------------------------
On July 29, 1993, Mercantile announced plans to expand into Iowa through a merger with Waterloo-based Metro Bancorporation, the $370-million-asset parent company of The Waterloo Savings Bank. On August 17, 1993, Mercantile announced plans to merge with the $1.3-billion-asset United Postal Bancorp, Inc., the holding company for United Postal Savings Association, a Missouri state-chartered savings and loan association operating primarily in metropolitan St. Louis. Both transactions will be accounted for as poolings-of- interests. The Metro transaction closed on January 3, 1994, while United Postal closed on February 1, 1994. These transactions will bring total assets by March 31, 1994 to approximately $12 billion. Merger activity for the past three years is summarized in Exhibit 3. It is not anticipated that any of the recently completed acquisitions will have a significant impact on liquidity, capital ratios or expected trends in the results of operations of the Corporation. During 1993 the total number of banking offices increased from 207 to 220. There were six locations added from the merged banks, 12 new offices opened and five offices closed during the year, as the Corporation continually monitored the profitability and growth opportunities of each of its locations. Net interest income for 1993 increased 10.0% over the prior year to $445,546,000. The net interest rate margin was 4.73% in 1993 compared with 4.50% in 1992, and benefited from continued wide interest rate spreads and a 4.1% or $379,259,000 growth in average earning assets. Investments in debt and equity securities grew by $440,335,000 or 18.1%, short-term investments increased by 3.4% and average loan volume was down 1.1%. The 4.1% growth in average earning assets was primarily funded by the 4.2% growth in core deposits. Other income was $175,272,000 in 1993, an increase of $11,874,000 or 7.3% from a year ago. The growth was provided by increases in trust fees, service charges, investment banking revenue, credit card fees and miscellaneous revenues, while there was a decline in letter of credit fees and securities gains. Non-interest expenses were up 4.4% from a year ago and totaled $386,419,000 compared with $369,981,000 last year. The expanded customer base and the additional facilities added from the 1992 and 1993 mergers resulted in 14 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 9 higher operating expense levels. Excluding expenses related to acquisitions in 1992 and 1993, operating expenses were up only .9%. Despite the growth in operating expenses, the overhead ratio improved to 61.47% in 1993 compared with 64.09% in 1992 and 64.29% in 1991, as the rate of revenue growth exceeded that of expenses. This was the fourth consecutive year in which the overhead ratio has improved. The provision for possible loan losses for 1993 was $50,432,000 compared with $68,488,000 the prior year, a decline of 26.4%, and was indicative of improvements in the Corporation's credit quality. The ratio of net charge-offs to average loans for 1993 was .92% compared with 1.06% last year. The net charge-off figures were $59,043,000 and $68,352,000, respectively. At December 31, 1993, the reserve for possible loan losses was $148,297,000 and represented 2.36% of loans compared with 2.38% last year. The reserve covered 371.98% of non-performing loans, versus the 173.43% coverage ratio at December 31, 1992. Non-performing loans as of December 31, 1993 declined $49,316,000 or 55.3% to $39,867,000 or .63% of total loans from $89,183,000 or 1.37% at December 31, 1992. Foreclosed assets, including in-substance foreclosures, at year's end declined by $15,096,000 or 31.8% to $32,347,000 compared with $47,443,000 at the end of 1992. Consolidated assets of $10.5 billion were flat when compared with last year-end. Core deposits declined by 2.6% to $7.8 billion and loans decreased 3.5% to $6.3 billion from last year. Shareholders' equity of $841,116,000 was up 14.9% from year to year. The 1993 year-end equity to assets ratio improved to 8.00% from 6.92% the prior year, and the Tier I and Total risk-based capital ratios increased to 10.74% and 14.47%, respectively, from 9.28% and 13.11% at December 31, 1992. Earnings in the St. Louis Area (Mercantile Bank of St. Louis N.A. and Mercantile Trust Company N.A., a newly-formed bank for trust services) for 1993 were $58,476,000 compared with $45,481,000 in 1992, an increase of 28.6%. These results reflected improved levels of net interest income and other income, and a decline in the provision for loan losses, all partially offset by increases in operating expenses and income taxes. Return on assets was 1.14% compared with .92% last year. Year-end assets were $5.1 billion, down .4% from a year earlier, while deposits of $3.3 billion were down 3.7% and loans of $2.7 billion declined 5.9% from December 31, 1992. --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 4 ORGANIZATIONAL CONTRIBUTION ($ IN THOUSANDS)
DECEMBER 31, 1993 ---------------------------------------------------------------------------- KANSAS PARENT ST. LOUIS CITY COMMUNITY COMPANY AND AREA* AREA BANKS ELIMINATIONS CONSOLIDATED --------- ---------- --------- -------------- ------------ Net income $ 58,476 $ 17,590 $ 55,571 $ (14,665) $ 116,972 Average assets 5,138,627 1,620,938 4,045,051 (231,028) 10,573,588 Return on assets 1.14% 1.09% 1.37% 1.11% Net interest rate margin 4.29 4.68 5.20 4.73 Overhead ratio 60.07 64.47 54.55 61.47 Reserve for possible loan losses to outstanding loans 2.14 2.71 2.47 2.36 Reserve for possible loan losses to non-performing loans 351.64 413.31 378.47 371.98 Equity to assets 7.59 8.88 8.84 8.00 Tier I capital to risk-adjusted assets 10.29 13.20 13.47 10.74 Total capital to risk-adjusted assets 12.49 14.46 14.70 14.47 Leverage 7.50 8.11 8.66 7.40 (F) *Includes the results of Mercantile Bank of St. Louis N.A., Mercantile Trust Company N.A., Mercantile Business Credit, Inc. (asset-based lending), Mercantile Investment Services, Inc. (brokerage), Mississippi Valley Advisors Inc. (investment management) and Mississippi Valley Life Insurance Co. (credit life). ---------------------------------------------------------------------------------------------------------------------------
15 10 Net interest income in the St. Louis Area improved by 11.2%, as the volume of average earning assets grew by $91,766,000 or 2.1% and the net interest rate margin increased by 31 basis points to 4.29%. Average core deposit growth of $118,605,000 or 3.6% was the funding source for the increase in earning assets. Mercantile Bank of St. Louis N.A.'s investment portfolio expanded by 23.1%, while average outstanding loans declined by 5.6%.Other income improved by $5,843,000 or 6.4%, primarily as a result of growth in service charges, investment banking revenue and miscellaneous income. The provision for possible loan losses in the St. Louis Area was $20,500,000 compared with $25,534,000 in 1992, a decline of 19.7%. The reserve for possible loan losses as a percentage of total loans was 2.14% at December 31, 1993 versus 2.48% at December 31, 1992, while the reserve coverage of non-performing loans was strengthened to 351.64% compared with 143.55% at December 31, 1992. Non-interest expenses were up 5.1%, while the overhead ratio improved to 60.07% from 63.07% in the prior year. In the 35 Community Banks (all banks other than the three banks in the Kansas City Area and the two in St. Louis), 1993 net income was $55,571,000, a 10.5% improvement over the $50,292,000 earned in 1992. Year-end assets were $4.1 billion, down 1.5%, while total deposits were down 1.2% and loans were relatively flat. Return on assets improved to 1.37% compared with 1.33% last year. The three banks in the Kansas City Area, with year-end assets of $1.6 billion, earned $17,590,000 in 1993, a 65.2% increase when compared with the $10,648,000 earned in 1992. Return on assets was 1.09% compared with .66% the previous year. Net interest income in the Community Banks increased by $16,682,000 or 9.1% during 1993, as average earning assets were up by $259,356,000 or 7.2% and the net interest rate margin increased by eight basis points to 5.20%. The provision for possible loan losses in the Community Banks declined by 17.3% to $25,910,000. The reserve as a percentage of loans outstanding was 2.47% compared with 2.23% a year earlier, while the reserve coverage of non- performing loans was 378.47% at the end of 1993 versus 216.19% at December 31, 1992. Other income grew by 15.1%, led by improvements in trust revenues, service charge income and credit card fees. Other expense growth was 15.9%, due largely to the acquired banks and credit card loan growth, while the overhead ratio was 54.55% versus 51.86% in 1992. Net interest income in the Kansas City Area banks increased by $2,150,000 or 3.3% during 1993, as average earning assets were up by $10,749,000 or .7%. The net interest rate margin increased by nine basis points to 4.68%. The Kansas City Area banks' reserves as a percentage of loans outstanding was 2.71% compared with 2.50% a year ago, while the reserve coverage of non-performing loans was 413.31% at the end of 1993. Other income grew by 11.4%, led by growth in service charge income, trust revenues and miscellaneous income. Other expense growth was 2.7%, while the overhead ratio improved to 64.47% from 65.76% the prior year. The following financial commentary presents a more thorough discussion and analysis of the results of operations and financial condition of the Corporation. It should be read in conjunction with the accompanying audited Consolidated Financial Statements and related notes. NET INTEREST INCOME Net interest income, the difference between total interest income on earning assets and total interest expense, the cost of funds supporting those assets, is Mercantile's primary source of earnings. Representing the Corporation's gross profit from lending, investing, deposit gathering and borrowing activities, net interest income is affected by three variables: the volume of funds, the mix of those funds, and the rates earned and paid on those funds. The net interest rate margin is net interest income on a fully taxable- equivalent basis as a percentage of average earning assets. [EXHIBIT 5 NET INTEREST RATE MARGIN GRAPH] 16 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 11 ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 6 SUMMARY OF OPERATIONS RELATED TO AVERAGE ASSETS (TAXABLE-EQUIVALENT BASIS)
1993 1992 1991 ---- ---- ---- NET INTEREST MARGIN 4.29% 4.08% 3.93% PROVISION FOR POSSIBLE LOAN LOSSES .48 .67 .63 OTHER INCOME Trust .56 .55 .56 Investment banking .08 .08 .07 Service charges .46 .45 .46 Credit card fees .22 .20 .23 Securities gains - .02 .02 Other .34 .31 .26 ---- ---- ---- Total Other Income 1.66 1.61 1.60 OTHER EXPENSE Personnel expense 1.83 1.69 1.80 Net occupancy and equipment .51 .47 .49 Other 1.32 1.49 1.26 ---- ---- ---- Total Other Expense 3.66 3.65 3.55 ---- ---- ---- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 1.81 1.37 1.35 Income taxes .63 .44 .41 Tax-equivalent adjustment .07 .09 .09 ---- ---- ---- NET INCOME 1.11% .84% .85% ==== ==== ==== -------------------------------------------------------------------------------------------------------------------------
[EXHIBIT 7 TAXABLE-EQUIVALENT NET INTEREST INCOME GRAPH] For 1993 net interest income was $445,546,000, a 10.0% increase over the $405,100,000 earned last year. This improvement was attained primarily as a result of the widening of the year-to-date net interest rate margin by 23 basis points from 4.50% in 1992 to 4.73%, and a 4.1% growth in average earning assets. Specific factors contributing to the higher net interest rate margin in the year included significantly higher levels of non-interest bearing deposits and shareholders' equity, a continued decline in non- performing assets, a decrease in higher-costing retail certificates of deposit as a result of the movement of these consumer deposits into lower-costing checking, savings and money market accounts, growth in the higher-yielding credit card receivables, the refinancing upon maturity of $60,000,000 of 11.75% debt at 7.625% during the fourth quarter of 1992, and generally wider interest rate spreads. The wider interest rate spreads resulted from a sustained decline in deposit and liability rates that outpaced the accompanying decline in earning asset yields, coupled with an asset/liability management strategy designed to take advantage of this rate environment. Accordingly, the Corporation was able to lower rates on retail deposits faster than assets repriced. Interest rates began to fall in the third quarter of 1989 and continued their decline in 1990 and 1991 before stabilizing somewhat in the last half of 1992. Mercantile's asset/liability management strategies and the wider market spreads allowed the Corporation to widen its net interest rate margin during the current year to 4.73% from the 1990, 1991 and 1992 respective margins of 4.22%, 4.34% and 4.50%. Current model projections indicate minimal change in the level of net interest income if interest rates should rise or fall moderately from their current levels. The cost of total interest bearing liabilities decreased by 95 basis points during 1993, while the yield on earning assets declined by only 66 basis points. The result was a widening in the interest rate spread of 29 basis points following a similar improvement of 34 basis points in 1992. A further indication of the decline in interest rates over the past three years was an average prime rate of 6.00% for 1993 compared with 6.25% last year and 8.46% in 1991. Average earning assets for 1993 increased by $379,259,000 or 4.1%. Average investments in debt and equity securities grew by $440,335,000 or 18.1%, short-term investments were up $10,284,000 or 3.4% and loans decreased by $71,360,000 or 1.1% when compared with 1992. As loan demand decreased, the ratio of loans to earning assets declined to 66.73% in 1993 compared with 70.26% in 1992 and 76.18% in 1991, but from an overall yield perspective, the mix of loans continued to change favorably as the Corporation approached an even balance between business and individual loans. 17 12 FINANCIAL COMMENTARY (CONT'D) The higher levels of average non-interest bearing demand deposits, which grew by 17.0%, and shareholders' equity, which was up 15.0%, were reflected in the decline in the ratio of average interest bearing liabilities to earning assets from 84.28% in 1992 to 81.58% this year. The lower interest rate environment also required customers to maintain higher balances to pay for services. The cost to fund non-performing assets was down significantly in 1993, thereby adding to the margin as compared with 1992. Generally, lower interest rates mean lower funding costs for these non-earning assets, and declines in both the absolute and relative levels of non-performing assets further reduced interest expense. As summarized in Exhibit 29, $3,400,000 of interest income was not recognized during 1993 because of the non-performing classification of certain loans. Interest lost reduced the 1993 rate margin by four basis points compared with a reduction of seven basis points in 1992, and reduced earnings per share by $.06 in 1993 compared with $.12 the previous year. The interest-lost figures shown in the table were calculated only on non-performing loans outstanding at the end of each year. Thus, if a loan was sold or charged-off during the year, any interest lost was not accounted for in the table. There were also significant changes in the mix of deposits, reflecting the disintermediation of retail certificates of deposit into interest bearing demand, savings and money market accounts in the current low rate environment. Average core deposits increased to 94.67% of total deposits from 93.49% a year ago and were up 4.2% from last year. Retail certificates of deposit, the most costly source of funds, declined by $323,240,000, and represented 34.52% of total core deposits versus 40.10% in 1992, as customers preferred maturity flexibility with their investments. ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 8 AVERAGE BALANCE SHEET SUMMARY ($ IN THOUSANDS)
AVERAGE VOLUME AVERAGE RATE(1) -------------------------------- ------------------------------- 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- EARNING ASSETS Total loans and leases(2) $6,391,704 $6,463,064 $5,868,992 8.52% 8.86% 10.07% Investments in debt and equity securities Trading 14,008 11,510 19,041 5.30 5.75 6.95 Taxable 2,657,090 2,255,207 1,357,167 5.77 6.88 8.60 Tax-exempt 204,181 168,227 118,509 7.99 9.29 9.82 ---------- ---------- ---------- Total 2,875,279 2,434,944 1,494,717 5.93 7.04 8.67 Short-term investments 309,823 299,539 339,581 3.32 4.42 6.31 ---------- ---------- ---------- Total Earning Assets $9,576,806 $9,197,547 $7,703,290 7.57 8.23 9.63 ========== ========== ========== ACQUIRED FUNDS Core deposits $8,153,352 $7,825,684 $6,409,132 3.39 4.40 6.15 Purchased deposits 459,377 544,665 572,797 3.83 4.61 6.24 ---------- ---------- ---------- Total Deposits 8,612,729 8,370,349 6,981,929 3.42 4.42 6.16 Short-term borrowings 775,823 741,459 688,602 2.86 3.45 5.50 Long-term debt 221,716 177,325 133,680 7.74 8.96 10.11 ---------- ---------- ---------- Total Acquired Funds $9,610,268 $9,289,133 $7,804,211 3.48 4.43 6.17 ========== ========== ========== NET INTEREST RATE SPREAD 4.09 3.80 3.46 NET INTEREST RATE MARGIN 4.73 4.50 4.34 (F) (1) Taxable-equivalent basis. Includes tax-equivalent adjustments of $7,766,000, $8,784,000 and $7,709,000 for 1993, 1992 and 1991, respectively, based on Federal income tax rates of 35% for 1993 and 34% for 1992 and 1991. (2) Income from loans on non-accrual status is included in income on a cash basis, while non-accrual loan balances are included in average volume. -------------------------------------------------------------------------------------------------------------------------
18 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 13 In the St. Louis Area banks, net interest income improved by 11.2%. A 31-basis-point increase in the net interest rate margin to 4.29%, coupled with a 2.1% growth in the volume of average earning assets, accounted for the increase. The effect of a 5.6% decline in average loans was offset by an increase in net non-interest bearing deposits and a more favorable mix of interest bearing liabilities. In the Community Banks, net interest income improved by 9.1%. Average earning assets grew by $259,356,000 or 7.2%, while the net interest rate margin expanded by eight basis points to 5.20%. Modest internal growth plus the assets and deposits added in the purchase transactions accounted for the volume increase. Net interest income for the Kansas City Area banks for 1993 was $68,186,000, an improvement of 3.3%. The net interest rate margin increased by nine basis points to 4.68%, while average earning assets grew by $10,749,000 or .7%. The subsequent discussions on liquidity, interest rate sensitivity, deposits, securities and loans further detail the changes in net interest income and the net interest rate margin for the years 1993, 1992 and 1991. LIQUIDITY Mercantile's Asset/Liability Management Committee formulates guidelines for and monitors the composition of assets and liabilities. Its objective is to meet earnings goals by producing the optimal yield and maturity mix consistent with interest rate expectations and projected liquidity needs, within the constraints of capital levels. Key to these goals is liquidity management, which ensures that Mercantile has ready access to sufficient funds at reasonable rates to meet both existing commitments and future financial obligations. Liquidity management also is necessary to withstand fluctuations in deposit levels and to provide for customers' credit needs in a timely and cost-effective manner. Liquidity management is viewed from a long-term and a short-term perspective, as well as from a liability and an asset perspective, with distinct approaches within policy guidelines being used by Mercantile Bank of St. Louis N.A., the Community Banks and the Kansas City Area banks individually, and the Parent Company. Long-term liquidity is a function of a strong capital position and a large core deposit base. Growth in both of these components during recent years formed the foundation for Mercantile's long- term liquidity strength. Short-term liquidity needs arise from the continuous fluctuations in the flow of funds on both sides of the balance sheet, and to a lesser extent from seasonal and cyclical customer demands. The most important source of liquidity for Mercantile is liability liquidity, which is the ability to raise new funds and renew maturing liabilities in a variety of markets. The most critical factor in assuring liability liquidity is the maintenance of confidence in Mercantile by suppliers of funds. The Corporation has a current liability liquidity position in line with established strategic objectives. Certain of these objectives emphasize core deposit funding of subsidiary banks, corporate and subsidiary performance goals, and corporate and subsidiary capital positions in excess of regulatory guidelines. Asset liquidity is provided through the maturities of various assets, from the net cash flow of fee-based businesses, from the ability to convert quality loans and maturing investments into cash, through the availability of proceeds from investment securities classified as available-for-sale, and through securities which are available for collateralized borrowing in repurchase agreements. The Corporation continued its strategy of increasing its core deposit base throughout 1993 and its overall liquidity position was enhanced by the sizable concentration of core deposits. As a result there was a continued reduction in the Corporation's ratio of average purchased deposits to earning assets to 4.79% in 1993 compared with 5.92% in 1992 and 7.44% in 1991. As average core deposit growth was 4.2% and average loan volume declined, liquidity was also enhanced. In addition, there were no commitments for capital expenditures as of December 31, 1993 which would have a material impact on Mercantile's liquidity. 19 14 FINANCIAL COMMENTARY (CONT'D) Mercantile Bank of St. Louis N.A.'s reputation, as well as its financial strength and numerous long-term customer relationships, enables it to raise funds as needed in various markets. These funds historically have been purchased locally, nationally and internationally in the federal funds market, and via large certificates of deposit and Eurodollar transactions through relationships the Corporation maintains with investment banks, money center banks and money market funds. With enhanced core deposit funding in 1992 and once again in 1993, very limited funding was obtained in these markets. Mercantile Bank of St. Louis N.A.'s large correspondent bank customer base is an additional important source of funds in the local and regional markets. The Community Banks and Kansas City Area banks control their own asset/liability mixes within the guidelines of corporate policy, their individual loan demand and deposit structures, and with guidance from the Asset/Liability Management Committee. As these banks do not generally borrow funds from outside sources due to a higher proportion of stable core deposits to total liabilities, their short-term liquidity needs are provided by Mercantile Bank of St. Louis N.A. or the Parent Company. Their core deposit base and business mix also lessen their need to borrow federal funds, or purchase certificates of deposit of $100,000 or more other than in the normal course of business from local customers. Intra-company loan participations are a corporate strategy to provide Mercantile banks with earning assets as an incentive for gathering lower-cost retail core deposits in their local markets. As core deposits are considered the most stable source of funds and are generally the least costly, this strategy aids liquidity and benefits net interest income for the Corporation. The respective ratios of average core deposits to earning assets for the Community Banks and Kansas City Area banks were stable at 89.07% and 89.36%, respectively, for 1993 compared with 89.10% and 88.44%, respectively, in 1992. At December 31, 1993, the Parent Company held $65,018,000 in cash, liquid money market investments, U.S. Government securities and available-for-sale securities. The Parent Company's cash requirements consist primarily of operating expenses, dividends to shareholders, and principal and interest payments on debt. Operating expenses are funded by subsidiary bank management fees, while external dividends and debt service are satisfied by quarterly subsidiary bank dividends. In addition, at December 31, 1993, $222,628,000 in additional liquidity from the subsidiary banks was available to the Parent Company as dividends without prior regulatory approval and without reducing the capital of any subsidiary bank below current regulatory guidelines. The Parent Company also borrows funds in the commercial paper market, which are in turn loaned to subsidiaries, and has access to long-term capital markets. Maintaining favorable debt ratings is critical to liquidity because these ratings affect the availability and cost of funds to the Corporation. The Parent Company and Mercantile Bank of St. Louis N.A.'s public ratings are indicated in the Investor Information summary on Page 66. Net cash provided by operating activities in 1993 was $227,131,000. Net income of $116,972,000 and non-cash charges of $110,159,000 accounted for the net cash provided by operating activities. Net cash provided by investing activities was $195,645,000 in 1993. The largest component of cash provided by investing activities was $1,196,976,000 in proceeds from securities' maturities. Investments in debt and equity securities totaling $1,247,589,000 were purchased in 1993. Net cash used for financing activities in 1993 was $343,008,000. INTEREST RATE SENSITIVITY Interest sensitivity is related to liquidity, as each is affected by maturing assets and sources of funds. Interest sensitivity, however, also takes into consideration those assets and liabilities with interest rates which are subject to change prior to maturity. The objective and primary focus of interest sensitivity management is to optimize earnings results, while managing, within internal policy constraints, interest rate risk. Mercantile's policy on rate sensitivity is to manage exposure to potential risks associated with changing interest rates by maintaining a balance sheet posture in which annual net interest income is not significantly aided nor restricted by interest rate 20 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 15 movements. The total absence of risk as well as excessive risk will result in less than acceptable returns; therefore, Mercantile manages its interest sensitivity risk between those two extremes. The growth and stability of the net interest rate margin throughout 1992 and 1993 were consistent with this objective. Interest rate risk at a given point in time can be represented by an interest rate sensitivity position ("gap"). Exhibit 9 presents a summary balance sheet at December 31, 1993 with an interest rate gap analysis that shows the difference between the amount of assets and liabilities maturing or subject to repricing in given time periods. The cumulative gap represents the net position of assets and liabilities subject to repricing over specified periods. A static gap report is one measure of the risk inherent in the existing balance sheet structure as it relates to potential changes in net interest income, and it indicates that the Corporation maintained a relatively balanced position at December 31, 1993. Because that portrayal does not capture many factors which determine interest rate risk, Mercantile places more emphasis on a simulation model to measure changes in net interest income which might occur due to changes in interest rates. Under different rate and growth assumptions, these projections enable the Corporation to adjust its strategies to protect the net interest rate margin against significant interest rate fluctuations. Uniform sensitivity reports and guidelines are used by the St. Louis Area banks, Community Banks and Kansas City Area banks. ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 9 INTEREST RATE SENSITIVITY ($ IN MILLIONS)
DECEMBER 31, 1993 TOTAL VARIABLE 1-3 4-6 7-12 1 YEAR OVER RATE MONTHS MONTHS MONTHS OR LESS 1 YEAR TOTAL -------- ------ ------ ------ ------- ------ ----- EARNING ASSETS Total loans and leases(1) $1,181 $1,649 $469 $ 718 $4,017 $2,269 $6,286 Investments in debt and equity securities - 280 177 530 987 1,951 2,938 Short-term investments 184 119 25 - 328 - 328 ------ ------ ---- ----- ------ ----- ------ Total Earning Assets $1,365 $2,048 $671 $1,248 $5,332 $4,220 $9,552 ====== ====== ==== ====== ====== ====== ====== ACQUIRED FUNDS Interest bearing core deposits(2) $1,514 $ 757 $553 $510 $3,334 $2,910 $6,244 Purchased deposits - 250 79 52 381 48 429 Short-term borrowings 999 72 1 - 1,072 - 1,072 Long-term debt - - - 2 2 218 220 ----- ----- --- ---- ------ ------ ------ Total Interest Bearing Acquired Funds 2,513 1,079 633 564 4,789 3,176 7,965 Non-interest bearing deposits(2) 378 1 - - 379 1,183 1,562 ------ ------ --- --- ------ ------ ------ Total Acquired Funds $2,891 $1,080 $633 $564 $5,168 $4,359 $9,527 ====== ====== ==== ==== ====== ====== ====== GAP ANALYSIS Interest sensitivity gap $(1,526) $968 $38 $684 $164 ======= ==== === ==== ==== Cumulative interest sensitivity gap $(1,526) $(558) $(520) $164 ======= ===== ===== ==== Cumulative ratio of interest-sensitive assets to interest-sensitive liabilities .47 .86 .89 1.03 (F) (1) Non-accrual loans are reported in the "Over 1 Year" category. (2) Mercantile's experience with interest bearing demand, money market accounts, savings and non-interest bearing deposits has been that, although these deposits are subject to immediate withdrawal, a portion of the balances has remained relatively constant in periods of both rising and falling rates. Therefore, a portion of these deposits is included in the "Over 1 Year" category. If these deposits were all included in the "Total 1 Year or Less" category, the cumulative ratio of interest-sensitive assets to interest-sensitive liabilities would be .64. -------------------------------------------------------------------------------------------------------------------------
21 16 FINANCIAL COMMENTARY (CONT'D) Mercantile also uses an extensive internal transfer pricing system at Mercantile Bank of St. Louis N.A. to control interest rate risk. This system centralizes management of interest rate risk, since this bank is the major corporate source of managing short-term changes in interest rate sensitivity, due to its access to external markets that can be used to rapidly adjust its interest sensitivity position. The Community Banks and Kansas City Area banks do not enjoy the flexibility of Mercantile Bank of St. Louis N.A. in managing their interest-sensitivity positions because of the basic retail and corporate middle-market nature of their businesses and their high percentages of core deposits. However, their positions are reviewed monthly by the corporate Asset/Liability Management Committee and no individual bank is permitted to maintain an overly sensitive position for an extended period. The Corporation has successfully met its interest sensitivity objectives, primarily by shifting the average composition of interest rate maturities of various assets and liabilities, and not through the use of off- balance-sheet instruments. Current model projections indicate minimal change in the level of net interest income if interest rates should rise or fall moderately from their current levels. Within certain limits, in a declining interest rate environment, net interest income will generally be enhanced with a negative interest sensitivity gap position, while if rates trend upward, net interest income will be negatively impacted. The potential impacts on net interest income would be the opposite with a positive gap position. Management believes the Corporation is appropriately positioned for future rate movements, taking into consideration the current economic environment. DEPOSITS Deposits are the primary funding source for the Corporation's banks and are acquired from a broad base of local markets, including both individual and corporate customers. Total deposits at December 31, 1993 were $8.2 billion, a 3.0% decline from the $8.5 billion of a year ago. On average, total deposits grew by $242,380,000 or 2.9%, largely as a result of the deposits acquired in bank purchases and higher levels of non-interest bearing demand balances to pay for services in the current low interest rate environment. ------------------------------------------------------------------------------------------------------------------------ EXHIBIT 10 FUNDING MIX
COMPONENTS OF SOURCES TO FUND EARNING ASSETS* ACQUIRED FUNDS 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Deposits Non-interest bearing 18.77% 16.72% 15.54% 17.00% 18.45% Interest bearing demand 14.09 12.30 10.36 10.18 10.46 Money market accounts 14.98 14.59 12.80 12.33 11.04 Savings 7.06 6.20 5.21 5.16 5.58 Consumer time certificates under $100,000 29.39 34.12 38.27 36.27 33.34 Other time .85 1.16 1.02 1.21 1.17 ------ ------ ------ ------ ------ Total Core Deposits 85.14 85.09 83.20 82.15 80.04 Time certificates $100,000 and over 4.47 5.67 7.04 8.44 10.34 Foreign .32 .25 .40 .67 .52 ------ ------ ------ ------ ------ Total Purchased Deposits 4.79 5.92 7.44 9.11 10.86 ------ ------ ------ ------ ------ Total Deposits 89.93 91.01 90.64 91.26 90.90 Short-term borrowings 8.10 8.06 8.93 9.92 10.75 Long-term debt 2.32 1.93 1.74 1.96 2.20 ------ ------ ------ ------ ------ Total Acquired Funds 100.35 101.00 101.31 103.14 103.85 Other (8.57) (8.44) (8.38) (9.78) (10.94) SHAREHOLDERS' EQUITY 8.22 7.44 7.07 6.64 7.09 ------ ------ ------ ------ ------ Total Sources to Fund Earning Assets 100.00% 100.00% 100.00% 100.00% 100.00% ====== ====== ====== ====== ====== (F) *Based on average balances. ------------------------------------------------------------------------------------------------------------------------
[EXHIBIT 11 SOURCES OF FUNDS GRAPH] 22 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 17 Core deposits are Mercantile's largest, most reliable and most important funding source. Core deposits include both interest bearing and non-interest bearing demand deposits, money market and savings deposits, consumer certificates of deposit and other time deposits. Average core deposits for 1993 increased by $327,668,000 or 4.2% and represented 85.14% of earning assets compared with 85.09% last year. Strategic efforts have focused on strengthening the core deposit base through internal growth and mergers, and the successful execution of this strategy is shown in Exhibit 14. Mercantile will continue to emphasize core deposits as its primary funding source. Exhibit 10 details the growth in average core deposits relative to earning assets over the past five years and the reduced dependence on historically less stable sources of purchased funds. -------------------------------------------------------------------------------------------------------------------------- EXHIBIT 12 DEPOSITS (THOUSANDS)
DECEMBER 31 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Non-interest bearing $1,561,757 $1,413,386 $1,297,918 $1,404,388 $1,338,606 Interest bearing demand 1,433,251 1,318,685 919,449 732,726 704,847 Money market accounts 1,430,416 1,490,227 1,101,710 947,449 770,189 Savings 706,310 637,615 442,056 373,167 357,649 Consumer time certificates under $100,000 2,638,790 3,032,527 2,982,674 2,877,672 2,380,972 Other time 35,438 123,669 75,180 66,243 87,966 ---------- ---------- ---------- ---------- ---------- Total Core Deposits 7,805,962 8,016,109 6,818,987 6,401,645 5,640,229 Time certificates $100,000 and over 403,433 451,833 549,652 575,069 600,332 Foreign 26,085 19,650 13,937 11,014 32,699 ---------- ---------- ---------- ---------- ---------- Total Purchased Deposits 429,518 471,483 563,589 586,083 633,031 ---------- ---------- ---------- ---------- ---------- Total Deposits $8,235,480 $8,487,592 $7,382,576 $6,987,728 $6,273,260 ========== ========== ========== ========== ========== --------------------------------------------------------------------------------------------------------------------------
The most substantial growth within average core deposits was in non-interest bearing accounts, which increased by $260,727,000 or 17.0%. Lower interest rates meant corporate customers were required to maintain larger compensating balances to pay for services provided. In addition, one significant customer which pays for services with non-interest bearing deposits rather than fees substantially increased that relationship during the year. Non- interest bearing accounts were 18.77% of average earning assets in 1993 versus 16.72% last year. Average savings and interest bearing demand accounts grew by $105,288,000 or 18.5% and $217,269,000 or 19.2%, respectively. Lower interest rates on retail certificates of deposit in 1993 made savings accounts more attractive. Average money market accounts grew by $92,345,000 or 6.9%, due to both acquired deposits and internal disintermediation into more liquid short-term accounts from longer-term certificates of deposit. These three lower-cost sources of funds grew to 36.13% of earning assets from 33.09% in 1992. Other time deposits declined by $24,721,000 or 23.2%, as such deposits were not solicited as aggressively unless they could be profitably reinvested. Average retail certificates declined by $323,240,000 or 10.3%, and represented 29.39% of earning assets, the lowest level since 1988. ---------------------------------------------------------------------------------------------------------------------- EXHIBIT 13 MATURITY OF DOMESTIC TIME DEPOSITS $100,000 AND OVER (THOUSANDS)
DECEMBER 31, 1993 CERTIFICATES OTHER TIME OF DEPOSIT DEPOSITS TOTAL ------------ ---------- ----- Three months or less $223,673 $12,059 $235,732 Over three through six months 78,694 11,115 89,809 Over six through twelve months 51,921 10,240 62,161 Over twelve months 49,145 - 49,145 -------- ------ -------- Total $403,433 $33,414 $436,847 ======== ======= ======== ----------------------------------------------------------------------------------------------------------------------
[EXHIBIT 14 CORE DEPOSITS GRAPH] 23 18 FINANCIAL COMMENTARY (CONT'D) For the sixth consecutive year, increased levels of core deposits continued to replace the traditionally more costly and less stable purchased certificates of deposit greater than $100,000 and foreign branch deposits. These combined funding sources continued to shrink and represented only 4.79% of average earning assets during 1993 compared with 5.92% in 1992 and 7.44% in 1991. Most of the remaining large deposits were gathered from the local retail, commercial and institutional customer base, which provided a natural access to purchased funds and, accordingly, tended to be less volatile than other categories of purchased funds. Exhibit 13 portrays the maturities of domestic time deposits $100,000 and over. SHORT-TERM BORROWED FUNDS AND SHORT-TERM INVESTMENTS Average short-term borrowed funds increased by $34,364,000 or 4.6% during 1993, while average short-term investments increased by $10,284,000 or 3.4%. These funding changes coincided with liquidity goals and balance sheet management strategies which were consistent with the strategies employed in 1992 and prior years. Short-term borrowings are an alternative to other funding sources, such as large certificates of deposit and Eurodollar deposits, and consist primarily of federal funds purchased, treasury tax and loan note option accounts, securities sold under agreements to repurchase, and commercial paper issued by the Corporation. These sources of funding are utilized primarily by Mercantile Bank of St. Louis N.A. and volumes are monitored by the Asset/Liability Management Committee. As a major bank in the Midwest with a large correspondent bank network and corporate account base, Mercantile Bank of St. Louis N.A. purchases excess funds from correspondent banks and borrows on a short-term basis from commercial customers. Accordingly, most of Mercantile's short-term borrowings can be considered as a stable source of funds, similar to core deposits. Depending on funding requirements and liquidity strategies employed by the Asset/Liability Management Committee, these funds are either used internally or redeployed as short-term investments. Mercantile's commercial paper is rated A-2 by Standard & Poor's and has primarily been used as an additional funding source for Mercantile Bank of St. Louis N.A. The paper is issued principally in the local St. Louis market. The average volume of paper issued in 1993 was $22,629,000. The Corporation has backup lines of credit totaling $40,000,000 with unaffiliated banks in support of its commercial paper. Short-term investments include interest bearing deposits, federal funds sold and securities purchased under agreements to resell. There were no significant interest bearing deposits with foreign banks at December 31, 1993 or 1992. The average volume of short- term investments increased by 3.4% during 1993 from 1992, while the spread on rates earned on these investments compared with short- term borrowed funds dropped to 46 basis points from 97 in 1992. Short-term investments are primarily used for excess liquidity or as investment vehicles to meet overall interest sensitivity objectives. Short-term borrowings, net of short-term investments, averaged $466,000,000 during 1993 compared with $441,920,000 in 1992, and were 4.86% of 1993 average earning assets compared with 4.80% in 1992. CAPITAL RESOURCES The economic and regulatory environment continues to place emphasis on capital strength. Capital provides a solid foundation for anticipated future asset growth, and promotes depositor and investor confidence. Capital management is a continuous process at Mercantile, and ensures that capital is provided for current needs and anticipated growth. Mercantile's strong capital position has enabled it to profitably expand its asset and deposit bases, while maintaining capital ratios comparable to those of other quality banking organizations and substantially in excess of regulatory standards. As of December 31, 1993, shareholders' equity was $841,116,000, an increase of 14.9% from December 31, 1992. Net earnings retained, the common shares issued in the Flora and Mt. Vernon transactions, the adoption of 24 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 19 Financial Accounting Standard ("FAS") 115, "Accounting for Certain Investments in Debt and Equity Securities," and stock issued under various employee benefit plans accounted for the majority of the increase. Equity grew to 8.00% of assets at December 31, 1993 compared with 6.92% a year ago. The Corporation's Tier I capital to risk-adjusted assets ratio was 10.74% at December 31, 1993, while the Total capital ratio was 14.47%. These ratios compared favorably with established regulatory minimums of 4.0% and 8.0%, respectively, and the December 31, 1992 ratios of 9.28% and 13.11%, respectively. The regulatory leverage ratio, which places a constraint on the degree to which a banking company can leverage its equity capital base, was 7.40% at December 31, 1993, well in excess of the regulatory minimum and last year's ratio of 6.30%. Changes have been proposed to the risk-based capital computations to incorporate interest rate risk. As currently proposed, the Corporation does not believe these changes would have a material effect on its capital ratios. The equity to assets ratios for Mercantile Bank of St. Louis N.A., the Community Banks and the Kansas City Area banks at year-end 1993 were 7.48%, 8.84% and 8.88%, respectively. Tier I risk-based capital at Mercantile Bank of St. Louis N.A. was 10.13% of risk- adjusted assets, and in the Community Banks and Kansas City Area banks ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 15 REGULATORY CAPITAL (THOUSANDS)
DECEMBER 31 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Shareholders' equity $ 841,116 $732,014 $606,238 $490,375 $451,588 Total intangible assets (65,926) (67,143) (58,079) (50,797) (42,651) Net fair value adjustment for securities available-for-sale under FAS 115 (3,636) - - - - ---------- ------- ------- ------- ------- Tier I capital 771,554 664,871 548,159 439,578 408,937 Tier II capital 267,669 275,019 113,425 127,790 132,679 ---------- -------- -------- -------- -------- Total Risk-based Capital $1,039,223 $939,890 $661,584 $567,368 $541,616 ========== ======== ======== ======== ======== Risk-adjusted assets $7,182,581 $7,167,618 $6,666,383 $6,715,568 $6,143,305 ========== ========== ========== ========== ========== Quarterly average tangible assets $10,423,162 $10,556,911 $8,828,762 $8,159,254 $7,532,543 =========== =========== ========== ========== ========== -------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------ EXHIBIT 16 CAPITAL RATIOS
DECEMBER 31 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Tier I capital to risk-adjusted assets Capital ratio 10.74% 9.28% 8.22% 6.55% 6.66% Regulatory minimum ratio 4.00 4.00 4.00 4.00 4.00 Total capital to risk-adjusted assets Capital ratio 14.47 13.11 9.92 8.45 8.82 Regulatory minimum ratio 8.00 8.00 8.00 8.00 8.00 Leverage 7.40 6.30 6.21 5.39 5.43 Equity to assets Consolidated 8.00 6.92 6.65 5.73 5.73 Combined bank subsidiaries 8.26 7.34 6.80 6.40 6.40 Double leverage 113.62 116.69 110.46 118.42 120.82 Long-term debt to total capitalization 20.71 25.16 18.16 21.56 24.01 ------------------------------------------------------------------------------------------------------------------------
25 20 FINANCIAL COMMENTARY (CONT'D) the range was from 10.92% to 34.95% at December 31, 1993. The Total capital ratio was 12.33% at Mercantile Bank of St. Louis N.A., with a range of 12.18% to 36.23% in the Community Banks and Kansas City Area banks. All were above the present levels required by regulatory authorities and are monitored individually by the Corporation based on risk and deposit growth potential. At December 31, 1993, all Mercantile banks exceeded both the Tier I and Total risk-based capital ratio "well-capitalized" minimums of 6.0% and 10.0%, respectively. Due to the strength of the capital base at the individual bank subsidiaries, $222,628,000 was available for distribution through dividends to the Parent Company without prior regulatory approval and without reducing the capital of the respective subsidiary banks below present minimum standards. An additional $83,502,000 would be available in the form of loans to the Parent Company under current regulations. The ratio of long-term debt to total capitalization at December 31, 1993 declined to 20.71% from 25.16% at December 31, 1992. A total of $27,738,000 of long-term debt was repaid during 1993 compared with $67,507,000 the previous year. Mercantile Bank of St. Louis N.A. issued $75,000,000 of 10-year, non-callable subordinated debt on January 25, 1994. This debt qualifies as Tier II capital. Mercantile has or intends to use the proceeds of this subordinated debt issue to prepay the $23,653,000 8.25% mortgage outstanding on its headquarters building on February 1, 1994 and the $30,550,000 in 8.50% debentures due in 2004, in the first quarter of 1994. Mercantile's publicly held senior debt and the new bank debt are rated A3 by Moody's, A- by Fitch, BBB + by Standard & Poor's, and A- by Thomson BankWatch. The Fitch, Standard & Poor's, and Thomson BankWatch Issuer ratings were raised this year. ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 17 INTANGIBLE ASSETS (THOUSANDS)
DECEMBER 31 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Goodwill $56,808 $56,121 $48,622 $38,380 $41,146 Core deposit premium 6,645 8,469 6,339 9,811 - Other 2,473 2,553 3,118 2,606 1,505 ------- ------- ------- ------- ------- Total $65,926 $67,143 $58,079 $50,797 $42,651 ======= ======= ======= ======= ======= -------------------------------------------------------------------------------------------------------------------------
The Parent Company's double leverage ratio, which measures the extent to which the equity capital of its subsidiaries is supported by Parent Company debt rather than equity, decreased to 113.62% from 116.69% at December 31, 1992. Intangible assets, which are summarized in Exhibit 17, totaled $65,926,000 at December 31, 1993 compared with $67,143,000 a year ago, a decline of 1.8%. Book value per share at December 31, 1993 was $23.67 compared with $21.00 the prior year's end, an increase of 12.7%. The equity formation rate (defined as net income less dividends, divided by average equity) increased to 10.44% in 1993 from 8.24% in 1992. A cash dividend of $.99 was declared and paid, a 6.5% increase from last year's dividend of $.93. In addition, on February 10, 1994, the quarterly dividend payable April 1, 1994 was increased 13.1% to $.28 per share. Additional data relating to Mercantile's common stock is included in the Investor Information summary on Page 66 of this report. Management has established financial objectives designed to generate future capital through various means, including increasing the returns on assets and equity. Mercantile's dividend policy is influenced by the belief that most shareholders are interested in long-term performance as well as current yield. The current dividend payout level of 29.82% is considered sustainable given the Corporation's present cash flow position, level of earnings, capital position and the strength of its subsidiary banks' capital. Future dividends will be determined based on Mercantile's results of operations, growth expectations, financial condition, regulatory constraints and other factors deemed relevant by the Board of Directors. Exhibits 15 and 16 summarize the capital base of Mercantile, and provide details of the five-year history of significant capital and equity ratios. 26 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 21 ----------------------------------------------------------------------------------------------------------------------- EXHIBIT 18 EARNING ASSET MIX
COMPONENTS OF EARNING ASSETS* ----------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- LOANS AND LEASES Commercial 20.50% 21.83% 25.05% 27.20% 31.37% Real estate-commercial 13.12 13.72 14.24 12.37 10.55 Real estate-construction 1.57 1.77 1.90 2.75 4.69 Real estate-residential 16.16 18.30 18.95 17.71 15.96 Consumer 8.65 9.13 10.64 12.67 11.39 Credit card 6.72 5.48 5.37 5.77 5.40 Foreign .01 .03 .03 - .17 ------ ------ ------ ----- ------ Total Loans and Leases 66.73 70.26 76.18 78.47 79.53 INVESTMENTS IN DEBT AND EQUITY SECURITIES Trading .15 .13 .25 .18 .18 Taxable 27.75 24.52 17.62 16.44 15.36 Tax-exempt 2.13 1.83 1.54 2.11 2.57 ------ ------ ------ ------ ------ Total 30.03 26.48 19.41 18.73 18.11 SHORT-TERM INVESTMENTS 3.24 3.26 4.41 2.80 2.36 ------ ------ ------ ------ ------ Total Earning Assets 100.00% 100.00% 100.00% 100.00% 100.00% ====== ====== ====== ====== ====== (F) *Based on average balances. -----------------------------------------------------------------------------------------------------------------------
[EXHIBIT 19 EARNING ASSETS GRAPH] INVESTMENTS IN DEBT AND EQUITY SECURITIES The Corporation's investment portfolio serves three important functions. First, it is a vehicle for adjusting balance sheet rate sensitivity and protecting against the impact of changes in interest rate movements by managing the purchases and maturities of securities; second, it is a means for investment of excess funds, depending on loan demand; and, third, it provides potential liquidity. The investment portfolio is structured to maximize the return on invested funds within acceptable interest rate risk guidelines and to meet pledging requirements, while giving consideration to loan demand, credit risk, future liquidity needs, balance sheet strategies and the outlook for trends in interest rates. On December 31, 1993, Mercantile adopted FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." FAS 115 requires investment securities be classified into three categories- trading, available-for-sale and held-to-maturity. The Corporation has always held a small amount of trading securities; these securities had an average balance of $14,008,000 during 1993. On December 31, 1993, $227,142,000 of securities, primarily short-term U.S. government securities, were identified in the available-for- sale category. Such securities represented 7.73% of the year-end investment portfolio and had an after-tax appreciation of $3,636,000, which was added to shareholders' equity. Note E to the Consolidated Financial Statements thoroughly describes FAS 115 and provides a detailed breakdown of the components of the investment portfolio. After loans, securities are the largest category of earning assets. During 1993, average securities represented 30.03% of earning assets compared with 26.48% for 1992 and 19.41% for 1991. Investment securities totaled $2.94 billion at December 31, 1993 compared with $2.80 billion at December 31, 1992, an increase of $134,622,000 or 4.8%. Some 85.61% of the year-end held-to-maturity and available-for-sale portfolios consisted of U.S. Treasury and other U.S. government agency securities, including 18.69% in mortgage-related issues; 10.85% was invested in state and municipal securities; and 3.54% was other miscellaneous securities, primarily high-grade asset- backed securities. The comparable distribution at year-end 1992 was 85.73%, 7.14% and 7.13%, respectively. 27 22 FINANCIAL COMMENTARY (CONT'D) ------------------------------------------------------------------------------------------------------------------------ EXHIBIT 20 INVESTMENTS IN DEBT AND EQUITY SECURITIES(1) (THOUSANDS)
DECEMBER 31 1993 1992 1991 ---- ---- ---- AVAILABLE-FOR-SALE (ESTIMATED FAIR VALUE)(2) U.S. government $195,049 $ - $ - State and political subdivisions-tax-exempt 15,173 - - Other 16,920 - - -------- ------- ------- Total $227,142 $ - $ - ======== ======= ======= HELD-TO-MATURITY (AMORTIZED COST) U.S. government $2,306,745 $2,388,324 $1,571,276 State and political subdivisions: Tax-exempt 202,901 191,019 150,416 Taxable 99,015 7,742 - ---------- ---------- --------- Total State and Political Subdivisions 301,916 198,761 150,416 Other 86,538 198,685 155,455 ---------- ---------- ---------- Total $2,695,199 $2,785,770 $1,877,147 ========== ========== ========== (F) (1) This exhibit excludes trading securities, which are reported at estimated fair value on the Consolidated Balance Sheet. Trading securities totaled $15,735,000, $17,684,000 and $23,637,000 at December 31, 1993, 1992 and 1991, respectively. (2) Debt and equity securities with an amortized cost of $221,547,000 were classified as available-for-sale at December 31, 1993 upon the Corporation's adoption of FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." A market valuation account of $5,595,000 was established to increase the recorded balance of available- for-sale securities at December 31, 1993, to their estimated fair value on that date. ------------------------------------------------------------------------------------------------------------------------
The average stated maturity of the portfolio, excluding trading securities, declined slightly at the end of 1993 to two years and three months from two years and five months at year-end 1992. As funding in excess of loan demand was generated in 1993, securities were generally added with maturities of two to four years to match the expected average maturity of retail deposits and to fit within the projected interest sensitivity position of the Corporation. The overall taxable-equivalent yield of the portfolio decreased during 1993 to 5.93% from 7.04% in 1992. While the yield dropped by 111 basis points, the overall cost of funds for the Corporation declined by 95 basis points. At year-end, the estimated fair market value of the held-to- maturity plus available-for-sale portfolios was $2.96 billion, an unrealized appreciation of $46,804,000 or 1.60% from the amortized cost. This is compared with the December 31, 1992 unrealized appreciation of $58,912,000 or 2.11%. The unrealized appreciation in the U.S. government and government agency, state and municipal, and other securities portfolios were $34,998,000, $7,972,000 and $3,834,000, respectively. Gross unrealized gains on held-to- maturity and available-for-sale securities at December 31, 1993 were $53,095,000, while gross unrealized losses were $6,291,000. ------------------------------------------------------------------------------------------------------------------------ EXHIBIT 21 SECURITIES OF STATE AND POLITICAL SUBDIVISIONS BY QUALITY RATING ($ IN THOUSANDS)
DECEMBER 31 1993 1992 1991 ----------------------- ---- ---- MOODY'S PAR RATINGS VALUE PERCENT PERCENT PERCENT -------- ----- ------- ------- ------- Aaa $114,350 36.47 14.89 14.10 Aa 67,965 21.67 28.02 22.75 A1 47,125 15.03 20.24 15.57 A 33,255 10.60 13.88 12.97 -------- ------ ------ ------ Subtotal 262,695 83.77 77.03 65.39 Baa 1 3,405 1.09 1.80 2.36 Baa 1,155 .37 .36 1.20 Ba - - .12 .19 Caa - - - .50 Not rated 46,328 14.77 20.69 30.36 -------- ------ ------ ------ Total $313,583 100.00 100.00 100.00 ======== ====== ====== ====== ------------------------------------------------------------------------------------------------------------------------
28 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 23 Exhibit 21 presents the distribution of state and municipal securities by investment grade. As noted, 83.77% of the state and municipal securities held were rated A or higher by Moody's Investors Service. Of the remaining securities, most were non-rated bonds because of the size of the issue and the expense associated with obtaining a rating. These bonds generally represented small local issues purchased by subsidiary banks, which are evaluated internally for creditworthiness on an ongoing basis similar to loans. Mercantile's commitment to its expanding region continued to be reflected by the holdings of securities of Missouri, Illinois and Kansas, and their local governmental units, although securities of many other states were held in the portfolio. At December 31, 1993, investments in securities of Missouri, Illinois and Kansas, and their political subdivisions, amounted to $124,779,000 or 39.35% of state and municipal securities. However, securities of any one single political subdivision in any of these states did not exceed 1.84% of shareholders' equity at December 31, 1993. Outside of Missouri, Illinois and Kansas, securities of no single issuer exceeded 1.45% of shareholders' equity. LOANS Loans are the primary earning asset of the Corporation and were $6.29 billion at December 31, 1993, down $225,648,000 or 3.5% from year-end 1992. This decline occurred primarily at Mercantile Bank of St. Louis N.A. due to the lack of quality loan demand, a planned reduction in average loan size, slow economic growth, the planned paydown of commercial real estate credits, and residential mortgage refinancing activity, which transferred adjustable-rate portfolio loans into fixed-rate loans that were sold in the secondary market with servicing rights retained. [EXHIBIT 22 LOANS AND LEASES GRAPH] Mercantile's loan portfolio is diversified, and therefore spreads the risk and reduces exposure to economic downturns, which may occur in different segments of the economy or in different industries. In addition, the portfolio was balanced at 52% commercial and 48% consumer-related. The composition of the portfolio was geographically dispersed primarily in areas where the Corporation has a direct presence. Note M provides more details on concentrations of credit and the overall loan portfolio. The portfolio mix has undergone a favorable shift in recent years, as business development efforts have focused on expanding middle- market commercial and consumer loans. This shift has been complemented by comparable portfolios added in mergers. The 1993 average loan to deposit ratios for the Corporation, Mercantile Bank of St. Louis N.A., the Community Banks and the Kansas City Area banks were 74.21%, 77.14%, 74.56% and 59.87%, respectively, all down from 1992. Exhibit 18 portrays the components of earning assets and indicates the relative decline of loans as a percentage of average earning assets over the last three years. During 1993 commercial loans averaged $1.96 billion and represented 30.73% of the loan portfolio compared with $2.01 billion and 31.08% for 1992. Commercial loans remained the largest category of loans, even though loan volume declined by $44,735,000 or 2.2%. The lack of commercial loan growth during the past few years was indicative of sluggish economic conditions and management's continued focus on improving asset quality, reducing average loan size and pursuing targeted marketing strategies for overall quality growth. Average commercial real estate mortgage and construction loans decreased by $17,665,000 or 1.2% and represented 22.02% of the total loan portfolio, the same level as in 1992. Nearly 34% of commercial mortgage and construction loans were held by Mercantile Bank of St. Louis N.A., with the balance, relating to projects in Missouri, Illinois and Kansas, originated by the Corporation's other banks. Few construction loans were made in 1993, as excess office and industrial capacity existed in most of the Corporation's markets. Commercial mortgage loans continued to pay down in 1993 as well. Commercial real estate loans are generally secured by the underlying property at a 75% to 80% loan-to-appraisal value and are typically supported by guarantees from the project 29 24 FINANCIAL COMMENTARY (CONT'D) --------------------------------------------------------------------------------------------------------------------------- EXHIBIT 23 LOAN AND LEASE PORTFOLIO MATURITIES* (MILLIONS)
ONE TO FIVE YEARS OVER FIVE YEARS ------------------ ------------------ UNDER FIXED FLOATING FIXED FLOATING DECEMBER 31 ONE YEAR RATE RATE RATE RATE 1993 1992 1991 1990 1989 -------- ------- -------- ----- ---------- ---- ---- ---- ---- ---- Commercial $ 884 $ 333 $ 308 $243 $ 117 $1,885 $1,986 $1,964 $2,079 $2,083 Real estate-commercial 391 303 252 71 203 1,220 1,301 1,125 994 734 Real estate-construction 97 10 41 6 3 157 161 154 142 280 Real estate-residential 134 141 53 416 699 1,443 1,622 1,470 1,466 1,154 Consumer 171 351 258 54 11 845 851 803 867 772 Credit card - 610 126 - - 736 589 466 436 416 Foreign - - - - - - 2 3 - - ----- ----- ----- --- ----- ----- ------ ------ ----- ----- Total Loans and Leases $1,677 $1,748 $1,038 $790 $1,033 $6,286 $6,512 $5,985 $5,984 $5,439 ====== ====== ====== ==== ====== ====== ====== ====== ====== ====== (F) *Non-accrual loans are reported at contractual maturities and rates. ---------------------------------------------------------------------------------------------------------------------------
developers. Additional collateral may be taken as deemed necessary. Exhibit 24 summarizes the distribution of commercial and construction real estate loans by collateral and state. Approximately 93% of these loans were in the Corporation's primary markets of Missouri, Illinois and Kansas. Average residential real estate mortgage loans declined by $135,149,000 or 8.0% and represented 24.21% of the loan portfolio compared with 26.04% during 1992. As previously discussed, this decrease was due both to paydowns and refinancings by customers into long-term fixed-rate loans, which were subsequently sold in the secondary market with servicing retained. Mercantile currently services a residential real estate loan portfolio of $1.5 billion and generated $263 million in new servicing volume during 1993. -------------------------------------------------------------------------------------------------------------------------- EXHIBIT 24 REAL ESTATE COMMERCIAL AND CONSTRUCTION LOAN PORTFOLIO (THOUSANDS)
DECEMBER 31, 1993 --------------------------------------------------------------------------- MISSOURI ILLINOIS KANSAS OTHER TOTAL -------- -------- ------ ----- ----- Land and land developments $ 40,608 $ 2,180 $ 9,826 $ 1,830 $ 54,444 Hotels 41,173 3,853 230 10,660 55,916 Apartments 111,385 6,062 14,200 714 132,361 Retail/shopping centers 67,932 19,174 20,709 27,288 135,103 Office buildings and warehouses 186,654 7,016 99,560 31,160 324,390 Nursing homes, restaurants and other 188,756 6,037 54,724 20,848 270,365 ---------- ------- -------- ------- ---------- Total Urban Banks 636,508 44,322 199,249 92,500 972,579 Total Rural Banks 371,749 32,508 - - 404,257 ---------- ------- ------- ------ ---------- Total $1,008,257 $76,830 $199,249 $92,500 $1,376,836 ========== ======= ======== ======= ========== --------------------------------------------------------------------------------------------------------------------------
Average consumer loans decreased $11,716,000 or 1.4% to $828,330,000 and represented 12.96% of the average loan portfolio, the same relative level as last year. The major component of this category was indirect auto lending at Mercantile Bank of St. Louis N.A., which has a leadership position in the St. Louis market and is currently pursuing expansion into the Kansas City, Springfield, Missouri and Columbia, Missouri markets. Indirect consumer loans were relatively flat with 1992, while direct consumer loans decreased 3.6% due to consumer preference for home equity lines and the availability of higher credit limits on credit card loans. 30 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 25 Average credit card loan volume was up $139,267,000 or 27.6% when compared with 1992, and represented 10.06% of the total loan portfolio in 1993 compared with 7.80% the prior year. Selective increases in line limits, cross-selling to existing customers, new customers from acquisitions and favorable response to direct mail campaigns in selected Mercantile markets accounted for the growth. The overall taxable-equivalent yield of the loan portfolio decreased by 34 basis points to 8.52% in 1993, roughly the same drop as the 25-basis-point decrease in the average prime rate. As shown in Exhibit 23, which portrays the maturity and interest sensitivity of the portfolio, 59.62% was priced at floating rates or maturing within one year. Certain loan categories are more rate- sensitive than others and follow general rate changes more closely. RISK MANAGEMENT AND THE RESERVE FOR POSSIBLE LOAN LOSSES The underlying objectives of Mercantile's credit management policy are to identify and manage credit exposure, and to support the growth of a profitable and high quality loan portfolio. At Mercantile these functions are ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 25 RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- BEGINNING BALANCE $154,666 $136,542 $138,595 $134,849 $ 91,700 PROVISION 50,432 68,488 53,445 48,009 97,150 CHARGE-OFFS Commercial 14,936 21,000 18,961 20,389 23,408 Real estate-commercial 30,701 31,644 21,480 8,011 13,848 Real estate-construction 344 1,487 1,158 2,075 8,938 Real estate-residential 1,635 1,643 1,457 1,144 1,438 Consumer 4,000 5,553 6,844 5,791 5,567 Credit card 30,595 20,172 21,530 17,406 11,298 Foreign - - - - 8,932 ------- ------- ------- ------- -------- Total Charge-offs 82,211 81,499 71,430 54,816 73,429 RECOVERIES Commercial 11,179 5,098 5,982 5,699 6,736 Real estate-commercial 4,369 2,669 674 962 326 Real estate-construction 682 154 461 192 961 Real estate-residential 353 494 144 196 303 Consumer 2,226 2,346 1,528 1,280 1,122 Credit card 3,429 2,003 1,521 989 1,416 Foreign 930 383 1,216 1,235 1,341 -------- -------- -------- -------- -------- Total Recoveries 23,168 13,147 11,526 10,553 12,205 -------- -------- -------- -------- -------- NET CHARGE-OFFS 59,043 68,352 59,904 44,263 61,224 ACQUIRED RESERVES 2,242 17,988 4,406 - 7,223 -------- -------- -------- ------- -------- ENDING BALANCE $148,297 $154,666 $136,542 $138,595 $134,849 ======== ======== ======== ======== ======== LOANS AND LEASES December 31 balance $6,286,445 $6,512,093 $5,985,211 $5,983,991 $5,438,656 ========== ========== ========== ========== ========== Average balance $6,391,704 $6,463,064 $5,868,992 $5,564,972 $5,108,556 ========== ========== ========== ========== ========== RATIOS Reserve balance to outstanding loans 2.36% 2.38% 2.28% 2.32% 2.48% Reserve balance to non-performing loans 371.98 173.43 124.06 134.81 141.07 Domestic net charge-offs to average loans .94 1.06 1.04 .82 1.05 Net charge-offs to average loans .92 1.06 1.02 .80 1.20 Earnings coverage of net charge-offs 3.97X 2.90x 2.68x 3.07x 1.62x -------------------------------------------------------------------------------------------------------------------------
31 26 FINANCIAL COMMENTARY (CONT'D) performed centrally by corporate Credit Administration, which provides management with extensive information on risk levels, trends, delinquencies, portfolio concentrations and internal ratings. Credit Administration includes corporate Credit Policy, approval of large credits and corporate Credit Review. At Mercantile Bank of St. Louis N.A., Credit Administration also provides special asset teams that promptly concentrate on identified problem loans and workout situations when necessary, as well as the management of foreclosed property. Mercantile utilizes a lender-initiated system of rating credits, which is subsequently tested by Credit Review, external auditors and bank regulators. Adversely rated credits are included on a watch list, and are reviewed at the bank level and centrally on a quarterly basis, at minimum. [EXHIBIT 26 NON-PERFORMING LOAN COVERAGE GRAPH] The reserve for possible loan losses represents the aggregate reserves of the Corporation's banking subsidiaries, and at December 31, 1993 was $148,297,000 compared with $154,666,000 at the end of 1992. Loans outstanding declined by 3.5%, which resulted in a year- end 1993 ratio of the reserve for possible loan losses to outstanding loans of 2.36% compared with 2.38% at December 31, 1992. The reserve as a percentage of non-performing loans grew to 371.98% compared with 173.43% last year. In 1993 the provision for possible loan losses decreased by $18,056,000 or 26.4% to $50,432,000 compared with $68,488,000 last year. The provision is the annual cost of providing a reserve for anticipated future loan losses. In any accounting period, the amount of provision is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management's assessments of loan quality, general economic factors and collateral values. All of these factors were considered in determining the Corporation's provision level, which, as a percentage of average loans, was .79% in 1993 compared with 1.06% in 1992. This lower 1993 provision reflected an improvement in asset quality, lower actual loan losses and declining levels of non-performing loans. During 1993 reserves of $2,242,000 were also added to the Corporation's reserve for possible loan losses from the two purchase acquisitions. The ratio of net charge-offs to average loans for 1993 was .92% compared with 1.06% in 1992. The actual net charge-off figures were $59,043,000 and $68,352,000, respectively. On a quarterly basis, the ratio of net charge-offs to average loans declined from the levels of 1.48% and 1.18% experienced in the first two quarters of 1993 to .36% and .66% in the third and fourth quarters. Net charge- offs for 1993 were almost entirely attributable to three borrowers of Mercantile Bank of St. Louis N.A. and from the credit card portfolio. At Mercantile Bank of St. Louis N.A., the ratio of net charge-offs to average loans for 1993 was 1.18% compared with 1.17% in 1992. The increase was due primarily to write-downs on two commercial real estate loans and one commercial loan. In the Kansas City Area banks, the ratio of net charge-offs to average loans was .47% versus 1.15% last year. For the Community Banks, the comparative ratios were .80% and .90% during 1993 and 1992, respectively. Credit card losses were 4.22% of average credit card loans for 1993 compared with 3.61% in 1992, as net credit card charge-offs were $27,166,000 for 1993 compared with $18,169,000 last year. Credit card charge-offs were recorded primarily in the Kansas City, Missouri bank and in the Community Banks, which held 72.83% of the credit card loans at December 31, 1993. The 1993 loss rate of 4.22% was in line with peer averages. By credit policy, losses are taken after six cycles of non-payment or notice of personal bankruptcy, if earlier. Excluding credit card losses, the ratio of net charge- offs to average loans was .19% in the Community Banks and .12% in the Kansas City Area banks. Mercantile's other significant category of net charge-offs in 1993 was in commercial real estate mortgages, primarily at Mercantile Bank of St. Louis N.A., as discussed previously. The soft commercial real estate market continued to cause difficulties with certain borrowers. Total commercial real estate mortgage net charge-offs were $26,332,000 in 1993 compared with $28,975,000 in 1992, and represented 2.10% of average commercial real estate mortgage loans, compared with 2.30% last year. 32 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 27 ---------------------------------------------------------------------------------------------------------------------------- EXHIBIT 27 ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
DECEMBER 31 1993 1992 1991 1990 1989 ------------------ ------------------- ------------------- ------------------ ------------------ PERCENT PERCENT PERCENT PERCENT PERCENT OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE* LOANS --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- Commercial $ 18,856 29.99 $ 28,549 30.49 $ 25,918 32.82 $ 30,738 34.74 $ 42,572 38.29 Real estate- commercial 31,963 19.41 38,983 19.98 44,582 18.79 39,481 16.61 - 13.50 Real estate- construction 1,569 2.49 4,296 2.47 5,244 2.57 5,506 2.38 23,459 5.14 Real estate- residential 4,472 22.95 3,801 24.91 2,524 24.56 1,999 24.50 17,928 21.23 Consumer 5,070 13.44 7,622 13.07 6,253 13.42 5,199 14.49 10,544 14.19 Credit card 31,207 11.71 25,037 9.05 16,733 7.79 17,041 7.28 13,800 7.65 Foreign - .01 - .03 - .05 - - - - Unallocated 55,160 N/A 46,378 N/A 35,288 N/A 38,631 N/A 26,546 N/A -------- ------ -------- ------ -------- ------ -------- ------ ------- ------ Total $148,297 100.00 $154,666 100.00 $136,542 100.00 $138,595 100.00 $134,849 100.00 ======== ====== ======== ====== ======== ====== ======== ====== ======== ====== (F) *Real estate-commercial allocated reserve for 1989 is included with Real estate-residential. ----------------------------------------------------------------------------------------------------------------------------
Commercial loan net losses decreased from $15,902,000 in 1992 to $3,757,000 in 1993. These losses represented only .19% of 1993 average commercial loans versus .79% in 1992. Recoveries on foreign loans charged off in 1990 and prior years added $930,000 to the reserve in 1993 and $383,000 during 1992. Residential real estate loan net charge-offs for 1993 totaled $1,282,000 and represented .08% of average residential real estate loans. Other consumer net loan losses totaled $1,774,000 compared with the year-ago $3,207,000 and were .21% of average consumer loans versus .38% last year. By policy, all consumer loans are generally charged off after four cycles of non-payment. The Corporation formally evaluates the problem loan portfolios and reserves of all banks on at least a quarterly basis to ensure the accurate and timely accounting for troubled credits and to review the adequacy of each bank's reserve for possible loan losses. This review is performed preliminarily by each bank and is validated by both the corporate Credit Review Division and a Credit Committee chaired by the Chief Credit Officer. Factors considered in determining reserve adequacy include: volumes and trends in delinquencies and non-performing loans; specific loan ratings and outstandings; historical and projected loss experience based on volumes and types of loans; the results of independent internal loan ratings or external credit reviews; industrial or geographical concentrations; national, regional and/or specific industry economic conditions; off-balance-sheet risk; and other subjective factors. Every significant criticized credit is initially reviewed by the respective bank and a secondary review is performed at the corporate level quarterly to confirm the risk rating, proper accounting, adequacy of strategy and loan loss reserve. In addition to specific reserve allocations, general allocations are based on percentage guidelines for all individually rated loans, whether criticized or not. Additionally, allocations are made for unrated loans, such as residential mortgage, credit card and other consumer loans, based on historical loss experience adjusted for portfolio activity and current economic trends. These allocated reserves are further supplemented by unallocated reserves in each bank, based on judgments regarding risk of error, local economic conditions and any other relevant factors. 33 28 FINANCIAL COMMENTARY (CONT'D) At December 31, 1993, the level of the individual Community Bank reserves as a percentage of total loans outstanding ranged from 1.59% to 7.57%, with a combined ratio of 2.47%. The coverage of non-performing loans was 378.47%. The Mercantile Bank of St. Louis N.A. reserve was 2.14% of loans, with a coverage ratio of 351.64%, while the Kansas City Area banks combined reserve was 2.71%, with a coverage ratio of 413.31%. In Exhibit 27, the Corporation has estimated an allocation of the reserve for possible loan losses for the various loan categories. Consideration for making such allocations is consistent with the factors discussed above. Since all of those factors are subject to change, the allocation is not necessarily indicative of the loan categories in which future losses will occur. The total reserve is available to absorb losses from any portion of the loan portfolio. Management believes the consolidated reserve of 2.36% of total loans outstanding and 371.98% of non-performing loans was adequate based on the risks identified at such date in the loan portfolios, and is not aware of any significant risks in the loan portfolio due to concentrations within any particular industry. NON-PERFORMING ASSETS Non-performing assets consist of non-accrual loans, renegotiated loans and foreclosed property. A summary of these assets for the past five years is presented in Exhibit 28. Non-performing loans (non-accrual and renegotiated) declined $49,316,000 or 55.3% to $39,867,000 or .63% of total loans at December 31, 1993. Foreclosed assets, including in-substance foreclosures, at year-end 1993 declined by 31.8% to $32,347,000 compared with $47,443,000 last year. The ratio of non-performing assets to outstanding loans plus foreclosed assets declined to 1.14% at December 31, 1993 compared with 2.08% last year. These reductions reflect the effectiveness of Credit Administration and the asset workout teams, and show a favorable trend in credit quality, as non-performing asset levels have trended downward for the past six quarters. ------------------------------------------------------------------------------------------------------------------------- EXHIBIT 28 NON-PERFORMING ASSETS ($ IN THOUSANDS)
DECEMBER 31 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- NON-ACCRUAL LOANS Commercial $ 9,369 $36,128 $ 37,816 $ 41,850 $40,809 Real estate-commercial 16,503 31,538 55,226 39,125 15,388 Real estate-construction 785 1,510 4,031 1,564 13,683 Real estate-residential 7,344 8,924 9,222 9,133 8,344 Consumer 1,732 2,318 960 2,644 320 ------- ------- -------- -------- ------- Total Non-accrual Loans 35,733 80,418 107,255 94,316 78,544 RENEGOTIATED LOANS 4,134 8,765 2,808 8,494 17,043 ------- ------- -------- -------- ------- TOTAL NON-PERFORMING LOANS $39,867 $89,183 $110,063 $102,810 $95,587 ======= ======= ======== ======== ======= FORECLOSED ASSETS Foreclosed real estate $13,104 $39,802 $41,781 $27,090 $32,990 In-substance foreclosures 18,044 4,412 11,351 12,524 - Other foreclosed assets 1,199 3,229 4,822 2,676 2,790 ------- ------- ------- ------- ------- TOTAL FORECLOSED ASSETS $32,347 $47,443 $57,954 $42,290 $35,780 ======= ======= ======= ======= ======= TOTAL NON-PERFORMING ASSETS $72,214 $136,626 $168,017 $145,100 $131,367 ======= ======== ======== ======== ======== PAST-DUE LOANS (90 DAYS OR MORE) $13,937 $12,278 $8,617 $14,461 $7,680 ======= ======= ====== ======= ====== RATIOS Non-performing loans to outstanding loans .63% 1.37% 1.84% 1.72% 1.76% Non-performing assets to outstanding loans and foreclosed assets 1.14 2.08 2.78 2.41 2.40 Non-performing assets to total assets .69 1.29 1.84 1.69 1.67 -------------------------------------------------------------------------------------------------------------------------
34 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 29 Non-accrual loans comprised the largest category of non-performing loans. Generally, non-accrual loans are those for which, in the opinion of management, the timely or ultimate collection of principal and/or interest is unlikely or problematic. Note A to the Consolidated Financial Statements further details the Corporation's policy on accounting for non-accrual loans. As noted in Exhibit 28, non-accrual loans declined by $44,685,000 or 55.6% from last year and totaled $35,733,000 at year-end 1993. Paydowns and write-downs in both the commercial and commercial real estate categories at Mercantile Bank of St. Louis N.A. largely accounted for the change early in the year. Since mid-year 1993, the reduction has resulted largely from repayments and restructurings across the entire Mercantile system. Renegotiated loans are those for which the terms have been restructured beyond those available in the market, in order to aid the borrower by providing a reduction or deferral of interest and/or principal. Renegotiations usually result from a deterioration in the financial condition of the borrower. Renegotiated loans have declined to $4,134,000 from $8,765,000 at year-end 1992, a decline of 52.8%. All loans classified as renegotiated were paying in accordance with their modified terms. Foreclosed assets and in-substance foreclosures declined to $32,347,000 at December 31, 1993 from the 1992 year-end level of $47,443,000, due primarily to sales. Foreclosed assets consisted primarily of real estate and were recorded at the lower of cost or market value. At year-end 1993 the carrying values of all properties were less than appraised value. Seventy-one percent of total foreclosed assets were held by Mercantile Bank of St. Louis N.A. and consisted primarily of real estate. Only one property, which was an in-substance foreclosure, had a book value of over $2,000,000 as of December 31, 1993. That property was transferred to foreclosed real estate on January 4, 1994. It is an office building in downtown St. Louis, which is currently being marketed for sale. The remaining foreclosed property was spread throughout the affiliate bank system in Missouri, southern Illinois and eastern Kansas. ----------------------------------------------------------------------------------------------------------------------- EXHIBIT 29 INTEREST NOT RECORDED ON NON-PERFORMING LOANS (THOUSANDS EXCEPT PER SHARE DATA)
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Interest not accrued $3,519 $6,600 $9,785 $8,210 $7,757 Less cash-basis income 119 239 1,489 365 793 ------ ------ ------ ------ ------ Effect on income before income taxes $3,400 $6,361 $8,296 $7,845 $6,964 ====== ====== ====== ====== ====== Effect on net income $2,210 $4,198 $5,475 $5,178 $4,596 ====== ====== ====== ====== ====== Effect on net income per share $.06 $.12 $.18 $.18 $.17 ==== ==== ==== ==== ==== Interest collected applied to principal $2,617 $4,020 $2,738 $2,037 $1,584 ====== ====== ====== ====== ====== -----------------------------------------------------------------------------------------------------------------------
A further breakdown of non-performing loans at December 31, 1993 indicated that Mercantile Bank of St. Louis N.A. held $16,513,000, which represented .61% of loans outstanding, while the Community Banks' and Kansas City Area banks' totals were $18,064,000 and .65%, and $5,290,000 and .66%, respectively. These ratios compared favorably with 1.73% for Mercantile Bank of St. Louis N.A., 1.03% for the Community Banks and 1.12% for the Kansas City Area banks at last year's end. Exhibit 29 summarizes the effect on net income and earnings per share of interest lost on non-performing loans had they earned on the basis of their original contractual terms. Loans past due 90 days and still accruing interest were $13,937,000 compared with $12,278,000 last year. These loans consisted largely of credit card loans, which represented 85.25% of total past due loans. Credit card loans are fully charged off after six cycles of delinquency. 35 30 FINANCIAL COMMENTARY (CONT'D) "Potential problem loans" at December 31, 1993 amounted to $15,218,000. These are defined as loans and commitments not included in any of the basic non-performing loan categories discussed above, but about which management, through normal internal credit review procedures, has developed information regarding possible credit problems, which may cause the borrowers future difficulties in complying with present loan repayment terms. There were no loans classified for regulatory purposes as loss, doubtful or substandard which were not included above or which caused management to have serious doubts as to the ability of such borrowers to comply with repayment terms. In addition, there were no material commitments to lend additional funds to borrowers whose loans were classified as non-performing, or were past due 90 days or more and still accruing. OFF-BALANCE-SHEET RISK In the normal course of business, there are various commitments and contingent liabilities outstanding which are properly not recorded on the balance sheet, such as letters of credit, commitments under operating leases, commitments to extend credit and interest options. Many of these arrangements are complementary to the loan and deposit products, which are accounted for on the balance sheet. The Corporation's activities in foreign exchange, interest options, futures contracts and forward commitments are minimal. Mercantile offers these products as a financial intermediary, yet at present it does not use any financial derivatives to manage its own interest rate exposure. Standby letters of credit and similar arrangements issued primarily to support corporate obligations commit Mercantile to make payments on behalf of customers contingent upon the occurrence of future specified events. Standbys outstanding were primarily related to customer obligations, such as industrial revenue financings, as well as other financial and performance-related obligations. At December 31, 1993, the Corporation's commitments under standbys aggregated approximately $218,518,000, with $126,401,000 expiring within one year, $76,876,000 expiring within one to five years and $15,241,000 expiring after five years. At year-end 1993, Mercantile subsidiary banks had outstanding unused loan commitments of $4.27 billion, including $2.28 billion in credit card lines and $320,826,000 in home equity credit lines. The remaining commitments were largely to commercial customers in the primary service area of Missouri and its contiguous states. Management does not anticipate any losses which would materially affect the financial condition or results of operations of the Corporation as a result of such commitments and contingent liabilities. Note N to the Consolidated Financial Statements provides further discussion pertaining to these off-balance-sheet activities, and provides information as to the estimated fair values of all financial instruments, including off-balance-sheet financial instruments. OTHER INCOME Emphasis placed on fee-based products remains a key strategy for Mercantile. Non-interest income for 1993 was $175,272,000, up $11,874,000 or 7.3% from the $163,398,000 reported in 1992. This follows a 19.7% improvement over 1991, and a compound growth rate of 11.3% over the past five years. Non-interest income as a percentage of average assets improved to 1.66% compared with 1.61% in 1992 and 1.60% in 1991, and was 27.88% of total adjusted operating income in 1993 versus 28.30% last year. As shown in Exhibit 30, all sources of non-interest income improved over last year, except letter of credit fees, foreclosed property income and securities gains. Other than service charge income and trust fees, the fees earned by entities acquired in recent purchase transactions did not significantly impact the level of non-interest income in 1992 or 1993. 36 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 31 Trust fees continued to be the largest source of non-interest income in 1993 and were $59,719,000, increasing $3,619,000 or 6.5% from $56,100,000 in 1992, following a 16.6% growth in 1992 over 1991. Personal trust fees generated in the St. Louis Area banks were the largest source of trust revenue in 1993 at $20,045,000 and represented 33.57% of trust income even while declining 2.4% from 1992. The decline was due to certain large non-recurring distribution fees received in 1992. Trust revenues in the Kansas City Area banks and Community Banks, which accounted for 25.89% of total trust fees, were largely personal trust fees and grew by 6.4% in 1993. Personal trust assets under management totaled $6.5 billion at December 31, 1993. Trust income generated by Mississippi Valley Advisors Inc., the investment management subsidiary of the lead bank, grew by 14.4%, as fund management fees, new business and revenues from investment services continued to meet growth objectives. Fund results experienced good performance relative to popular market indices and peer group comparisons; these fees represented 21.30% of 1993 trust income. Mississippi Valley Advisors Inc. manages nine Mercantile proprietary mutual funds-the ARCH Funds. These funds had assets of $1.83 billion at December 31, 1993, an increase of 24% during the year. ---------------------------------------------------------------------------------------------------------------------- EXHIBIT 30 OTHER INCOME ($ IN THOUSANDS)
1993 1992 CHANGE 1991 ---- ---- ------ ---- Trust $ 59,719 $ 56,100 6.5% $ 48,121 Investment banking 8,442 7,600 11.1 5,890 Service charges 48,439 45,951 5.4 39,010 Credit card fees 23,135 20,730 11.6 20,031 Securities gains 130 1,848 (93.0) 1,651 Letter of credit fees 6,223 6,774 (8.1) 5,467 Foreclosed property income 2,283 3,978 (42.6) 2,242 Other 26,901 20,417 31.8 14,067 -------- -------- -------- Total Other Income $175,272 $163,398 7.3 $136,479 ======== ======== ======== ----------------------------------------------------------------------------------------------------------------------
[EXHIBIT 31 OTHER INCOME GRAPH] Fees earned for institutional and corporate trust services were up 16.1% when compared with last year and represented 19.24% of total trust fees for 1993. At December 31, 1993, the Corporation held $12.1 billion in assets under investment management and $4.8 billion in non-managed assets, increases of 7.8% and 6.0%, respectively, from year-end 1992. Service charge income of $48,439,000 increased 5.4% from 1992 to 1993, following a 17.8% growth in 1992. Commercial and retail service charges improved due to a higher deposit base, increased transaction volume and selected price increases. Service charges earned by acquired entities largely accounted for the remainder of the growth in service charge income in 1993. Credit card fees were $23,135,000 in 1993, an 11.6% increase from 1992. Credit card income primarily represents fees charged to merchants for processing credit card transactions, fees received on transactions of Mercantile cardholders and cardholder annual fees. The majority of the growth was from fees collected on a higher transaction volume base. Investment banking fees and commissions were $8,442,000 for 1993, up 11.1% from 1992 after a 29.0% growth in 1992. This income represents fees for services performed as a dealer bank for individual customers and corporate customers, including sales of annuities and mutual funds, profits earned on limited trading positions, and foreign exchange commissions. This source of revenue can vary depending on movements in interest rates and overall market conditions. The increase in 1993 was due primarily to an increase in transaction volume from retail brokerage activities. 37 32 FINANCIAL COMMENTARY (CONT'D) The 8.1% decline in letter of credit fees was due largely to a lower volume of standby letters of credit outstanding and a decline in import commercial letters of credit processed. Note N to the Consolidated Financial Statements and the discussion of Off- Balance-Sheet Risk on Page 36 summarize the Corporation's commitments under letters of credit. The 11.7% growth in all other income resulted primarily from gains on lease terminations and enhanced mortgage banking income derived both from gains on the sales of primarily fixed-rate loans and higher servicing fees. Rental income received on foreclosed property owned declined by $1,695,000 or 42.6% from 1992 to 1993, as the volume of property owned dropped by 31.8% and rents received declined accordingly. Securities gains were insignificant at $130,000 in 1993 versus $1,848,000 last year. OTHER EXPENSE Non-interest expenses increased 4.4% in 1993 following a 22.3% increase in 1992. To some extent, year-to-year non-interest expenses are not comparable, due to incremental operating expenses associated with purchase transactions, merger-related expenses and restructuring charges. Excluding those items, operating expenses were up 11.0% from 1991 to 1992 and .9% from 1992 to 1993. In addition, expense levels were affected by higher FDIC assessments in 1992, fluctuating levels of foreclosed property expenses and the 1993 adoption of FAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." Exclusion of these items resulted in expense growth of 8.2% from 1991 to 1992 and 2.0% from 1992 to 1993. ---------------------------------------------------------------------------------------------------------------------- EXHIBIT 32 OTHER EXPENSE ($ IN THOUSANDS)
1993 1992 CHANGE 1991 ---- ---- ------ ---- Salaries $153,890 $142,028 8.4% $125,658 Employee benefits 39,187 29,362 33.5 27,187 -------- -------- -------- Total Personnel Expense 193,077 171,390 12.7 152,845 Net occupancy 24,050 21,526 11.7 17,814 Equipment 29,950 26,308 13.8 24,219 Advertising/business development 8,631 9,750 (11.5) 8,135 Postage and freight 11,730 10,796 8.7 9,589 Office supplies 7,865 7,892 (.3) 6,350 Communications 5,962 5,723 4.2 5,039 Legal and professional 8,741 9,762 (10.5) 7,734 Credit card 10,087 6,414 57.3 5,019 FDIC insurance 18,561 18,360 1.1 14,130 Foreclosed property expense 6,387 12,279 (48.0) 7,524 Intangible asset amortization 5,770 8,094 (28.7) 4,506 Other 55,608 61,687 (9.9) 39,592 -------- -------- -------- Total Other Expense $386,419 $369,981 4.4 $302,496 ======== ======== ======== ----------------------------------------------------------------------------------------------------------------------
[EXHIBIT 33 OTHER EXPENSE GRAPH] Total operating expenses were 3.66% of average assets in 1993 compared with 3.65% in 1992 and 3.55% in 1991; however, the overhead ratio, defined as operating expenses as a percentage of taxable-equivalent net interest income and other income, improved to 61.47% in 1993 versus 64.09% last year and 64.29% in 1991, as the rate of revenue growth exceeded that of expenses. Further reductions of these ratios over time remain a key strategic objective of the Corporation. The largest category of non-interest expense was personnel costs, which in 1993 accounted for 49.97% of total non-interest expense and amounted to $193,077,000 compared with 46.32% and $171,390,000 last year. Salaries increased 8.4%, and reflected the costs of staffing additional offices, higher incentive pay and merit increases. Excluding acquisitions, salaries increased 4.3% in 1993. Benefit costs rose 33.5%, due partially to the adoption of FAS 106, generally higher costs for employee benefits, greater pension expense, larger employee profit sharing contributions and employee benefits for staff added through acquisitions. 38 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 33 At December 31, 1993, Mercantile employed 5,261 full-time equivalent staff, compared with 5,243 at year-end 1992 and 4,803 at December 31, 1991. The changes in the number of full-time equivalent employees reflected staff added from purchase acquisitions, partially offset by staff reductions due to the effects of both acquisition-related synergies and increasing economies of scale. Net income per average employee grew to $22,000 in 1993 from $17,000 in 1992 and $15,000 in 1991, while average assets per average employee was $1,970,000 in 1993 from $1,989,000 last year and $1,769,000 in 1991. The adoption of FAS 106 in the first quarter of 1993 increased employee benefit expense by approximately $2,600,000. The unrecognized transition obligation for postretirement benefits other than pensions approximated $31,893,000 at December 31, 1993, and will be amortized over the next 19 years. FAS 112, "Employers' Accounting for Postemployment Benefits," effective in 1994, relates to accounting for benefits provided to former or inactive employees after employment, but before retirement. Mercantile believes the adoption of this statement will not be material to its financial condition or results of operations. Occupancy and equipment expenses were up 12.9% in 1993 and 13.8% in 1992, reflecting the costs of market expansion, the increased scale of operations, and the costs to upgrade systems and equipment to enhance productivity. Total capital expenditures were $23,749,000, $28,728,000 and $20,385,000 in 1993, 1992 and 1991, respectively. The major components of all other operating expenses for the past three years are shown in Exhibit 32. In general the changes from 1992 to 1993 are less significant due to smaller purchase transactions in 1993 than 1992. Foreclosed property expense declined $5,892,000 or 48.0% to $6,387,000 in 1993, due to the decline in property available for sale and net gains on the sale of other real estate, versus write-downs and net losses in 1992. INCOME TAXES For the year ended December 31, 1993, the Corporation recorded income tax expense of $66,995,000 compared with $44,734,000 in 1992 and $34,549,000 in 1991. The effective tax rate for 1993 was 36.42% compared with 34.40% last year and 32.33% in 1991. Both tax expense and the higher effective tax rates were indicative of the combined effects of growing levels of taxable income, a one-percent increase in the Federal tax rate to 35% in 1993, and a continued reduction in tax-exempt income as a percentage of pre-tax income. During the first quarter of 1993, the Corporation adopted FAS 109, "Accounting for Income Taxes." FAS 109 modified the accounting and reporting for the effects of income taxes. The new standard mandates an asset and liability approach that requires recognition of the amount of taxes payable or refundable in the current year, and deferred tax assets and liabilities for the tax consequences of future events that have been previously recognized differently in financial statements and tax returns. The adoption of FAS 109 resulted in a reduction to retained earnings of $6,900,000 for the tax effects of transactions that occurred prior to January 1, 1988. FAS 109 had no material impact on income tax expense for the years 1991, 1992 or 1993. A three-year summary of significant income tax data is presented in Note J to the Consolidated Financial Statements, which provides an analysis of deferred income taxes, as well as a reconciliation between the amount of taxes computed using the statutory rate and the amount actually recorded. The Corporation currently has no operating loss carryforwards, and federal returns have been examined through 1989 by the Internal Revenue Service. 39 34 FINANCIAL COMMENTARY (CONT'D) FOURTH QUARTER RESULTS Mercantile earned $31,441,000 in the fourth quarter of 1993, which was more than double the $15,608,000 earned last year. On a per share basis, earnings rose 97.8% to $.89 from $.45 the prior year. The return on assets was 1.20% during the quarter compared with .59% in 1992's fourth quarter, while return on equity was 15.18% versus 8.55% last year. Prior year figures included after-tax charges of approximately $8,000,000 to conform the accounting and credit policies of MidAmerican Corporation and Johnson County Bankshares, Inc. to those of Mercantile. Exhibit 34 presents condensed quarterly financial data for the last two years. Net interest income improved by $3,550,000 or 3.3% to $111,707,000, as the net interest rate margin increased from 4.57% to 4.78%, and was partially offset by a 1.5% decline in the volume of average earning assets. Average loan volume was down $272,502,000 or 4.1%, as general loan demand remained sluggish and adjustable-rate mortgages continued to be refinanced into fixed-rate loans that were sold with servicing rights retained. The average securities portfolio increased by $208,049,000 or 7.7% due to securities added from both the acquisition transactions and from investable funds available due to the decline in loans. Average core deposits declined by $88,966,000 or 1.1% due primarily to a decline in retail certificates of deposit, partially offset by growth in interest bearing demand, non-interest bearing demand and savings accounts. Other income increased by 1.7% from the fourth quarter of 1992, reflecting growth in credit card fees, service charges and miscellaneous income, partially offset by a decline in trust fees due to lower distribution fees this quarter, lower securities gains, and declines in both investment banking and letter of credit fees. Other operating expenses were down $4,771,000 or 4.6% from a year ago, which included $6,000,000 of non-recurring conforming charges related to the mergers. The overhead ratio was 61.83% in the current quarter compared with 66.46% last year. The provision for possible loan losses for the fourth quarter was $9,991,000 compared with $24,111,000 the prior year. Last year's provision included $6,000,000 to conform the acquired Kansas banks' reserve policies to those of Mercantile. Net charge-offs were $10,354,000 or .66% of average loans for the quarter compared with the year-earlier $26,384,000 or 1.60%. 40 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 35 ---------------------------------------------------------------------------------------------------------------------------- EXHIBIT 34 QUARTERLY FINANCIAL SUMMARY
1992 1993 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. -------- -------- -------- -------- -------- -------- -------- -------- PER SHARE DATA Net income $ .68 $ .71 $ .70 $ .45 $ .78 $ .80 $ .85 $ .89 Dividends declared .23 1/4 .23 1/4 .23 1/4 .23 1/4 .24 3/4 .24 3/4 .24 3/4 .24 3/4 Book value at period-end 19.43 20.39 20.89 21.00 21.55 22.22 22.93 23.67 Market price at period-end 26 1/8 29 1/8 26 3/8 32 1/8 34 5/8 32 7/8 33 5/8 30 1/8 Average common shares outstanding (thousands) 32,050 33,594 34,476 34,637 34,907 35,245 35,370 35,534 EARNINGS (THOUSANDS) Taxable-equivalent net interest income $92,529 $102,958 $107,952 $110,445 $112,748 $113,808 $113,174 $113,582 Tax-equivalent adjustment 2,079 2,160 2,257 2,288 2,136 1,834 1,921 1,875 ------- -------- -------- -------- -------- -------- -------- -------- Net interest income 90,450 100,798 105,695 108,157 110,612 111,974 111,253 111,707 Provision for possible loan losses 13,588 15,404 15,385 24,111 13,469 14,338 12,634 9,991 Other income 37,720 39,551 41,600 44,527 42,555 44,812 42,620 45,285 Other expense 82,339 89,882 94,764 102,996 96,385 97,446 94,363 98,225 Income taxes 10,466 11,221 13,078 9,969 16,134 16,913 16,613 17,335 ------- -------- -------- -------- -------- -------- -------- -------- Net income $21,777 $ 23,842 $ 24,068 $ 15,608 $ 27,179 $ 28,089 $ 30,263 $ 31,441 ======= ======== ======== ======== ======== ======== ======== ======== AVERAGE BALANCE SHEET (MILLIONS) Total assets $9,169 $10,261 $10,532 $10,631 $10,607 $10,580 $10,620 $10,488 Earning assets 8,311 9,265 9,547 9,658 9,637 9,561 9,602 9,508 Loans and leases 5,994 6,535 6,726 6,593 6,463 6,473 6,313 6,320 Investments in debt and equity securities 1,946 2,473 2,604 2,712 2,865 2,868 2,848 2,920 Deposits 7,511 8,524 8,712 8,726 8,654 8,615 8,600 8,583 Long-term debt 135 143 159 272 224 221 221 220 Shareholders' equity 616 676 714 730 742 776 799 828 SELECTED RATIOS Return on assets .95% .93% .91% .59% 1.02% 1.06% 1.14% 1.20% Return on equity 14.13 14.11 13.49 8.55 14.64 14.48 15.14 15.18 Overhead ratio 63.22 63.07 63.37 66.46 62.06 61.43 60.57 61.83 Net interest rate margin 4.45 4.45 4.52 4.57 4.68 4.76 4.71 4.78 Equity to assets 6.61 6.59 7.00 6.92 7.39 7.74 7.93 8.00 Tier I capital to risk-adjusted assets 8.40 8.54 9.07 9.28 9.75 9.99 10.45 10.74 Total capital to risk-adjusted assets 10.08 10.27 10.82 13.11 13.63 13.76 14.24 14.47 Leverage 6.19 6.26 6.22 6.30 6.52 6.85 7.10 7.40 Loans to deposits (average) 79.80 76.66 77.21 75.55 74.67 75.14 73.41 73.64 Reserve for possible loan losses to outstanding loans 2.30 2.21 2.33 2.38 2.23 2.19 2.34 2.36 Reserve for possible loan losses to non-performing loans 150.09 133.53 154.44 173.43 207.76 264.97 319.09 371.98 Non-performing loans to outstanding loans 1.53 1.66 1.51 1.37 1.08 .83 .73 .63 Non-performing assets to outstanding loans and foreclosed assets 2.52 2.63 2.25 2.08 1.66 1.59 1.36 1.14 ----------------------------------------------------------------------------------------------------------------------------
41 36 MANAGEMENT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS MERCANTILE BANK The management of Mercantile Bancorporation Inc. is responsible for the preparation, and the integrity and objectivity of the accompanying financial statements. These statements were prepared in accordance with generally accepted accounting principles and practices applicable to the banking industry applied on a consistent basis and reflect, in all material respects, the substance of all reportable events and transactions occurring during the periods presented. Related financial information in other sections of this annual report, which has been prepared consistently with the content of the financial statements, is similarly the responsibility of management. The financial statements necessarily include amounts that are based on management's best estimates and judgments. Future economic conditions and events, and the economic prospects of the Corporation's borrowers, create the possibility that such estimates and judgments may be subject to review and revision. The financial statements were audited by KPMG Peat Marwick, independent auditors, in accordance with generally accepted auditing standards. Management has made available to the independent auditors the Corporation's financial records and related data, as well as minutes of the meetings of shareholders and the Board of Directors. The Corporation maintains an accounting system and related internal controls that have been deemed sufficient to provide reasonable assurance that the financial records are reliable for preparing the financial statements and maintaining accountability for assets. The concept of reasonable assurance is based upon the recognition that the cost of a system of internal control must be related to the benefits derived, and that the balancing of those factors requires estimates and judgments. The system of internal controls includes written policies and procedures, proper delegation of authority, and segregation of duties. In addition, written Standards of Conduct adopted by the Corporation help to ensure the highest standards of ethical conduct by all employees. Management continually monitors compliance with the system of internal controls, primarily through an extensive program of internal audits. The system of internal controls and compliance therewith are considered by independent auditors, in accordance with generally accepted auditing standards, to the extent necessary to render an opinion on the financial statements, and by regulatory examiners. The Board of Directors discharges its responsibility for the financial statements through its Audit Committee. The committee, composed solely of outside directors, meets with the independent auditors, internal auditors and management periodically to review the work of each and to ensure that each is properly discharging its responsibilities. To ensure complete independence, the independent auditors meet with the Audit Committee, without management representatives present, to discuss the results of their audit and their opinions on the adequacy of internal controls and the quality of financial reporting. The independent auditors and the internal auditors each have unrestricted access to the Audit Committee. 42 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 37 INDEPENDENT AUDITORS' REPORT KPMG Peat Marwick Certified Public Accountants 1010 Market Street St. Louis, MO 63101 Shareholders and Board of Directors Mercantile Bancorporation Inc.: We have audited the accompanying consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1993, 1992, and 1991, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 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, 1993, 1992 and 1991, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Notes A and J to the consolidated financial statements, the Company adopted Financial Accounting Standards 109, "Accounting for Income Taxes," as of January 1, 1993 and has applied the provisions retroactively to January 1, 1988. /s/ KPMG PEAT MARWICK January 13, 1994, except as to Note Q, which is as of February 10, 1994 43 38 CONSOLIDATED STATEMENT OF INCOME (THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31 1993 1992 1991 ---- ---- ---- INTEREST INCOME Interest and fees on loans and leases $542,122 $569,112 $586,767 Investments in debt and equity securities Trading 678 593 1,288 Taxable 153,127 154,753 116,294 Tax-exempt 11,440 10,640 8,422 -------- -------- -------- Total 165,245 165,986 126,004 Due from banks-interest bearing 2,609 5,900 11,075 Federal funds sold and repurchase agreements 7,663 7,330 10,336 -------- -------- -------- Total Interest Income 717,639 748,328 734,182 INTEREST EXPENSE Interest bearing deposits 231,394 300,862 354,532 Foreign deposits 1,363 870 1,903 Short-term borrowings 22,174 25,605 37,904 Long-term debt 17,162 15,891 13,514 -------- -------- -------- Total Interest Expense 272,093 343,228 407,853 -------- -------- -------- NET INTEREST INCOME 445,546 405,100 326,329 PROVISION FOR POSSIBLE LOAN LOSSES 50,432 68,488 53,445 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 395,114 336,612 272,884 OTHER INCOME Trust 59,719 56,100 48,121 Investment banking 8,442 7,600 5,890 Service charges 48,439 45,951 39,010 Credit card fees 23,135 20,730 20,031 Securities gains 130 1,848 1,651 Other 35,407 31,169 21,776 -------- -------- -------- Total Other Income 175,272 163,398 136,479 OTHER EXPENSE Salaries 153,890 142,028 125,658 Employee benefits 39,187 29,362 27,187 Net occupancy 24,050 21,526 17,814 Equipment 29,950 26,308 24,219 Other 139,342 150,757 107,618 -------- -------- -------- Total Other Expense 386,419 369,981 302,496 -------- -------- -------- INCOME BEFORE INCOME TAXES 183,967 130,029 106,867 INCOME TAXES 66,995 44,734 34,549 -------- -------- -------- NET INCOME $116,972 $ 85,295 $ 72,318 ======== ======== ======== PER SHARE DATA Average common shares outstanding 35,265,911 33,693,885 30,111,266 Net income $3.32 $2.53 $2.40 Dividends declared .99 .93 .93
44 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 39 CONSOLIDATED BALANCE SHEET (THOUSANDS)
DECEMBER 31 1993 1992 1991 ---- ---- ---- ASSETS Cash and due from banks $ 669,559 $ 643,557 $ 551,146 Due from banks-interest bearing 144,528 43,152 150,435 Federal funds sold and repurchase agreements 183,362 230,972 239,220 Investments in debt and equity securities Trading 15,735 17,684 23,637 Available-for-sale 227,142 - - Held-to-maturity (Estimated fair value of $2,736,408, $2,844,682 and $1,946,320, respectively) 2,695,199 2,785,770 1,877,147 ----------- ----------- ----------- Total 2,938,076 2,803,454 1,900,784 Total loans and leases 6,286,445 6,512,093 5,985,211 Reserve for possible loan losses (148,297) (154,666) (136,542) ----------- ----------- ---------- Net Loans and Leases 6,138,148 6,357,427 5,848,669 Bank premises and equipment 185,298 187,270 149,605 Due from customers on acceptances 11,923 7,451 13,332 Other assets 242,220 304,528 262,858 ----------- ----------- ---------- Total Assets $10,513,114 $10,577,811 $9,116,049 =========== =========== ========== LIABILITIES Deposits Non-interest bearing $ 1,561,757 $ 1,413,386 $1,297,918 Interest bearing 6,647,638 7,054,556 6,070,721 Foreign 26,085 19,650 13,937 ----------- ----------- ---------- Total Deposits 8,235,480 8,487,592 7,382,576 Federal funds purchased and repurchase agreements 551,824 715,331 572,245 Other short-term borrowings 520,650 225,293 261,436 Long-term debt 219,737 246,143 134,487 Bank acceptances outstanding 11,923 7,451 13,332 Other liabilities 132,384 163,987 145,735 ----------- ----------- ---------- Total Liabilities 9,671,998 9,845,797 8,509,811 Commitments and contingent liabilities - - -
SHAREHOLDERS' EQUITY
1993 1992 1991 ---- ---- ---- Preferred stock- no par value Shares authorized 5,000 5,000 5,000 Shares issued - - - - - - Common stock- $5.00 par value Shares authorized 70,000 35,000 35,000 Shares issued and outstanding 35,545 34,862 32,014 177,723 174,311 160,068 Capital surplus 166,367 149,999 96,347 Retained earnings 497,026 407,704 349,823 ----------- ----------- ---------- Total Shareholders' Equity 841,116 732,014 606,238 ----------- ----------- ---------- Total Liabilities and Shareholders' Equity $10,513,114 $10,577,811 $9,116,049 =========== =========== ========== The accompanying notes to consolidated financial statements are an integral part of these statements.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 45 40 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK TOTAL ----------------------- CAPITAL RETAINED SHAREHOLDERS' SHARES DOLLARS SURPLUS EARNINGS EQUITY ------ ------- ------- -------- ---------- BALANCE AT DECEMBER 31, 1990 AS REPORTED 16,256,843 $ 81,284 $ 65,777 $292,973 $440,034 Adjustment to reflect 3-for-2 stock split 8,128,422 40,642 (40,642) - Adjustment to reflect pooling-of- interests 4,142,734 20,714 22,275 14,252 57,241 Adjustment to reflect adoption of FAS 109 (6,900) (6,900) ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1990 AS RESTATED 28,527,999 142,640 47,410 300,325 490,375 Net income 72,318 72,318 Dividends declared Mercantile Bancorporation Inc.-$.93 per share (24,673) (24,673) Pooled companies prior to acquisition (654) (654) Issuance of common stock Public offering 2,242,500 11,213 29,740 40,953 Acquisition of Old National Bancshares, Inc. 742,265 3,711 13,113 16,824 Employee incentive plans 237,514 1,188 2,736 3,924 Change in valuation allowance for marketable equity securities 2,507 2,507 Pre-merger transactions of pooled companies 263,273 1,316 3,348 4,664 ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1991 32,013,551 160,068 96,347 349,823 606,238 Net income 85,295 85,295 Dividends declared Mercantile Bancorporation Inc.-$.93 per share (27,506) (27,506) Pooled companies prior to acquisition (1,431) (1,431) Issuance of common stock Acquisition of Ameribanc, Inc. 1,975,421 9,877 41,418 51,295 Employee incentive plans 195,679 978 2,854 3,832 Warrants and convertible notes 347,143 1,736 7,272 9,008 Change in valuation allowance for marketable equity securities 1,522 1,522 Pre-merger transactions of pooled companies 330,417 1,652 2,108 1 3,761 ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1992 34,862,211 174,311 149,999 407,704 732,014 NET INCOME 116,972 116,972 DIVIDENDS DECLARED-$.99 PER SHARE (34,840) (34,840) ISSUANCE OF COMMON STOCK ACQUISITION OF FIRST NATIONAL BANK OF FLORA 232,503 1,162 6,879 8,041 ACQUISITION OF MT. VERNON BANCORP, INC. 216,936 1,085 6,056 7,141 EMPLOYEE INCENTIVE PLANS 161,912 809 1,929 2,738 CONVERTIBLE NOTES 73,360 367 1,536 1,903 CHANGE IN VALUATION ALLOWANCE FOR MARKETABLE EQUITY SECURITIES PRIOR TO THE ADOPTION OF FAS 115 3,554 3,554 NET FAIR VALUE ADJUSTMENT FOR SECURITIES AVAILABLE-FOR-SALE 3,636 3,636 OTHER (2,269) (11) (32) (43) ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1993 35,544,653 $177,723 $166,367 $497,026 $841,116 ========== ======== ======== ======== ========
46 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 41 CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
YEAR ENDED DECEMBER 31 1993 1992 1991 ---- ---- ---- OPERATING ACTIVITIES Net income $ 116,972 $ 85,295 $ 72,318 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 50,432 68,488 53,445 Depreciation and amortization 24,496 22,779 19,504 Provision for deferred income taxes (credits) 758 (3,752) (1,327) Net change in trading securities 1,949 5,953 (1,158) Net change in accrued interest receivable 5,957 6,782 915 Net change in accrued interest payable (6,930) (15,178) (9,396) Net change in accrued taxes payable (1,362) (7,640) (2,172) Other, net 34,859 43,870 6,842 ----------- ----------- --------- Net Cash Provided by Operating Activities 227,131 206,597 138,971 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (1,247,589) (1,316,714) (848,392) Proceeds from maturities 1,196,976 770,295 398,794 Proceeds from sales 30 31,586 124,441 Proceeds from sales of securities from acquired entities 14,491 56,632 - Proceeds from maturities of short-term floating-rate securities - - 28,000 Net change in loans and leases 178,156 130,268 35,694 Purchases of premises and equipment (23,749) (28,728) (20,385) Proceeds from sales of premises and equipment 480 2,722 1,414 Proceeds from sales of foreclosed property 42,597 918 30,589 Cash and cash equivalents from acquisitions, net of cash paid 11,085 329,312 203,975 Other, net 23,168 13,147 11,526 ----------- ----------- --------- Net Cash Provided (Used) by Investing Activities 195,645 (10,562) (34,344) FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts 179,745 476,522 151,820 Net change in time certificates of deposit under $100,000 (439,238) (757,147) (246,276) Net change in time certificates of deposit $100,000 and over (59,064) (133,528) (36,075) Net change in other time deposits (88,231) 45,411 7,600 Net change in foreign deposits 6,435 5,713 2,923 Sale of branch deposits, net of premium received (14,130) - - Net change in short-term borrowings 131,850 71,701 22,335 Issuance of long-term debt - 163,152 4,150 Principal payments on long-term debt (27,738) (67,507) (6,729) Cash dividends paid (34,840) (28,937) (25,327) Proceeds from issuance of common stock Public offering - - 40,953 Employee incentive plans and warrants 2,203 3,904 1,508 Other, net - 1,561 578 ---------- ----------- --------- Net Cash Used by Financing Activities (343,008) (219,155) (82,540) ----------- ----------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79,768 (23,120) 22,087 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 917,681 940,801 918,714 ----------- ----------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 997,449 $ 917,681 $ 940,801 =========== =========== ========= The accompanying notes to consolidated financial statements are an integral part of these statements.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 47 42 NOTES TO 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 Consolidated Financial Statements include the accounts of Mercantile Bancorporation Inc. and its subsidiaries. All subsidiaries are wholly-owned. Material intercompany transactions are eliminated. Restatements: On January 4, 1993, Mercantile Bancorporation Inc. acquired MidAmerican Corporation and Johnson County Bankshares, Inc. in a transaction accounted for as a pooling- of-interests. Accordingly, prior period financial statements have been restated as if the combining entities had been consolidated for all periods. All per share amounts, as well as ending and average common shares data, have been restated to reflect the three-for-two stock split as described in Note Q. Reclassification: Certain reclassifications have been made to the 1992 and 1991 historical financial statements to conform with the 1993 presentation. NEW ACCOUNTING STANDARDS: Financial Accounting Standard ("FAS") 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," was adopted by the Corporation in the first quarter of 1993. The Corporation adopted FAS 109, "Accounting for Income Taxes," in the first quarter of 1993 with an effective date of January 1, 1988. FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," was adopted by the Corporation on December 31, 1993. FAS 112, "Employers' Accounting for Postemployment Benefits," effective for fiscal years beginning after December 31, 1993, and FAS 114, "Accounting by Creditors for Impairments of a Loan," effective for fiscal years beginning after December 15, 1994, had not been adopted by the Corporation at December 31, 1993. The adoptions of FAS 112 and FAS 114 are not expected to have a material impact on the Corporation's financial condition or results of operations. EARNINGS PER COMMON SHARE: Earnings per common share data is based on 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 income. Available-for-sale securities, which include any security for which the Corporation has no immediate plan to sell but which may be sold in the future under different circumstances, are valued at fair value. Realized gains and losses, based on the amortized cost of the specific security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in retained earnings. Prior to December 31, 1993, the Corporation did not hold any available- for-sale securities. Held-to-maturity securities, which include any security for which the Corporation has the positive intent and ability to hold until maturity, are valued at historical cost adjusted for amortization of premiums and accretion of discounts computed by the level-yield method. Prior to December 31, 1993, realized gains and losses, based on the amortized cost of the specific security, were included in other income. Prior to December 31, 1993, marketable equity securities were stated at the lower of cost or fair value. Changes in the valuation of marketable equity securities which were considered to be temporary were recorded as adjustments to retained earnings. At December 31, 1993, these securities were classified as available-for-sale. LOANS AND LEASES: Interest income on loans not discounted is generally accrued on a simple interest basis. Interest income on discounted loans is computed on the sum-of-the-months'-digits method, which approximates the interest method. Loan fees and direct costs of loan originations are deferred and amortized over the life of the loans under methods approximating the interest method. The finance method is used to account for direct and leveraged equipment lease contracts. Income is recorded over the lease periods in proportion to the unrecovered investment in the leases after consideration of investment tax credits and other related income tax effects. 48 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 43 When, in management's opinion, the collection of interest on a loan is unlikely, or when either principal or interest is past due over 90 days, that loan is generally placed on non-accrual status. When a loan is placed on non-accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the reserve for possible loan losses. Interest payments received on non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest, and/or the borrower demonstrates the ability to pay and remain current. RESERVE FOR POSSIBLE LOAN LOSSES: The reserve for possible loan losses is increased by provisions charged to expense and reduced by loans charged off, net of recoveries. The reserve is maintained at a level considered adequate to provide for potential loan losses based on management's evaluation of current economic conditions, changes in the character and size of the portfolio, past experience, expected future losses, and other pertinent factors. FORECLOSED ASSETS: Foreclosed assets include real estate and other assets acquired through foreclosure or other proceedings, and in-substance foreclosures. In-substance foreclosures represent loans accounted for as foreclosed assets due to the borrower having limited equity in the underlying collateral, anticipated repayment only through the operation or sale of the collateral, or the borrower either formally or effectively abandoning control of the collateral. Foreclosed assets are included in other assets in the Consolidated Balance Sheet. Foreclosed assets are valued at the lower of cost or fair value. Losses arising at the time of transfer from loans are charged to the reserve for possible loan losses. Subsequent valuation changes 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 value of assets sold or retired and the related accumulated depreciation are eliminated from the accounts, and the resulting gains or losses are reflected in income. Expenditures for maintenance and repairs are charged to expense, while expenditures for major renewals are capitalized. INTANGIBLE ASSETS: Intangible assets, consisting primarily of goodwill and core deposit premium, are included in other assets in the Consolidated Balance Sheet. Goodwill, the excess of cost over the net assets acquired in business combinations accounted for as purchases, is amortized using the straight-line method over the estimated period to be benefited, most recently 15 years, but not exceeding 40 years. Core deposit premium represents the premiums paid, net of any rebate on assets acquired, plus the insurance funds' entrance and exit fees, for deposits acquired from failed thrift institutions in Resolution Trust Corporation-assisted transactions. This intangible asset is amortized, on an accelerated basis, over the estimated life of the core deposit base acquired, but not exceeding 10 years. INCOME TAXES: Deferred income taxes, computed using the asset and liability method, are provided on temporary differences between the financial reporting basis and the tax basis of the assets and liabilities of the Corporation. CASH EQUIVALENTS: Cash and due from banks, federal funds sold, and repurchase agreements are considered cash equivalents for purposes of the 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. 49 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE B SUBSIDIARIES ACQUISITIONS: Effective January 3, 1994, the Corporation acquired Metro Bancorporation, a Waterloo, Iowa-based holding company with assets totaling $370 million. A total of 1,638,278 shares of Mercantile common stock was issued in the transaction, which was accounted for as a pooling-of-interests. The acquisition transaction will not have a material impact on the financial condition or results of operations of the Corporation. On September 1, 1993, Mercantile completed a merger with Mt. Vernon Bancorp, Inc., a $113,128,000-asset holding company for First Bank and Trust Co. in Mt. Vernon, Illinois. The total cost of the acquisition was $1,805,000 in cash and 216,936 shares of Mercantile common stock. The excess of the purchase price over the fair value of net assets acquired was estimated to be $4,515,000. On April 1, 1993, Mercantile completed the merger with the $70,725,000-asset First National Bank of Flora in Clay County, Illinois. The total cost of the acquisition was $3,004,000 in cash and 232,503 shares of Mercantile common stock. The excess of the purchase price over the fair value of net assets acquired was estimated to be $2,734,000. Both transactions were accounted for as purchases and, accordingly, the results of operations were included in the Consolidated Financial Statements from the respective acquisition dates. On January 4, 1993, the Corporation acquired MidAmerican Corporation and Johnson County Bankshares, Inc., two northeast Kansas-based holding companies with assets totaling $1.1 billion. A total of 4,736,424 shares of Mercantile common stock was issued in the transaction, which was accounted for as a pooling-of-interests. Net income and net income per share for the Corporation and the pooled companies prior to restatement were as follows:
YEAR ENDED DECEMBER 31 1992 1991 ($ IN THOUSANDS EXCEPT PER SHARE DATA) Corporation Net income $85,003 $66,555 Net income per share 2.91 2.57 MidAmerican Corporation Net income $ 1,007 $ 6,320 Net income per share .30 1.96 Johnson County Bankshares, Inc. Net loss $ (715) $ (557) Net loss per share (36.70) (28.57)
During the fourth quarter of 1992, certain adjustments were recorded by MidAmerican Corporation and Johnson County Bankshares, Inc. to conform their accounting and credit policies regarding loan, other real estate and other asset valuations to those of the Corporation. These adjustments amounted to $8 million on an after-tax basis. MidAmerican Corporation acquired Jayhawk Bancshares, Inc., a $52,000,000-asset, one-bank holding company in Lawrence, Kansas, in July 1992. This acquisition was accounted for as a purchase and, accordingly, the results of operations, which were not material, were included in the Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $10,872,000 in cash and $2,200,000 in notes, which are subject to offset based upon the outcome of certain litigation and losses in the loan portfolio of the acquired bank subsidiary. The excess of the purchase price over the fair value of net assets acquired was $9,347,000. On April 30, 1992, the Corporation acquired Ameribanc, Inc., a $1.2 billion-asset, 11-bank holding company headquartered in St. Joseph, Missouri. This acquisition was accounted for as a purchase and, accordingly, the results of operations were included in the Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $8,851,000 in cash and 1,975,421 shares of Mercantile common stock. The following unaudited pro forma combined consolidated financial information gives effect to the April 30, 1992 acquisition of Ameribanc, Inc. as if it had been consummated on January 1, 1991.
YEAR ENDED DECEMBER 31 1992 1991 ($ IN THOUSANDS EXCEPT PER SHARE DATA) Net interest income $417,373 $361,227 Other income 167,507 147,740 Net income 85,370 73,080 Net income per share 2.48 2.27
The Corporation acquired Old National Bancshares, Inc., a $169,205,000-asset, two-bank holding company in southwestern Illinois, in December 1991. This acquisition was accounted for as a purchase and, accordingly, the results of operations, which were not material, were included in the Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $5,027,000 in cash and 742,265 shares of Mercantile common stock. The excess of the purchase price over the fair value of net assets acquired was $8,759,000. 50 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 45 MidAmerican Corporation acquired Kaw Valley Bancshares, Inc. a $75,000,000-asset, one-bank holding company in Overland Park, Kansas, in October 1991. This acquisition was accounted for as a purchase and, accordingly, the results of operations, which were not material, were included in the Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $4,085,000 in cash and the equivalent of 261,864 shares of Mercantile common stock. The excess of the purchase price over the fair value of net assets acquired was $3,807,000. For all acquisitions accounted for as purchases, the unamortized excess of cost over the fair value of assets acquired was $56,808,000, $56,121,000 and $48,622,000 at December 31, 1993, 1992 and 1991, respectively. RTC TRANSACTIONS: During 1992 and 1991, certain subsidiaries of the Corporation acquired from the Resolution Trust Corporation the deposits and certain assets of failed thrift institutions. Transactions during 1992 included: Mercantile Bank of Joplin N.A. and Mercantile Bank of Kansas City acquired $222,304,000 in deposits of two branches of the former Home Federal Savings Association in Joplin and Kansas City, Missouri in March 1992; and Mercantile Bank of West Central Missouri acquired $163,055,000 in deposits and $156,818,000 in assets of First State Savings Association of Sedalia in April 1992. In July 1991, Mercantile Bank of Illinois N.A. and Mercantile Bank of St. Louis N.A. jointly acquired $296,408,000 in deposits and $108,483,000 in assets of Germania Bank FSB. Unamortized core deposit premium was $6,645,000, $8,469,000 and $6,339,000 at December 31, 1993, 1992 and 1991, respectively. The effect of the Mt. Vernon, Flora, Jayhawk, Old National, Kaw Valley and Resolution Trust Corporation acquisitions on the Corporation's operating results from January 1, 1991 through the respective acquisition dates and for the years ended December 31, 1993, 1992 and 1991, was not material. SUBSIDIARY MERGERS: During 1993, the Corporation effected two mergers among certain subsidiary banks. On February 5, 1993, certain assets and liabilities of the Marceline, Missouri office of American Bank of North Central Missouri were sold to Mercantile Bank of North Central Missouri. On the same date, the remaining offices of American Bank of North Central Missouri were merged with Mercantile Bank of Trenton N.A. During June 1993, Mercantile Bank of Kansas N.A. merged with MidAmerican Bank and Trust Company to form Mercantile Bank of Kansas. PENDING ACQUISITIONS: It is expected the Corporation will acquire the $1.3 billion- asset United Postal Bancorp, Inc., holding company for United Postal Savings Association, during the first quarter of 1994. This acquisition is further described in Note Q to the Consolidated Financial Statements. NOTE C CASH FLOWS The Corporation paid interest on deposits, short-term borrowings and long-term debt of $278,467,000, $351,919,000 and $414,417,000 in 1993, 1992 and 1991, respectively. The Corporation paid Federal income taxes of $59,888,000, $42,847,000 and $34,695,000 in 1993, 1992 and 1991, respectively. The following details cash and cash equivalents from acquisitions, net of cash paid:
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Fair value of assets purchased $(186,391) $(1,599,456) $(551,831) Liabilities assumed 166,400 1,523,529 519,858 Issuance of common stock 15,182 51,295 20,908 --------- ----------- --------- Cash paid for acquisitions (4,809) (24,632) (11,065) Cash and cash equivalents acquired 15,894 353,944 215,040 --------- ----------- --------- CASH AND CASH EQUIVALENTS FROM ACQUISITIONS, NET OF CASH PAID $ 11,085 $ 329,312 $ 203,975 ========= =========== =========
51 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 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, 1993 was $153,631,000. NOTE E INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective December 31, 1993, the Corporation adopted FAS 115, and its cumulative effect was recorded on the Consolidated Balance Sheet on that date. On December 31, 1993, debt and equity securities with an amortized cost of $2,695,199,000 were classified as "held-to-maturity;" and debt and equity securities with an amortized cost of $221,547,000 were classified as "available-for-sale." A market valuation account of $5,595,000 was established for the available-for-sale securities to increase the recorded balance of such securities at December 31, 1993 to their estimated fair value on that date. A tax liability of $1,959,000 established the deferred tax effect of the market valuation account. The net increase resulting from the market valuation adjustment at December 31, 1993 was recorded as an adjustment to retained earnings. AVAILABLE-FOR-SALE: The amortized cost, estimated fair values, and unrealized gains and losses of available-for-sale securities at December 31, 1993 were as follows:
AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- (THOUSANDS) U.S. government $193,364 $195,049 State and political subdivisions- tax-exempt 14,259 15,173 Other 13,924 16,920 -------- -------- Total $221,547 $227,142 ======== ======== UNREALIZED UNREALIZED GAINS (LOSSES) ---------- ---------- (THOUSANDS) U.S. government $2,289 $ (604) State and political subdivisions- tax-exempt 925 (11) Other 4,240 (1,244) ------ ------- Total $7,454 $(1,859) ====== =======
HELD-TO-MATURITY: The amortized cost, estimated fair values, and unrealized gains and losses of held-to-maturity securities were as follows:
DECEMBER 31 1993 1992 1991 (THOUSANDS) AMORTIZED COST U.S. government $2,306,745 $2,388,324 $1,571,276 State and political subdivisions Tax-exempt 202,901 191,019 150,416 Taxable 99,015 7,742 - ---------- ---------- --------- Total State and Political Subdivisions 301,916 198,761 150,416 Other 86,538 198,685 155,455 ---------- ---------- ---------- Total $2,695,199 $2,785,770 $1,877,147 ========== ========== ========== ESTIMATED FAIR VALUE U.S. government $2,340,058 $2,440,356 $1,635,348 State and political subdivisions Tax-exempt 210,478 196,060 152,578 Taxable 98,496 7,617 - ---------- ---------- --------- Total State and Political Subdivisions 308,974 203,677 152,578 Other 87,376 200,649 158,394 ---------- ---------- ---------- Total $2,736,408 $2,844,682 $1,946,320 ========== ========== ========== UNREALIZED GAINS (LOSSES) U.S. government Gains $36,777 $59,017 $64,357 Losses (3,464) (6,985) (285) -------- -------- -------- Net Unrealized Gains 33,313 52,032 64,072 State and political subdivisions Gains 7,992 6,079 4,071 Losses (934) (1,163) (1,909) ------- -------- -------- Net Unrealized Gains 7,058 4,916 2,162 Other Gains 872 2,487 3,264 Losses (34) (523) (325) ------- -------- -------- Net Unrealized Gains 838 1,964 2,939 ------- ------- ------- Total Net Unrealized Gains $41,209 $58,912 $69,173 ======= ======= =======
Securities with a carrying value of $1,790,884,000 at December 31, 1993, $1,941,704,000 at December 31, 1992 and $1,549,922,000 at December 31, 1991 were pledged to secure public and trust deposits, securities sold under agreements to repurchase, and for other purposes required by law. Included in other held-to-maturity securities at December 31, 1992 and 1991 were marketable equity securities with a cost of $16,675,000 at both dates, and a carrying value of $13,121,000 and $11,599,000, at December 31, 1992 and 1991, respectively. At 52 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 47 December 31, 1993, these same securities were classified as available-for-sale upon the adoption of FAS 115. Additional securities with carrying values of $752,000 became marketable equity securities during 1993; at December 31, 1993, these securities were classified as available-for-sale. The following table presents proceeds from sales of held-to- maturity securities and the components of net securities gains prior to the adoption of FAS 115.
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Proceeds from sales of held-to-maturity securities $ 30 $31,586 $124,441 ==== ======= ======== Proceeds from sales of held-to-maturity securities of acquired entities $14,491 $56,632 $ - ======= ======= === Securities gains $ 992 $2,360 $1,795 Securities losses (862) (512) (144) ------ ------- ------- Net Securities Gains Before Income Taxes 130 1,848 1,651 Applicable income taxes (45) (628) (561) ------ ------- ------- Net Securities Gains $ 85 $1,220 $1,090 ===== ====== ======
NOTE F LOANS AND LEASES Loans and leases consisted of the following:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Commercial $1,885,567 $1,985,937 $1,963,936 Real estate-commercial 1,219,980 1,301,250 1,124,728 Real estate-construction 156,856 160,818 153,972 Real estate-residential 1,442,600 1,622,145 1,469,836 Consumer 844,958 851,167 803,442 Credit card 736,022 589,102 466,075 Foreign 462 1,674 3,222 ---------- ---------- ---------- Loans and Leases $6,286,445 $6,512,093 $5,985,211 ========== ========== ==========
Changes in the reserve for possible loan losses were as follows:
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Beginning Balance $154,666 $136,542 $138,595 Provision 50,432 68,488 53,445 Charge-offs (82,211) (81,499) (71,430) Recoveries 23,168 13,147 11,526 -------- -------- -------- Net Charge-offs (59,043) (68,352) (59,904) Acquired Reserves 2,242 17,988 4,406 -------- -------- -------- Ending Balance $148,297 $154,666 $136,542 ======== ======== ========
Non-performing loans consisted of the following:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Non-accrual $35,733 $80,418 $107,255 Renegotiated 4,134 8,765 2,808 ------- ------- -------- Non-performing Loans $39,867 $89,183 $110,063 ======= ======= ========
Certain directors and executive officers of the Corporation and Mercantile Bank of St. Louis N.A. were loan customers of the Corporation's banks during 1993, 1992 and 1991. Such loans were made in the ordinary course of business at normal terms, including interest rate and collateralization, and did not represent more than a normal risk. Loans to those persons, their immediate families and companies in which they were principal owners were $6,873,000, $39,126,000 and $35,895,000 at December 31, 1993, 1992 and 1991, respectively. During 1993, $1,869,000 of new loans were made to these persons; repayments totaled $34,122,000. NOTE G BANK PREMISES AND EQUIPMENT Bank premises and equipment were as follows:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Land $ 33,006 $ 30,874 $ 22,332 Bank premises 191,032 184,973 144,305 Leasehold improvements 14,371 13,555 11,252 Furniture and equipment 154,891 144,377 120,966 --------- --------- --------- Total Cost 393,300 373,779 298,855 Accumulated depreciation (208,002) (186,509) (149,250) --------- --------- --------- Net Carrying Value $ 185,298 $ 187,270 $ 149,605 ========= ========= =========
At December 31, 1993, 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) 1994 $ 3,352 1995 2,728 1996 2,277 1997 1,926 1998 759 1999 and later 3,758 ------- Total $14,800 =======
Net rental expense for all operating leases was $4,247,000 in 1993, $4,537,000 in 1992 and $3,754,000 in 1991. 53 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE H SHORT-TERM BORROWINGS Short-term borrowings were as follows:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Federal funds purchased and repurchase agreements $ 551,824 $715,331 $572,245 Treasury tax and loan notes 502,260 215,521 253,074 Commercial paper 18,390 9,198 7,928 Other short-term borrowings - 574 434 --------- -------- -------- Total $1,072,474 $940,624 $833,681 ========== ======== ========
The Corporation had unused lines of credit arrangements with unaffiliated banks in support of commercial paper outstanding of $40,000,000 at December 31, 1993. NOTE I LONG-TERM DEBT Long-term debt consisted of the following:
DECEMBER 31 1993 1992 1991 (THOUSANDS) MERCANTILE BANCORPORATION INC. (PARENT COMPANY ONLY) 7.625% subordinated notes, due 2002 $150,000 $150,000 $ - 11.750% notes, due December 1992 - - 60,000 8.500% debentures, due 2004 30,550 31,171 31,171 8.000% convertible subordinated capital notes, due 1995 13,522 15,426 - Notes issued in acquisitions - 120 240 ------- -------- -------- Total 194,072 196,717 91,411 SECOND-TIER HOLDING COMPANIES 1,905 24,850 18,108 BANK SUBSIDIARIES Mortgage payable 23,653 24,337 24,968 Other 107 239 - -------- -------- ------- Total 23,760 24,576 24,968 -------- -------- -------- Total Long-term Debt $219,737 $246,143 $134,487 ======== ======== ========
On October 15, 1992, the Corporation issued $150,000,000 of subordinated notes with a ten-year maturity and a coupon rate of 7.625% to yield 7.741%. These notes qualify as Tier II capital under current regulatory guidelines. The 11.750% notes were direct, unsecured obligations of the Corporation. The notes were paid in full upon maturity in December 1992. The 8.500% debentures are direct, unsecured obligations of the Corporation. The debenture agreement contains financial covenants relating to the issuance of additional funded debt, payment of dividends and reacquisition of common stock. Required minimum annual redemptions of $1,050,000 were met through 1993. These debentures are intended to be prepaid in full during the first quarter of 1994 as part of the debt refinancing described in Note Q to the Consolidated Financial Statements. The 8.000% convertible subordinated capital notes were issued by Ameribanc, Inc. prior to its acquisition by the Corporation. At December 31, 1993, these notes were convertible into approximately 520,000 shares of the Corporation's common stock. Notes issued in acquisitions by the parent company bear interest at 6.500% and matured in November 1993. All second-tier holding company debt was issued by either MidAmerican Corporation or Johnson County Bankshares, Inc. prior to their acquisition by the Corporation. Except for the notes issued in acquisitions, all second-tier holding company debt was paid off on January 5, 1993. Notes issued in acquisitions by a second-tier holding company were issued at a variable rate and are due in 1994. The notes are subject to offset based upon the outcome of certain litigation and losses in the loan portfolio of the acquired bank subsidiary. The mortgage payable, which bears interest at a rate of 8.250%, is a direct obligation of a bank subsidiary and is secured by the Corporation's headquarters building, Mercantile Tower, which had a carrying value of $23,548,000 at December 31, 1993. The Corporation intends to prepay this mortgage in full during the first quarter of 1994 as part of the debt refinancing described in Note Q to the Consolidated Financial Statements. A summary of annual principal reductions of long-term debt, after the effects of the debt refinancing described in Note Q to the Consolidated Financial Statements, is presented below:
ANNUAL PERIOD PRINCIPAL REDUCTIONS (THOUSANDS) 1994 $ 1,939 1995 13,557 1996 38 1997 - 1998 - 1999 and later 204,203 -------- Total $219,737 ========
54 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 49 NOTE J INCOME TAXES The Corporation adopted FAS 109, "Accounting for Income Taxes," in the first quarter of 1993 and applied the provisions retroactively to January 1, 1988. The cumulative effect of this change in accounting for income taxes was a $6,900,000 reduction of retained earnings as of that date. Adoption of FAS 109 had no material impact on net income for the years ended December 31, 1993, 1992 and 1991. Income tax expense was as follows:
CURRENT DEFERRED TOTAL (THOUSANDS) YEAR ENDED DECEMBER 31, 1993 U.S. FEDERAL $57,886 $694 $58,580 STATE AND LOCAL 8,351 64 8,415 ------- ---- ------- TOTAL $66,237 $758 $66,995 ======= ==== ======= Year ended December 31, 1992 U.S. Federal $42,456 $(3,491) $38,965 State and local 6,030 (261) 5,769 ------- ------- ------- Total $48,486 $(3,752) $44,734 ======= ======= ======= Year ended December 31, 1991 U.S. Federal $30,479 $(1,064) $29,415 State and local 5,397 (263) 5,134 ------- ------- ------- Total $35,876 $(1,327) $34,549 ======= ======= =======
The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities are presented below.
DECEMBER 31 1993 1992 1991 (THOUSANDS) Deferred tax assets Reserve for possible loan losses $ 51,904 $ 50,657 $ 43,135 Foreclosed property 1,229 1,802 1,939 Deferred compensation 2,035 1,222 1,138 Expenses not currently allowable for tax purposes 7,958 6,503 2,499 State tax liabilities 1,266 1,567 1,462 Other - 8,708 6,307 ------- -------- -------- Total Gross Deferred Tax Assets 64,392 70,459 56,480 Less valuation allowance (893) (893) (850) -------- -------- -------- Net Deferred Tax Assets 63,499 69,566 55,630 -------- -------- -------- Deferred tax liabilities Leasing (55,050) (55,187) (49,460) Pension settlement gain (6,005) (5,833) (5,833) Intangible assets (5,614) (5,547) (4,074) Depreciation (2,542) (2,793) (2,826) Investments in debt and equity securities-FAS 115 (1,959) - - Other (919) (6,079) (6,849) -------- -------- -------- Total Gross Deferred Tax Liabilities (72,089) (75,439) (69,042) -------- -------- -------- Net Deferred Tax Liabilities $ (8,590) $ (5,873) $(13,412) ======== ======== ========
The 1992 and 1993 net deferred tax liabilities reflect amounts attributable to entities acquired in purchase transactions. Income tax expense as reported differs from the amounts computed by applying the statutory U.S. Federal income tax rate to pretax income as follows:
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Computed "expected" tax expense $64,388 $44,210 $36,335 Increase (reduction) in income taxes resulting from Tax-exempt income (4,902) (3,437) (5,032) State and local income taxes, net of federal income tax benefit 5,469 3,808 3,388 Other, net 2,040 153 (142) ------- ------- ------- Total Tax Expense $66,995 $44,734 $34,549 ======= ======= =======
NOTE K RETIREMENT PLANS PENSION PLANS: The Corporation maintains both qualified and nonqualified noncontributory pension plans that cover all employees meeting certain age and service requirements. The qualified plan provides pension benefits based on the employee's length of service and compensation earned during the five years prior to retirement. The Corporation's funding policy is to contribute annually at least the minimum amount required by government funding standards but not more than is tax deductible. No contribution was required or made during 1993, 1992 or 1991. The net periodic pension expense (credit) related to the qualified plan included in the Consolidated Statement of Income is summarized as follows:
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Service cost-benefits earned during the period $ 4,570 $ 3,540 $ 3,178 Interest cost on projected benefit obligation 7,115 5,671 4,784 Actual return on plan assets (9,728) (7,714) (18,465) Net amortization and deferral (1,012) (1,585) 10,158 ------- ------- -------- Net Periodic Pension Expense (Credit) $ 945 $ (88) $ (345) ======= ======= ========
55 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) The table below sets forth the funded status and amounts recognized in the Consolidated Balance Sheet for the qualified plan:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Actuarial present value of Vested benefit obligation $76,489 $62,253 $49,076 ======= ======= ======= Accumulated benefit obligation $83,288 $66,711 $52,492 ======= ======= ======= Projected benefit obligation $100,922 $ 81,008 $ 65,207 Plan assets at fair value 116,573 110,696 101,840 -------- -------- -------- Plan assets in excess of projected benefit obligation (overfunded) (15,651) (29,688) (36,633) Unrecognized net gain (loss) (9,759) 2,314 8,354 Unrecognized prior service cost 2,135 1,920 2,104 Unrecognized net asset at December 31 7,108 8,342 9,576 -------- -------- -------- Prepaid Pension $ (16,167) $ (17,112) $(16,599) ========= ========= ========
Assumptions used were as follows:
1993 1992 1991 Discount rate in determining benefit obligations 7.50% 8.00% 8.50% Rate of increase in compensation levels 5.00 5.25 6.00 Expected long-term rate on assets 9.00 8.50 8.50
At December 31, 1993, approximately 57% of the plan's assets was invested in listed common stocks; the remaining 43% was invested in government and corporate bonds rated A or better. A nominal amount of common stock of the Corporation was held by the plan. During 1991 the Corporation announced an early retirement program available to certain employees. The pension expense related to this program was $2,529,000. The nonqualified plans provide pension benefits which would have been provided under the qualified plan in the absence of limits placed on qualified plan benefits by the Internal Revenue Service. The Corporation's funding policy is to fund benefits as they are paid. Contributions under the nonqualified plans were not material for the three years ended December 31, 1993, 1992 and 1991. The expense related to these plans was $1,232,000 in 1993, $957,000 in 1992 and $792,000 in 1991. 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. The Corporation adopted FAS 106, "Accounting for Postretirement Benefits Other Than Pensions," in the first quarter of 1993. Expense for 1993 under FAS 106, assuming a 20-year amortization period for the transition obligation, was $4,917,000 compared with the cash basis cost of $2,225,000 in 1992 and $1,846,000 in 1991. The table below sets forth the funded status and the amount recognized in the Consolidated Balance Sheet regarding other postretirement benefits:
DECEMBER 31 (THOUSANDS) 1993 1992 Accumulated postretirement benefit obligation (APBO) Retirees $ 25,893 $ 25,900 Active employees fully eligible for benefits 1,359 1,149 Other active employees 7,747 6,523 -------- -------- Total APBO 34,999 33,572 Assets at fair value - - ------- ------- APBO in excess of assets 34,999 33,572 Unrecognized transition obligation (31,893) (33,572) Unrecognized service cost 1,500 - Unrecognized net loss (1,268) - -------- ------- Accrued Postretirement Benefit Obligation $ 3,338 $ - ======== =======
Assumptions used were as follows:
1993 1992 Discount rate in determining benefits obligation 7.50% 8.00% Health care cost trend Year 1 12.00 13.00 Year 8 6.00 6.00
An increase in the health care cost trend of one percent would increase the aggregate of service and interest cost components of net periodic postretirement benefit costs and the APBO by $1,796,000 in 1993 compared with $1,717,000 in 1992. NOTE L SHAREHOLDERS' EQUITY COMMON STOCK: The authorized common stock of the Corporation consists of 70,000,000 shares as of December 31, 1993, and 35,000,000 shares as of December 31, 1992 and 1991, $5.00 par value, of which 35,544,653, 34,862,211 and 32,013,551 shares were issued and outstanding at December 31, 1993, 1992 and 1991, respectively. The Corporation's Dividend Reinvestment 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. 56 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 51 PREFERRED STOCK: The authorized preferred stock of the Corporation consists of 5,000,000 shares, no par value, of which none were issued or outstanding at December 31, 1993, 1992 and 1991, although 700,000 shares were reserved at December 31, 1993, for issuance pursuant to the Preferred Share Purchase Rights Plan. The preferred stock, which is issuable in series, shall have specific terms, preferences and other rights as determined by the Board of Directors for each series. 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. STOCK OPTIONS: The Corporation had stock options outstanding under various plans at December 31, 1993, including plans assumed in acquisitions. The original Mercantile plans provide for the granting to employees of the Corporation and its subsidiaries of options to purchase shares of common stock of the Corporation over periods of up to 10 years at a price not less than the market value of the shares at the date the options are granted. The plans provide for the granting of options which either qualify or do not qualify as Incentive Stock Options as defined by Section 422 of the Internal Revenue Code of 1986, as amended. A summary of the plans follows:
SHARES PRICE ------ ----- AT DECEMBER 31, 1993 Available for grant 227,234 Outstanding 1,501,361 $11.19-$34.33 Exercisable 517,211 11.19- 29.00
Changes in options outstanding were as follows:
SHARES PRICE ------ ----- BALANCE AT DECEMBER 31, 1990 1,052,334 $11.19-$17.83 Granted 240,959 14.67- 20.50 Exercised (127,293) 11.19- 17.17 Canceled (50,730) 11.19- 17.50 --------- BALANCE AT DECEMBER 31, 1991 1,115,270 11.19- 20.50 Granted 312,413 24.00- 29.00 Exercised (317,051) 12.50- 24.09 Canceled (60,582) 17.00- 26.33 Assumed 72,223 14.60- 25.83 --------- BALANCE AT DECEMBER 31, 1992 1,122,273 11.19- 29.00 GRANTED 577,275 32.09- 34.33 EXERCISED (157,962) 11.19- 26.33 CANCELED (40,225) 17.17- 32.67 --------- BALANCE AT DECEMBER 31, 1993 1,501,361 11.19- 34.33 =========
No amounts have been charged to income in connection with any plan. DEBT AND DIVIDEND RESTRICTIONS: Consolidated retained earnings at December 31, 1993 were not restricted under any debenture agreement as to payment of dividends and 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, 1993, approximately $222,628,000 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 $83,502,000 would be available for loans to the Parent Company under Federal Reserve regulations. The remaining equity of bank subsidiaries approximating $603,217,000 was restricted as to transfers to the Parent Company. 57 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE M CONCENTRATIONS OF CREDIT The Corporation's primary market area is the state of Missouri and the lower Midwest. At December 31, 1993, approximately 93% of the total loan portfolio, and 91% of the commercial and commercial real estate loan portfolio, were to borrowers within this region. The diversity of the region's economic base tends to provide a stable lending environment. Real estate lending constituted the only other significant concentration of credit risk. Real estate-related financial instruments (loans, commitments and standby letters of credit) comprised 31% of all such instruments of the Corporation. However, of this total, approximately 54% was consumer-related in the form of residential real estate mortgages and home equity lines of credit. The Corporation is, in general, a secured lender. At December 31, 1993, approximately 81% of the loan portfolio was secured. Collateral is required in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction. NOTE N FINANCIAL INSTRUMENTS FAIR VALUES: Fair values for financial instruments are management's estimates of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, certain financial instruments and all non-financial instruments are excluded from the fair value disclosure requirements of FAS 107. 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 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 available-for-sale and trading securities, which also were the amounts reported in the 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. Total Loans and Leases: The fair values for most loans were estimated utilizing discounted cash flow calculations that applied interest rates currently being offered for similar loans to borrowers with similar risk profiles. Loans with similar characteristics were aggregated for purposes of these calculations. Non-accrual loans were valued at face value adjusted for potential credit loss. The par value of credit card loans was assumed to be the same as the fair value. The fair value estimate of the credit card portfolio does not include any value attributable to the ongoing cardholder relationship. That component was estimated to be approximately $130,000,000 to $160,000,000 in excess of the fair value at December 31, 1993 as compared to approximately $100,000,000 to $130,000,000 in excess of the fair value at December 31, 1992. 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 Consolidated Balance Sheet. Fair values for certificates of deposit and foreign deposits were estimated using a discounted cash flow calculation that applied interest rates currently being 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 $155,000,000 to $235,000,000 at December 31, 1993 as compared to approximately $160,000,000 to $240,000,000 at December 31, 1992 and was neither considered in the fair value amounts below nor recorded as an intangible asset in the Consolidated Balance Sheet. 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 other long- term debt were estimated using discounted cash flow analyses, 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. 58 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 53 The estimated fair values of the Corporation's financial instruments were as follows:
DECEMBER 31 1993 1992 ---------------------------- ---------------------------- (THOUSANDS) CARRYING FAIR CARRYING FAIR FINANCIAL ASSETS VALUE VALUE VALUE VALUE Cash and due from banks and short-term investments $ 997,449 $ 997,449 $ 917,681 $ 917,681 Trading securities 15,735 15,735 17,684 17,684 Held-to-maturity securities 2,695,199 2,736,408 2,785,770 2,844,682 Available-for-sale securities 227,142 227,142 - - Net loans and leases 6,286,445 6,335,492 6,512,093 6,577,893 FINANCIAL LIABILITIES Deposits 8,235,480 8,279,824 8,487,592 8,550,480 Short-term borrowings 1,072,474 1,072,474 940,624 940,624 Long-term debt 219,737 241,531 246,143 244,835
FAIR FAIR OFF-BALANCE-SHEET VALUE VALUE Foreign exchange contracts purchased $ 5,375 $(2,034) Foreign exchange contracts sold (6,890) 1,392 Futures contracts (1,625) - Commitments to extend credit (10,736) (8,575) Standby letters of credit (2,120) (1,925) Commercial letters of credit (4,321) (4,774)
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 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 1993 1992 1991 (THOUSANDS) Commitments to extend credit Commercial $1,576,448 $1,553,229 $1,478,633 Consumer 2,696,603 2,435,797 1,834,717 ---------- ---------- ---------- Total $4,273,051 $3,989,026 $3,313,350 ========== ========== ========== Standby letters of credit $218,518 $199,165 $233,252 ======== ======== ========
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 and equipment. For interest options written and foreign exchange contracts, the contractual or notional amounts of $31,400,000 and $287,030,000, respectively, at December 31, 1993 do not represent exposure to credit loss. These commitments are generally entered into on behalf of customers and result in the Corporation being in a matched position. Credit risk in the transactions is minimal. The Corporation controls the credit risk of these instruments through established credit approvals, risk control limits and other monitoring procedures. Market risk to the Corporation could result from non-performance by the counterparty to a contract. 59 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE O CONTINGENT LIABILITIES In the ordinary course of business there are various legal proceedings pending against the Corporation and its subsidiaries. Management, after consultation with legal counsel, is of the opinion that the ultimate resolution of these proceedings will have no material adverse effect on the consolidated financial position or results of operations of the Corporation. NOTE P PARENT COMPANY FINANCIAL INFORMATION Following are the condensed financial statements of Mercantile Bancorporation Inc. (Parent Company Only) for the periods indicated. For the Statement of Cash Flows (Parent Company Only), cash and short-term investments were considered cash equivalents. Interest paid on commercial paper and long-term debt was $15,881,000, $10,618,000 and $11,011,000 for the years ended December 31, 1993, 1992 and 1991, respectively. STATEMENT OF INCOME (THOUSANDS)
YEAR ENDED DECEMBER 31 1993 1992 1991 INCOME Dividends from banking subsidiaries $ 77,548 $44,077 $32,254 Other interest and dividends 5,538 3,320 3,959 Management fees 13,392 12,320 10,151 Other 2,687 2,994 3,434 -------- ------- ------- Total Income 99,165 62,711 49,798 EXPENSE Interest on commercial paper 733 416 1,137 Interest on long-term debt 15,157 12,497 9,818 Salaries and benefits 11,544 10,489 8,588 Other operating expenses 14,301 15,743 12,980 -------- ------- ------- Total Expense 41,735 39,145 32,523 INCOME BEFORE INCOME TAX CREDITS AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 57,430 23,566 17,275 Income tax credits 6,708 6,469 4,898 -------- ------- ------- INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 64,138 30,035 22,173 Equity in undistributed income of subsidiaries 52,834 55,260 50,145 -------- ------- ------- NET INCOME $116,972 $85,295 $72,318 ======== ======= =======
BALANCE SHEET (THOUSANDS)
DECEMBER 31 1993 1992 1991 ASSETS Cash $ 673 $ 220 $ 346 Short-term investments 47,776 63,766 42,406 Available-for-sale securities 16,569 - - Marketable equity securities - 13,121 11,599 Investment in subsidiaries 898,909 798,048 621,031 Goodwill 45,912 27,383 26,410 Loans and advances to subsidiaries 53,390 44,248 7,915 Other assets 8,414 14,350 12,318 ---------- -------- -------- Total Assets $1,071,643 $961,136 $722,025 ========== ======== ======== LIABILITIES Commercial paper $ 18,390 $ 9,198 $ 7,928 Long-term debt 194,072 196,717 91,411 Other liabilities 18,065 23,207 16,448 ---------- -------- -------- Total Liabilities 230,527 229,122 115,787 SHAREHOLDERS' EQUITY 841,116 732,014 606,238 ---------- -------- -------- Total Liabilities and Shareholders' Equity $1,071,643 $961,136 $722,025 ========== ======== ========
60 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 55 STATEMENT OF CASH FLOWS (THOUSANDS)
YEAR ENDED DECEMBER 31 1993 1992 1991 ---- ---- ---- OPERATING ACTIVITIES Net income $116,972 $ 85,295 $ 72,318 Adjustments to reconcile net income to net cash provided by operating activities Net income of subsidiaries (130,382) (99,337) (82,399) Dividends from subsidiaries 62,430 44,077 32,254 Other, net 2,038 4,023 4,915 -------- -------- -------- Net Cash Provided by Operating Activities 51,058 34,058 27,088 INVESTING ACTIVITIES Investment in debt and equity securities Purchases (2,054) (1,858) (1,526) Proceeds from maturities 5,878 1,807 1,000 Maturity of short-term floating-rate securities - - 28,000 Contributions of capital to subsidiaries (31,705) (31,209) (2,700) Investment in note from banking subsidiary - (35,000) - Other, net (9,280) 30 (7,305) --------- -------- -------- Net Cash Provided (Used) by Investing Activities (37,161) (66,230) 17,469 FINANCING ACTIVITIES Cash dividends paid (34,840) (28,937) (25,327) Issuance of common stock Public offering - - 40,953 Employee incentive plans 2,203 2,667 1,508 Warrants - 1,237 - Issuance of long-term debt - 150,000 - Principal payments on long-term debt (742) (60,207) (397) Acquisitions (4,809) (8,359) (5,039) Net change in commercial paper 9,192 1,271 (22,150) Other, net (438) (4,266) 255 --------- --------- -------- Net Cash Provided (Used) by Financing Activities (29,434) 53,406 (10,197) --------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,537) 21,234 34,360 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 63,986 42,752 8,392 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 48,449 $ 63,986 $ 42,752 ======== ======== ========
NOTE Q SUBSEQUENT EVENTS Listed below are significant events which occurred after the date of the Independent Auditors' Report, although prior to the date of the issuance of the Consolidated Financial Statements. UNITED POSTAL BANCORP, INC. ACQUISITION: Effective February 1, 1994, the Corporation acquired United Postal Bancorp, Inc., holding company for United Postal Savings Association, with assets totaling $1.3 billion. A total of approximately 5,626,000 shares of Mercantile common stock was issued in the transaction, which was accounted for as a pooling-of- interests. The following unaudited pro forma combined consolidated financial data includes total assets and results of operations of United Postal Bancorp, Inc. for the years ended December 31, 1993, 1992 and 1991, and gives effect to the Ameribanc, Inc. acquisition as described in Note B to the Consolidated Financial Statements.
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS EXCEPT PER SHARE DATA) Total assets $11,773,879 $11,869,986 $11,537,472 Net interest income 486,515 453,816 394,825 Other income 197,073 184,943 164,324 Net income 114,214 92,629 42,578 Net income per share 2.80 2.32 1.13
During the fourth quarter of 1993, certain adjustments were recorded by United Postal Bancorp, Inc. to conform their accounting and credit policies regarding loan, other real estate and other asset valuations to those of the Corporation. These adjustments amounted to $15 million on an after-tax basis. THREE-FOR-TWO STOCK SPLIT: On February 10, 1994, the Corporation declared a three-for-two stock split, in the form of a dividend, payable April 11, 1994 to shareholders of record March 10, 1994. DEBT REFINANCING: On January 25, 1994, Mercantile Bank of St. Louis N.A. issued $75,000,000 of 6.375% 10-year, non-callable subordinated debt, due January 15, 2004. This debt qualifies as Tier II capital. The Corporation has or intends to use the proceeds of this subordinated debt issue to: 1) prepay in full on February 1, 1994 the $23,653,000 8.25% mortgage secured by the Corporation's headquarters building; and 2) prepay in full in the first quarter of 1994 the $30,550,000 8.50% unsecured debentures of the Corporation. 61 56 SIX YEAR CONSOLIDATED STATEMENT OF INCOME (TAXABLE-EQUIVALENT BASIS) ($ IN THOUSANDS EXCEPT PER SHARE DATA)
1993 1992 1991 ---- ---- ---- INTEREST INCOME Interest and fees on loans and leases $542,122 $569,112 $586,767 Investments in debt and equity securities Trading 678 593 1,288 Taxable 153,127 154,753 116,294 Tax-exempt 11,440 10,640 8,422 -------- -------- -------- Total 165,245 165,986 126,004 Due from banks-interest bearing 2,609 5,900 11,075 Federal funds sold and repurchase agreements 7,663 7,330 10,336 -------- -------- -------- Total Interest Income 717,639 748,328 734,182 Tax-equivalent adjustment* 7,766 8,784 7,709 -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 725,405 757,112 741,891 INTEREST EXPENSE Deposits 232,757 301,732 356,435 Borrowed funds 39,336 41,496 51,418 -------- -------- -------- Total Interest Expense 272,093 343,228 407,853 -------- -------- -------- TAXABLE-EQUIVALENT NET INTEREST INCOME 453,312 413,884 334,038 PROVISION FOR POSSIBLE LOAN LOSSES 50,432 68,488 53,445 OTHER INCOME Trust 59,719 56,100 48,121 Investment banking 8,442 7,600 5,890 Service charges 48,439 45,951 39,010 Credit card fees 23,135 20,730 20,031 Securities gains 130 1,848 1,651 Other 35,407 31,169 21,776 -------- -------- -------- Total Recurring Other Income 175,272 163,398 136,479 Merger termination fee - - - ------- ------- ------- Total Other Income 175,272 163,398 136,479 OTHER EXPENSE Salaries 153,890 142,028 125,658 Employee benefits 39,187 29,362 27,187 Net occupancy 24,050 21,526 17,814 Equipment 29,950 26,308 24,219 Other 139,342 150,757 107,618 -------- -------- -------- Total Other Expense 386,419 369,981 302,496 -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 191,733 138,813 114,576 INCOME TAXES Income taxes (credits) 66,995 44,734 34,549 Tax-equivalent adjustment* 7,766 8,784 7,709 -------- -------- -------- Adjusted Income Taxes 74,761 53,518 42,258 -------- -------- -------- NET INCOME $116,972 $ 85,295 $ 72,318 ======== ======== ======== PER SHARE DATA Net income $ 3.32 $ 2.53 $ 2.40 Dividends declared .99 .93 .93 Book value 23.67 21.00 18.94 (F) *TAX-EQUIVALENT ADJUSTMENT Loans $2,525 $3,352 $4,074 Investments in debt and equity securities 5,241 5,432 3,635 ------ ------ ------ Total Tax-equivalent Adjustment $7,766 $8,784 $7,709 ====== ====== ======
62 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 57
GROWTH RATES ------------------------------ 1990 1989 1988 ONE YEAR FIVE YEARS ---- ---- ---- -------- ---------- INTEREST INCOME Interest and fees on loans and leases $601,694 $569,575 $506,759 Investments in debt and equity securities Trading 981 945 3,127 Taxable 105,700 88,269 61,166 Tax-exempt 10,119 10,785 12,035 -------- -------- -------- Total 116,800 99,999 76,328 Due from banks-interest bearing 8,621 6,365 7,842 Federal funds sold and repurchase agreements 7,943 7,540 10,058 -------- -------- -------- Total Interest Income 735,058 683,479 600,987 Tax-equivalent adjustment* 10,494 13,529 15,556 -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 745,552 697,008 616,543 INTEREST EXPENSE Deposits 376,838 341,047 304,588 Borrowed funds 69,467 76,228 54,806 -------- -------- -------- Total Interest Expense 446,305 417,275 359,394 -------- -------- -------- TAXABLE-EQUIVALENT NET INTEREST INCOME 299,247 279,733 257,149 9.5% 12.0% PROVISION FOR POSSIBLE LOAN LOSSES 48,009 97,150 63,293 (26.4) (4.4) OTHER INCOME Trust 45,994 38,718 34,856 6.5 11.4 Investment banking 2,876 3,317 3,193 11.1 21.5 Service charges 31,882 27,988 27,288 5.4 12.2 Credit card fees 18,982 19,483 15,661 11.6 8.1 Securities gains 13 186 2,601 (93.0) (45.1) Other 20,217 16,947 14,131 13.6 20.2 -------- -------- -------- Total Recurring Other Income 119,964 106,639 97,730 7.3 12.4 Merger termination fee _ _ 5,000 _ _ -------- -------- -------- Total Other Income 119,964 106,639 102,730 7.3 11.3 OTHER EXPENSE Salaries 118,678 113,206 102,144 8.4 8.5 Employee benefits 24,745 21,099 18,601 33.5 16.1 Net occupancy 16,945 16,327 15,225 11.7 9.6 Equipment 23,131 21,290 20,620 13.8 7.8 Other 89,526 101,963 88,614 (7.6) 9.5 -------- -------- -------- Total Other Expense 273,025 273,885 245,204 4.4 9.5 -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 98,177 15,337 51,382 38.1 30.1 INCOME TAXES Income taxes (credits) 25,328 (2,921) 3,872 49.8 76.9 Tax-equivalent adjustment* 10,494 13,529 15,556 (11.6) (13.0) -------- -------- -------- Adjusted Income Taxes 35,822 10,608 19,428 39.7 30.9 -------- -------- -------- NET INCOME $ 62,355 $ 4,729 $ 31,954 37.1 29.6 ======== ======== ======== PER SHARE DATA Net income $ 2.19 $ .17 $ 1.19 31.2 22.8 Dividends declared .93 .93 .93 6.5 1.3 Book value 17.19 15.91 17.02 12.7 6.8 (F) *TAX-EQUIVALENT ADJUSTMENT Loans $ 6,006 $ 8,064 $ 9,199 (24.7) (22.8) Investments in debt and equity securities 4,488 5,465 6,357 (3.5) (3.8) ------- ------- ------- Total Tax-equivalent Adjustment $10,494 $13,529 $15,556 (11.6) (13.0) ======= ======= =======
63 58 SIX YEAR CONSOLIDATED AVERAGE BALANCE SHEET ($ IN THOUSANDS)
1993 1992 1991 ------------------- ------------------- ------------------- VOLUME RATE(1) VOLUME RATE(1) VOLUME RATE(1) ------ ------- ------ ------- ------ ------- ASSETS Earning Assets Loans and leases Commercial $ 1,964,212 6.50% $ 2,008,947 7.04% $1,930,969 8.70% Real estate-commercial(2) 1,256,655 7.98 1,262,175 8.31 1,096,784 9.74 Real estate-construction 150,714 7.47 162,859 7.95 146,097 9.70 Real estate-residential(2) 1,547,617 8.12 1,682,766 8.83 1,459,771 10.08 Consumer 828,330 8.97 840,046 9.74 819,676 10.71 Credit card 643,149 16.38 503,882 16.40 413,559 16.16 Foreign 1,027 6.72 2,389 6.91 2,136 9.46 ----------- ----------- ---------- Total Loans and Leases 6,391,704 8.52 6,463,064 8.86 5,868,992 10.07 Investments in debt and equity securities Trading 14,008 5.30 11,510 5.75 19,041 6.95 Taxable 2,657,090 5.77 2,255,207 6.88 1,357,167 8.60 Tax-exempt 204,181 7.99 168,227 9.29 118,509 9.82 ----------- ----------- ---------- Total 2,875,279 5.93 2,434,944 7.04 1,494,717 8.67 Short-term investments Federal funds sold and repurchase agreements 236,222 3.24 182,431 4.02 181,125 5.71 Due from banks-interest bearing 73,601 3.54 117,108 5.04 158,456 6.99 ----------- ----------- ---------- Total Short-term Investments 309,823 3.32 299,539 4.42 339,581 6.31 ----------- ----------- ---------- Total Earning Assets 9,576,806 7.57 9,197,547 8.23 7,703,290 9.63 Non-earning Assets Cash and due from banks 673,564 615,949 521,165 Bank premises and equipment 186,648 172,436 145,252 Due from customers on acceptances 10,939 9,608 12,759 Other assets 275,449 304,903 264,295 Reserve for possible loan losses (149,818) (149,844) (138,075) ----------- ----------- ---------- Total Assets $10,573,588 $10,150,599 $8,508,686 =========== =========== ========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 1,797,284 $ 1,536,557 $1,197,179 Interest bearing demand 1,348,998 2.10 1,131,729 2.96 797,712 4.57 Money market accounts 1,434,462 2.76 1,342,117 3.39 986,109 5.28 Savings 675,950 2.54 570,662 3.31 401,383 4.68 Consumer time certificates under $100,000 2,814,839 4.54 3,138,079 5.58 2,948,373 7.11 Other time 81,819 2.75 106,540 3.27 78,376 4.80 ----------- ----------- ---------- Total Core Deposits 8,153,352 3.39 7,825,684 4.40 6,409,132 6.15 Time certificates $100,000 and over 428,284 3.79 521,232 4.65 541,811 6.24 Foreign 31,093 4.38 23,433 3.71 30,986 6.14 ----------- ----------- ---------- Total Purchased Deposits 459,377 3.83 544,665 4.61 572,797 6.24 ----------- ----------- ---------- Total Deposits 8,612,729 3.42 8,370,349 4.42 6,981,929 6.16 Short-term borrowings 775,823 2.86 741,459 3.45 688,602 5.50 Long-term debt 221,716 7.74 177,325 8.96 133,680 10.11 ----------- ----------- ---------- Total Acquired Funds 9,610,268 3.48 9,289,133 4.43 7,804,211 6.17 Other Liabilities Bank acceptances outstanding 10,939 9,608 12,759 Other liabilities 165,628 167,578 146,888 ----------- ----------- ---------- Total Liabilities 9,786,835 9,466,319 7,963,858 SHAREHOLDERS' EQUITY 786,753 684,280 544,828 ----------- ----------- ---------- Total Liabilities and Shareholders' Equity $10,573,588 $10,150,599 $8,508,686 =========== =========== ========== (F) (1) Taxable-equivalent basis. (2) Real estate-commercial loans for 1988 are included with Real estate-residential.
64 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 59
1990 1989 1988 ------------------- ------------------- ------------------- VOLUME RATE(1) VOLUME RATE(1) VOLUME RATE(1) ------ ------- ------ ------- ------ ------- ASSETS Earning Assets Loans and leases Commercial $1,929,166 10.44% $2,014,120 11.12% $2,134,761 9.87% Real estate-commercial(2) 877,024 10.70 677,530 11.25 _ _ Real estate-construction 195,320 10.88 301,566 11.09 283,517 9.66 Real estate-residential(2) 1,255,897 10.40 1,025,299 10.63 1,472,438 10.26 Consumer 898,286 10.95 731,798 11.28 717,403 10.39 Credit card 409,220 15.19 347,155 14.66 279,937 15.42 Foreign 59 10.17 11,088 13.28 139,966 6.39 ---------- ---------- ---------- Total Loans and Leases 5,564,972 10.92 5,108,556 11.31 5,028,022 10.26 Investments in debt and equity securities Trading 12,528 8.22 11,621 8.34 42,135 7.46 Taxable 1,165,575 9.10 986,341 8.99 797,829 7.72 Tax-exempt 149,287 9.49 165,314 9.58 189,197 9.49 ---------- ---------- ---------- Total 1,327,390 9.14 1,163,276 9.07 1,029,161 8.03 Short-term investments Federal funds sold and repurchase agreements 100,135 7.93 81,585 9.24 137,079 7.34 Due from banks-interest bearing 98,550 8.75 69,881 9.11 100,844 7.78 ---------- ---------- ---------- Total Short-term Investments 198,685 8.34 151,466 9.18 237,923 7.52 ---------- ---------- ---------- Total Earning Assets 7,091,047 10.51 6,423,298 10.85 6,295,106 9.79 Non-earning Assets Cash and due from banks 592,100 589,217 551,048 Bank premises and equipment 147,027 145,259 144,177 Due from customers on acceptances 10,544 7,288 23,164 Other assets 207,558 184,208 163,646 Reserve for possible loan losses (139,332) (108,955) (152,313) ---------- ---------- ---------- Total Assets $7,908,944 $7,240,315 $7,024,828 ========== ========== ========== LIABILITIES Acquired Funds Deposits Non-interest bearing $1,205,573 $1,184,957 $1,192,406 Interest bearing demand 722,169 5.04 672,029 5.24 661,521 5.15 Money market accounts 874,271 6.33 709,228 6.55 731,738 5.79 Savings 365,705 4.99 358,314 5.16 368,137 5.08 Consumer time certificates under $100,000 2,571,774 8.16 2,141,241 8.20 1,730,219 7.47 Other time 85,938 6.11 75,118 6.31 56,448 6.12 ---------- ---------- ---------- Total Core Deposits 5,825,430 7.04 5,140,887 7.09 4,740,469 6.42 Time certificates $100,000 and over 598,779 8.01 664,670 8.68 928,102 7.42 Foreign 47,427 8.09 33,446 8.76 102,801 7.63 ---------- ---------- ---------- Total Purchased Deposits 646,206 8.02 698,116 8.68 1,030,903 7.44 ---------- ---------- ---------- Total Deposits 6,471,636 7.16 5,839,003 7.33 5,771,372 6.65 Short-term borrowings 703,141 7.87 689,831 8.99 554,870 7.34 Long-term debt 138,772 10.16 141,577 10.02 141,277 9.98 ---------- ---------- ---------- Total Acquired Funds 7,313,549 7.31 6,670,411 7.61 6,467,519 6.81 Other Liabilities Bank acceptances outstanding 10,544 7,288 23,164 Other liabilities 114,307 107,069 86,019 ---------- ---------- ---------- Total Liabilities 7,438,400 6,784,768 6,576,702 SHAREHOLDERS' EQUITY 470,544 455,547 448,126 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $7,908,944 $7,240,315 $7,024,828 ========== ========== ==========
GROWTH RATES ------------------------- ONE YEAR FIVE YEARS -------- ---------- ASSETS Earning Assets Loans and leases Commercial (2.2)% (1.7)% Real estate-commercial(2) (.4) _ Real estate-construction (7.5) (11.9) Real estate-residential(2) (8.0) 1.0 Consumer (1.4) 2.9 Credit card 27.6 18.1 Foreign (57.0) (62.6) Total Loans and Leases (1.1) 4.9 Investments in debt and equity securities Trading 21.7 (19.8) Taxable 17.8 27.2 Tax-exempt 21.4 1.5 Total 18.1 22.8 Short-term investments Federal funds sold and repurchase agreements 29.5 11.5 Due from banks-interest bearing (37.2) (6.1) Total Short-term Investments 3.4 5.4 Total Earning Assets 4.1 8.8 Non-earning Assets Cash and due from banks 9.4 4.1 Bank premises and equipment 8.2 5.3 Due from customers on acceptances 13.9 (13.9) Other assets (9.7) 11.0 Reserve for possible loan losses _ (.3) Total Assets 4.2 8.5 LIABILITIES Acquired Funds Deposits Non-interest bearing 17.0 8.6 Interest bearing demand 19.2 15.3 Money market accounts 6.9 14.4 Savings 18.5 12.9 Consumer time certificates under $100,000 (10.3) 10.2 Other time (23.2) 7.7 Total Core Deposits 4.2 11.5 Time certificates $100,000 and over (17.8) (14.3) Foreign 32.7 (21.3) Total Purchased Deposits (15.7) (14.9) Total Deposits 2.9 8.3 Short-term borrowings 4.6 6.9 Long-term debt 25.0 9.4 Total Acquired Funds 3.5 8.2 Other Liabilities Bank acceptances outstanding 13.9 (13.9) Other liabilities (1.2) 14.0 Total Liabilities 3.4 8.3 SHAREHOLDERS' EQUITY 15.0 11.9 Total Liabilities and Shareholders' Equity 4.2 8.5
65 60 INVESTOR INFORMATION [COMMON STOCK PRICE RANGE GRAPH] NEW YORK STOCK EXCHANGE: MTL(1) ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCK INFORMATION
1993 1992 1991 ------------------------------ ----------------------------- ----------------------------- MARKET PRICE MARKET PRICE MARKET PRICE ------------------- DIVIDEND ------------------ DIVIDEND ------------------ DIVIDEND HIGH LOW DECLARED HIGH LOW DECLARED HIGH LOW DECLARED ---- --- -------- ---- --- -------- ---- --- -------- 1st Quarter $35 5/8 $30 5/8 $.24 3/4 $27 3/8 $23 1/8 $.23 1/4 $19 1/8 $12 5/8 $.23 1/4 2nd Quarter 37 5/8 29 3/8 .24 3/4 29 1/2 25 5/8 .23 1/4 21 5/8 18 .23 1/4 3rd Quarter 34 3/8 31 5/8 .24 3/4 29 3/8 25 3/8 .23 1/4 23 1/2 18 5/8 .23 1/4 4th Quarter 34 5/8 29 1/8 .24 3/4 32 1/8 25 7/8 .23 1/4 25 1/8 22 .23 1/4 -------- -------- ------- $.99 $.93 $.93 ======== ======== ======= ---------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
DECEMBER 31 DECEMBER 31 1993 1992 1991 1993 1992 1991 ---- ---- ---- ---- ---- ---- Market Price $30 1/8 $32 1/8 $25 1/8 Average Shares Dividend Yield 3.29% 2.89% 3.70% Outstanding 35,265,911 33,693,885 30,111,266 Price Earnings Ratio 9.07X 12.70x 10.47x Year-end Shares Book Value $23.67 $21.00 $18.94 Outstanding 35,544,653 34,862,211 32,013,551 Market Price to Shareholders of Record 11,721 11,984 11,464 Book Value 127.27% 152.98% 132.66% Average Daily Volume 68,561 95,147 94,068 ----------------------------------------------------------------------------------------------------------------------------
DEBT RATINGS
THOMSON STANDARD MOODY'S FITCH BANKWATCH & POOR'S ------- ----- --------- -------- MERCANTILE BANCORPORATION INC. Issuer Rating B Commercial Paper TBW-1 A-2 Subordinated Debt 7.625% Subordinated Notes, due 2002 Baa1 BBB+ BBB MERCANTILE BANK OF ST. LOUIS N.A. 6.375% Subordinated Notes, due 2004(2) A3 A- A- BBB+ Certificates of Deposit TBW-1 A-/A-2 Letters of Credit TBW-1 A-/A-2 ---------------------------------------------------------------------------------------------------------------------------
DIVIDEND INFORMATION Dividends are normally paid the first business day of January, April, July and October. If you wish to participate or want information on Dividend Reinvestment or Dividend Direct Deposit, please contact Society Shareholder Services, Inc., One Mercantile Center, Suite 2120, St. Louis, MO 63101-1673, telephone 314-241-4002. ANNUAL MEETING The Annual Meeting of Shareholders will be at 10:00 a.m., Thursday, April 28, 1994, at the Hyatt Regency St. Louis at Union Station, St. Louis, MO 63103, Regency Ballroom. A notice of the annual meeting and proxy materials will be mailed under separate cover to shareholders. INVESTOR RELATIONS AND FORM 10-K Analysts, investors and others seeking financial data about Mercantile are invited to contact Ralph W. Babb, Jr., Vice Chairman, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, MO 63166-0524. A copy of the Corporation's Form 10-K (Annual Report) filed with the Securities and Exchange Commission may be obtained without charge upon written request. (F) (1) Generally appears as MercBcpMO or MercBc in newspaper stock tables. (2) $75,000,000 6.375% subordinated notes issued on January 25, 1994. 66 MERCANTILE BANCORPORATION INC. 61 DIRECTORS AND EXECUTIVE OFFICERS DIRECTORS RICHARD P. CONERLY(1,3) Chairman Orion Capital Inc. HARRY M. CORNELL, JR.(2,4) Chairman and Chief Executive Officer Leggett & Platt, Inc. EARL K. DILLE(3,5,6) Retired President Union Electric Company J. CLIFF EASON(1) President, Network Services Southwestern Bell Telephone Company BERNARD A. EDISON(2,3) Director Emeritus Edison Brothers Stores, Inc. WILLIAM A. HALL(1) Assistant to the Chairman Hallmark Cards, Inc. THOMAS A. HAYS(2,3,4) Deputy Chairman The May Department Stores Company WILLIAM G. HECKMAN(3,6) Director Arch Mineral Corporation THOMAS H. JACOBSEN(3,4) Chairman and Chief Executive Officer Mercantile Bancorporation Inc. JAMES B. MALLOY(2,6) Chairman and Chief Executive Officer Smurfit Packaging Corporation CHARLES H. PRICE II(6) Chairman Mercantile Bank of Kansas City HARVEY SALIGMAN(2) Managing Partner Cynwyd Investments CRAIG D. SCHNUCK(5) Chairman and Chief Executive Officer Schnuck Markets, Inc. ROBERT W. STALEY(6) Vice Chairman Emerson Electric Co. ROBERT L. STARK(6) Dean University of Kansas Regents Center PATRICK T. STOKES(1) President Anheuser-Busch, Inc. FRANCIS A. STROBLE(1) Senior Vice President and Chief Financial Officer Monsanto Company JOSEPH G. WERNER(5) President Werner Investments JOHN A. WRIGHT(1) President and Chief Executive Officer Big River Minerals Corp. (F) (1) Member of Audit Committee (2) Member of Compensation and Management Development Committee (3) Member of Executive Committee (4) Member of Nominating and Board Affairs Committee (5) Member of Community Relations Committee (6) Member of Credit Policy Committee --------------------------------------------------------------------------- EXECUTIVE OFFICERS THOMAS H. JACOBSEN Chairman and Chief Executive Officer RALPH W. BABB, JR. Vice Chairman W. RANDOLPH ADAMS Executive Vice President and Chief Financial Officer JOHN Q. ARNOLD Executive Vice President and Chief Credit Officer JOHN H. BEIRISE President and Chief Institutional Banking Officer Mercantile Bank of St. Louis N.A. RICHARD H. GOLDBERG Executive Vice President Mercantile Bank of St. Louis N.A. Operations MICHAEL J. GORMAN Chairman Mercantile Bank of St. Louis N.A. RICHARD C. KING President and Chief Executive Officer Mercantile Bank of Kansas City JOHN W. MCCLURE Executive Vice President Community Banking JON W. BILSTROM General Counsel and Secretary JON P. PIERCE Senior Vice President Human Resources PATRICK STRICKLER Senior Vice President Public Affairs ARTHUR G. HEISE Senior Vice President and Auditor MICHAEL T. NORMILE Senior Vice President and Treasurer 67 MERCANTILE BANCORPORATION INC. 62 APPENDIX 1. There is a vertical bar graph titled "Net Interest Rate Margin" on page 16 of the printed Annual Report. The graph plots fiscal quarters from the first quarter of 1992 through the fourth quarter of 1993 on the x-axis; the y-axis plots the net interest rate margin as a percentage. This graph indicates the net interest rate margin for each quarter from the first quarter of 1992 through the fourth quarter of 1993 at the top of the bar. These figures correspond to the net interest rate margin listed in Exhibit 34, "Quarterly Financial Summary," which is on page 41 of the printed Annual Report. 2. There is a vertical bar graph titled "Taxable-Equivalent Net Interest Income" on page 17 of the printed Annual Report. The graph plots fiscal quarters from the first quarter of 1992 through the fourth quarter of 1993 on the x-axis; the y-axis plots taxable-equivalent net interest income in millions of dollars. This graph indicates taxable-equivalent net interest income from the first quarter of 1992 through the fourth quarter of 1993 at the top of the bar. These figures correspond to taxable-equivalent net interest income listed on Exhibit 34, "Quarter Financial Summary," which is on page 41 of the printed Annual Report. 3. There is a vertical stacked bar graph titled "Sources of Funds" on page 22 of the printed Annual Report. The graph plots fiscal years from 1989 through 1993 on the x-axis and average dollars in billions on the y-axis. The "Sources of Funds" graph is a multi-color bar graph which stacks the average dollar balance in billions of: 1) core deposits; 2) purchased funds, which represents purchased deposits plus short-term borrowings; 3) long-term debt plus other liabilities; and 4) share- holders' equity for each year from 1989 through 1993. The top of each bar represents the sum of one through four as described in the previous sentence. These figures correspond to average balances provided on the "Six Year Consolidated Average Balance Sheet," which is on pages 64 and 65 of the printed Annual Report. 4. There is a vertical stacked bar graph titled "Core Deposits" on page 23 of the printed Annual Report. The graph plots fiscal years 1989 through 1993 on the x-axis and average dollars in billions on the y-axis. The "Core Deposits" graph is a multi-color bar graph that stacks the average dollar balance in billions of: 1) non-interest bearing deposits; 2) interest bearing demand, money market accounts and savings deposits; 3) consumer time certificates under $100,000 and other time deposits for each year from 1989 through 1993. The top of each bar represents the sum of one through three as described in the previous sentence. These figures correspond to average balances provided on the "Six Year Consolidated Average Balance Sheet," which is on pages 64 and 65 of the printed Annual Report. 63 5. There is a vertical stacked bar graph titled "Earning Assets" on page 27 of the printed Annual Report. The graph plots fiscal years 1989 through 1993 on the x-axis and average dollars in billions on the y-axis. The "Earning Assets" graph is a multi-color bar graph which stacks the average dollar balance in billions of: 1) loans and leases; 2) investments in debt and equity securities; and 3) short-term investments for each year from 1989 through 1993. The top of each bar represents the sum of one through three as described in the previous sentence. These figures correspond to average balances provided on the "Six Year Consolidated Average Balance Sheet," which is on pages 64 and 65 of the printed Annual Report. 6. There is a vertical stacked bar graph titled "Loans and Leases" on page 29 of the printed Annual Report. The graph plots fiscal years from 1989 through 1993 on the x-axis and average dollars in billions on the y-axis. The "Loans and Leases" graph is a multi-color bar graph which stacks the average dollar balance in billions of: 1) commercial; 2) real estate - commercial; 3) real estate - construction; 4) real estate - residential; 5) consumer; 6) credit card; and 7) foreign loans for each year from 1989 through 1993. The top of each bar represents the sum of one through seven as described in the previous sentence. These figures correspond to average balances provided on the "Six Year Consolidated Average Balance Sheet," which is on pages 64 and 65 of the printed Annual Report. 7. There is a vertical bar graph titled "Non-performing Loan Coverage" on page 32 of the printed Annual Report. The graph plots December 31 from 1989 through 1993 on the x-axis and the reserve for possible loan losses as a percentage of non-performing loans on the y-axis. These figures correspond to the reserve balance to non-performing loans ratios listed on Exhibit 25, "Reserve for Possible Loan Losses," which is on page 31 of the printed Annual Report. 8. There is a vertical stacked bar graph titled "Other Income" on page 37 of the printed Annual Report. The graph plots fiscal years from 1989 through 1993 on the x-axis and dollars in millions on the y-axis. The "Other Income" graph is a multi-color bar graph which stacks: 1) trust income; 2) service charges; 3) credit card fees; and 4) all other income for each year from 1989 through 1993. The top of each bar represents the sum of one through four as described in the previous sentence. These figures correspond to income amounts reported on the "Six Year Consolidated Statement of Income," which is on pages 62 and 63 of the printed Annual Report. 64 9. There is a vertical stacked bar graph titled "Other Expense" on page 38 of the printed Annual Report. The graph plots fiscal years from 1989 through 1993 on the x-axis and dollars in millions on the y-axis. The "Other Expense" graph is a multi-color bar graph which stacks: 1) personnel; 2) occupancy and equipment; and 3) all other expenses for each year from 1989 through 1993. The top of each bar represents the sum of one through three as described in the previous sentence. These figures correspond to income amounts reported on the "Six Year Consolidated Statement of Income," which is on pages 62 and 63 of the printed Annual Report. 10. There is a vertical bar graph titled "Common Stock Price Range" on page 66 of the printed Annual Report. The graph plots fiscal years from 1989 through 1993 on the x-axis and dollars on the y-axis. The "Common Stock Price Range" graph indicates five years of market price ranges for each year from 1989 through 1993. Each bar indicates the dollar range of the stock price for the year. EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT NO. 21 MERCANTILE BANCORPORATION INC. SUBSIDIARIES AS OF MARCH 10, 1994
State or Other Jurisdiction of SUBSIDIARY Incorporation - ---------- --------------- Mercantile Bancorporation Incorporated of Illinois . . . . . . . . . Missouri Alton Downtown Parking, Inc.. . . . . . . . . . . . . . . . Illinois Mercantile Bank of Illinois National Association. . . .United States Mercantile Bank of Centralia National Association . . .United States Mercantile Bank of Carlyle. . . . . . . . . . . . . . . . . Illinois Mercantile Bank of Mt. Vernon . . . . . . . . . . . . . . . Illinois First Service Corporation . . . . . . . . . . . . . . . . . Illinois Ameribanc, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of St. Louis National Association . . .United States Manley Investment Company. . . . . . . . . . . . . . . . Missouri Mercantile Bank International. . . . . . . . . . . .United States Mercantile Business Credit, Inc. . . . . . . . . . . . . Missouri Mercantile Investment Services, Inc. . . . . . . . . . . Missouri Mercantile Mortgage Company. . . . . . . . . . . . . . . Missouri Mississippi Valley Life Insurance Company . . . . . . .Arizona Mercantile Center Associates . . . . . . . . . . . . . . Missouri Mercantile Properties, Inc.. . . . . . . . . . . . . . . Missouri Mercantile Center Redevelopment Corporation . . . . . Missouri Mississippi Valley Advisors, Inc.. . . . . . . . . . . . Missouri Sangamon Investment Company. . . . . . . . . . . . . . . Missouri United Postal Financial Services Inc.. . . . . . . . . . Missouri Tower Grove Service Corporation . . . . . . . . . . . Missouri Metropolitan Savings Service Corporation . . . . . . . . Missouri Lending Express, L.P. . . . . . . . . . . . . . . . . Missouri Metro Insurance Agency. . . . . . . . . . . . . . . . Missouri United Postal Savings Association . . . . . . . . . . . . . Missouri Moneymatic Corporation . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Kansas City. . . . . . . . . . . . . . . Missouri MBTC Services, Inc.. . . . . . . . . . . . . . . . . . . . Kansas Mercantile Bank of St. Joseph National Association. . .United States Coffey Bancorporation, Inc.. . . . . . . . . . . . . . . Missouri Mercantile Trust Company National Association . . . . .United States Mercantile Bank of Boone County . . . . . . . . . . . . . . Missouri Mercantile Bank of Missouri Valley. . . . . . . . . . . . . Missouri Mercantile Bank of Trenton National Association . . . .United States Mercantile Bank of North Central Missouri . . . . . . . . . Missouri Mercantile Bank of Northwest Missouri . . . . . . . . . . . Missouri Mercantile Bank of Franklin County. . . . . . . . . . . . . Missouri Mercantile Bank of Plattsburg . . . . . . . . . . . . . . . Missouri 2 American Property and Casualty Co. . . . . . . . . . . . Missouri Mercantile Bank of Phelps County. . . . . . . . . . . . . . Missouri Mercantile Bank of Lake of the Ozarks . . . . . . . . . . . Missouri American Insurors Company. . . . . . . . . . . . . . . . Missouri American Bancorporation Inc.. . . . . . . . . . . . . . . . Missouri Ameribanc Data Services Corporation . . . . . . . . . . . . Missouri American Investment Center, Inc.. . . . . . . . . . . . . . Missouri Mercantile Acquisition Corporation of Kansas I . . . . . . . . . . . . Kansas MidAmerican Corporation. . . . . . . . . . . . . . . . . . . . . . . . Kansas Mercantile Bank of Topeka National Association. . . . .United States Mercantile Bank of Lawrence National Association. . . .United States Mercantile Bank of Kansas . . . . . . . . . . . . . . . . . . Kansas Kaw Valley Building Corporation, Inc.. . . . . . . . . . . Kansas Kansas Trust Company . . . . . . . . . . . . . . . . . . . Kansas MidAmerican Insurance Agency Inc. . . . . . . . . . . . . . . Kansas MidAmerican Building Corporation. . . . . . . . . . . . . . . Kansas Crown Bancshares II, Inc.. . . . . . . . . . . . . . . . . . . . . . . Kansas Mercantile Bank of Cape Girardeau. . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Doniphan National Association . . . . . . . .United States Mercantile Bank of Flora National Association. . . . . . . . . .United States Mercantile Bank of Jefferson County. . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Joplin National Association . . . . . . . . .United States Mercantile Bank of Memphis . . . . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of the Mineral Area. . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Monett National Association . . . . . . . . .United States Mercantile Bank of Montgomery City National Association. . . . .United States Mercantile Bank of Perryville. . . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Pike County . . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Poplar Bluff. . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Ste. Genevieve. . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of West Central Missouri . . . . . . . . . . . . . . Missouri Mercantile Bank of Sikeston. . . . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Stoddard/Bollinger Counties National Association. . . . . . . . . . . . . . . . . . . . . . . . . .United States Mercantile Bank of Table Rock Lake . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Willow Springs. . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Wright County . . . . . . . . . . . . . . . . . . Missouri Mercantile Bank of Springfield . . . . . . . . . . . . . . . . . . . Missouri So-Mo Investments . . . . . . . . . . . . . . . . . . . . . Missouri Mercantile Insurance Services, Inc.. . . . . . . . . . . . . . . . . Missouri Franklin Finance Company . . . . . . . . . . . . . . . . . . . . . . Delaware Convenience Financial Services Inc.. . . . . . . . . . . . . . . . . Missouri Mercantile Card Services Inc.. . . . . . . . . . . . . . . . . . . . Missouri Mercantile Acquisition Corporation IV. . . . . . . . . . . . . . . . . . Iowa The Waterloo Savings Bank . . . . . . . . . . . . . . . . . . . Iowa
EX-23 4 CONSENT OF EXPERT 1 EXHIBIT NO. 23 INDEPENDENT AUDITOR'S 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 and No. 33-48952, each on Form S-8, and No. 33-45863, and No. 33-50981, each on Form S-4, of Mercantile Bancorporation Inc., of our report dated January 13, 1993, relating to the consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1993, 1992, and 1991, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of Mercantile Bancorporation Inc. s/KPMG Peat Marwick ------------------- KPMG Peat Marwick St. Louis, Missouri March 29, 1994 EX-24 5 POWERS OF ATTORNEY 1 EXHIBIT NO. 24 POWER OF ATTORNEY Each of the undersigned does hereby appoint Thomas H. Jacobsen and Ralph W. Babb, Jr., and each of them, as his true and lawful attorney in fact, with full power and authority separately to execute in the name of each of the undersigned, and to file: (i) any registration statement to be filed pursuant to the Securities Act of 1933 in connection with the registration of the issuance by Mercantile Bancorporation Inc. of any of its common stock, preferred stock, stock options, notes or debentures or any other security, whether such securities are issued for cash, in connection with an acquisition transaction or otherwise, (ii) any annual reports or other filings pursuant to the Securities Exchange Act of 1934, (iii) any amendments to such registration statements, annual reports and other filings as the above-named attorneys deem necessary or advisable to enable Mercantile Bancorporation Inc. to comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, and does hereby ratify and confirm all acts that such attorneys in fact, or any of them separately, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this instrument as of the 28th day of March, 1994. s/THOMAS H. JACOBSEN s/WILLIAM G. HECKMAN - ---------------------------------- ---------------------------------- Thomas H. Jacobsen William G. Heckman s/RALPH W. BABB, JR. s/JAMES B. MALLOY - ---------------------------------- ---------------------------------- Ralph W. Babb, Jr. James B. Malloy s/RICHARD P. CONERLY s/CHARLES H. PRICE II - ---------------------------------- ---------------------------------- Richard P. Conerly Charles H. Price II s/HARRY M. CORNELL, JR. s/HARVEY SALIGMAN - ---------------------------------- ---------------------------------- Harry M. Cornell, Jr. Harvey Saligman s/EARL K. DILLE s/CRAIG D. SCHNUCK - ---------------------------------- ---------------------------------- Earl K. Dille Craig D. Schnuck s/J. CLIFF EASON s/ROBERT W. STALEY - ---------------------------------- ---------------------------------- J. Cliff Eason Robert W. Staley s/BERNARD A. EDISON s/PATRICK T. STOKES - ---------------------------------- ---------------------------------- Bernard A. Edison Patrick T. Stokes s/WILLIAM A. HALL s/FRANCIS A. STROBLE - ---------------------------------- ---------------------------------- William A. Hall Francis A. Stroble s/THOMAS A. HAYS s/JOHN A. WRIGHT - ---------------------------------- ---------------------------------- Thomas A. Hays John A. Wright 2 POWER OF ATTORNEY Robert L. Stark and Joseph G. Werner do hereby appoint Thomas H. Jacobsen and Ralph W. Babb, Jr., and each of them, as his true and lawful attorney in fact, with full power and authority separately to execute in the name of the undersigned, and to file: (i) any registration statement to be filed pursuant to the Securities Act of 1933 in connection with the registration of the issuance by Mercantile Bancorporation Inc. of any of its common stock, preferred stock, stock options, notes or debentures or any other security, whether such securities are issued for cash, in connection with an acquisition transaction or otherwise, (ii) any annual reports or other filings pursuant to the Securities Exchange Act of 1934, (iii) any amendments to such registration statements, annual reports and other filings as the above-named attorneys deem necessary or advisable to enable Mercantile Bancorporation Inc. to comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, and does hereby ratify and confirm all acts that such attorneys in fact, or any of them separately, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, Robert L. Stark and Joseph G. Werner have executed this instrument as of the 28th day of March, 1994. s/ROBERT L. STARK -------------------------------- Robert L. Stark s/JOSEPH G. WERNER -------------------------------- Joseph G. Werner -----END PRIVACY-ENHANCED MESSAGE-----