-----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, IyV5Si8tl3hremx1WEOYRcICkJlGfQ6GdijTweQtFtHPGhVt8mri6dEbt24K3Rng Qp5jQXijztCbeOKucBYliw== 0000950114-94-000081.txt : 19940701 0000950114-94-000081.hdr.sgml : 19940701 ACCESSION NUMBER: 0000950114-94-000081 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940617 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19940617 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11792 FILM NUMBER: 94534667 BUSINESS ADDRESS: STREET 1: ONE MECANTILE CENTER STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P.O. BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 8-K 1 MERCANTILE BANCORPORATION INC.'S FORM 8-K 1 ==================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 17, 1994 MERCANTILE BANCORPORATION INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 1-11792 43-0951744 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF ORGANIZATION) IDENTIFICATION NUMBER) P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 425-2525 ==================================================================== 2 MERCANTILE MERCANTILE BANCORPORATION INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 3 Item 5. Other Events. ------------ MERCANTILE BANCORPORATION INC. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992, 1991 Effective January 3, 1994, Mercantile Bancorporation Inc. ("Corporation") acquired Metro Bancorporation, and effective February 1, 1994, the Corporation acquired United Postal Bancorp, Inc., in transactions accounted for as poolings-of- interests. The following Supplemental Consolidated Financial Statements restate the Corporation's historical consolidated financial statements as of and for the years ended December 31, 1993, 1992 and 1991 to reflect these transactions. All per share amounts, as well as ending and average common shares data, reflect a three-for-two stock split distributed in the form of a dividend on April 11, 1994. 4 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL 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 $621,986 $651,616 $679,319 Investments in debt and equity securities Trading 678 593 1,288 Taxable 183,233 194,932 164,628 Tax-exempt 13,289 12,319 10,315 -------- -------- -------- Total 197,200 207,844 176,231 Due from banks-interest bearing 2,609 5,900 11,075 Federal funds sold and repurchase agreements 8,135 8,087 12,846 -------- -------- -------- Total Interest Income 829,930 873,447 879,471 INTEREST EXPENSE Interest bearing deposits 281,621 364,897 441,379 Foreign deposits 1,363 870 1,903 Short-term borrowings 23,709 30,368 42,320 Long-term debt 22,041 21,223 21,314 -------- -------- -------- Total Interest Expense 328,734 417,358 506,916 -------- -------- -------- NET INTEREST INCOME 501,196 456,089 372,555 PROVISION FOR POSSIBLE LOAN LOSSES 61,013 74,579 58,076 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 440,183 381,510 314,479 OTHER INCOME Trust 61,138 57,501 49,400 Service charges 58,511 55,399 47,504 Credit card fees 24,060 21,487 20,636 Investment banking 8,486 8,918 7,463 Securities gains 3,742 5,518 4,334 Other 43,221 35,121 26,359 -------- -------- -------- Total Other Income 199,158 183,944 155,696 OTHER EXPENSE Salaries 171,970 158,390 140,877 Employee benefits 43,363 33,625 31,278 Net occupancy 27,628 24,511 20,965 Equipment 35,010 31,077 29,133 Other 166,938 170,465 161,095 -------- -------- -------- Total Other Expense 444,909 418,068 383,348 -------- -------- -------- INCOME BEFORE INCOME TAXES 194,432 147,386 86,827 INCOME TAXES 75,568 52,346 18,673 -------- -------- -------- NET INCOME $118,864 $ 95,040 $ 68,154 ======== ======== ======== PER SHARE DATA Average common shares outstanding 42,439,298 39,492,237 31,790,914 Net income $2.80 $2.36 $2.37 Dividends declared .99 .93 .93
2 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEET (THOUSANDS)
DECEMBER 31 1993 1992 1991 ---- ---- ---- ASSETS Cash and due from banks $ 705,673 $ 686,352 $ 589,633 Due from banks-interest bearing 144,538 43,184 150,667 Federal funds sold and repurchase agreements 186,962 241,972 255,720 Investments in debt and equity securities Trading 15,735 17,684 23,637 Available-for-sale 415,283 89,424 - Held-to-maturity (Estimated fair value of $3,020,591, $3,366,147 and $2,540,324, respectively) 2,970,160 3,294,169 2,451,129 ----------- ----------- ----------- Total 3,401,178 3,401,277 2,474,766 Loans and leases, net of unearned income 7,381,774 7,499,221 6,945,537 Reserve for possible loan losses (168,651) (165,575) (146,078) ----------- ----------- ----------- Net Loans and Leases 7,213,123 7,333,646 6,799,459 Bank premises and equipment 199,363 200,552 164,056 Due from customers on acceptances 11,923 7,451 13,332 Other assets 278,367 358,594 317,647 ----------- ----------- ----------- Total Assets $12,141,127 $12,273,028 $10,765,280 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 1,713,275 $ 1,532,477 $ 1,392,094 Interest bearing 7,862,723 8,375,832 7,370,390 Foreign 26,085 19,650 13,937 ----------- ----------- ----------- Total Deposits 9,602,083 9,927,959 8,776,421 Federal funds purchased and repurchase agreements 602,997 744,101 613,339 Other short-term borrowings 520,650 241,293 301,436 Long-term debt 272,778 299,109 203,270 Bank acceptances outstanding 11,923 7,451 13,332 Other liabilities 172,139 201,791 167,220 ----------- ----------- ----------- Total Liabilities 11,182,570 11,421,704 10,075,018 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 70,000 35,000 Shares issued and outstanding 42,802 42,032 33,639 214,012 210,160 168,196 Capital surplus 164,448 148,089 95,124 Retained earnings 580,097 493,075 426,942 ----------- ----------- ----------- Total Shareholders' Equity 958,557 851,324 690,262 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $12,141,127 $12,273,028 $10,765,280 =========== =========== =========== The accompanying notes to supplemental consolidated financial statements are an integral part of these statements.
3 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK ----------------- TOTAL CAPITAL RETAINED SHAREHOLDERS' SHARES DOLLARS SURPLUS EARNINGS EQUITY ------ ------- ------- -------- ---------- BALANCE AT DECEMBER 31, 1990 AS REPORTED 28,527,999 $142,640 $ 47,410 $300,325 $490,375 Adjustment to reflect poolings-of- interests 1,680,594 8,403 (1,474) 83,609 90,538 ---------- -------- --------- -------- -------- BALANCE AT DECEMBER 31, 1990 AS RESTATED 30,208,593 151,043 45,936 383,934 580,913 Net income 68,154 68,154 Dividends declared Mercantile Bancorporation Inc.- $.93 per share (24,673) (24,673) Pooled companies prior to acquisition (1,808) (1,808) 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 208,376 1,041 3,599 (1,172) 3,468 ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1991 33,639,248 168,196 95,124 426,942 690,262 Net income 95,040 95,040 Dividends declared Mercantile Bancorporation Inc.- $.93 per share (27,506) (27,506) Pooled companies prior to acquisition (2,923) (2,923) Issuance of common stock Acquisition of Ameribanc, Inc. 1,975,421 9,877 41,418 51,295 Employee incentive plans 195,679 978 2,854 3,832 Warrants and convertible notes 347,143 1,736 7,272 9,008 Change in valuation allowance for marketable equity securities 1,522 1,522 Initial public offering of United Postal Bancorp, Inc. 5,537,405 27,688 (818) 26,870 Other pre-merger transactions of pooled companies 337,077 1,685 2,239 3,924 ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1992 42,031,973 210,160 148,089 493,075 851,324 NET INCOME 118,864 118,864 DIVIDENDS DECLARED MERCANTILE BANCORPORATION INC.- $.99 PER SHARE (34,840) (34,840) POOLED COMPANIES PRIOR TO ACQUISITION (4,195) (4,195) 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 PRE-MERGER TRANSACTIONS OF POOLED COMPANIES 87,907 440 (9) 3 434 OTHER (2,269) (11) (32) (43) ---------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1993 42,802,322 $214,012 $164,448 $580,097 $958,557 ========== ======== ======== ======== ========
4 7 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
YEAR ENDED DECEMBER 31 1993 1992 1991 ---- ---- ---- OPERATING ACTIVITIES Net income $ 118,864 $ 95,040 $ 68,154 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 61,013 74,579 58,076 Depreciation and amortization 26,491 24,809 21,638 Provision for deferred income taxes (credits) 6,241 1,248 (19,249) Net change in trading securities 1,949 5,953 (1,158) Net change in accrued interest receivable 8,505 8,844 788 Net change in accrued interest payable (7,396) (18,922) (13,608) Net change in accrued taxes payable (10,515) 10,038 (1,115) Other, net 58,976 33,653 60,754 ----------- ----------- ----------- Net Cash Provided by Operating Activities 264,128 235,242 174,280 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (1,435,988) (1,693,288) (1,088,579) Proceeds from maturities 1,464,157 1,010,084 519,604 Proceeds from sales of: Held-to-maturity securities 27,970 166,118 160,361 Available-for-sale securities 538,755 307,597 160,606 Securities from acquired entities 14,491 58,219 - Proceeds from maturities of short-term floating-rate securities - - 28,000 Loans and leases, net of unearned income Purchases (84,134) (113,311) (62,182) Proceeds from sales 258,769 81,410 73,420 Other, net change (621,973) (192,671) (167,713) Purchases of premises and equipment (26,551) (29,589) (21,902) Proceeds from sales of premises and equipment 480 2,722 1,414 Proceeds from sales of foreclosed property 44,974 5,559 38,387 Cash and cash equivalents from acquisitions, net of cash paid 11,085 401,312 314,618 Other, net 23,632 15,317 11,777 ----------- ----------- ----------- Net Cash Provided (Used) by Investing Activities 215,667 19,479 (32,189) FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts 238,651 514,545 225,983 Net change in time certificates of deposit under $100,000 (572,890) (819,135) (310,263) Net change in time certificates of deposit $100,000 and over (58,082) (143,041) (84,571) 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 138,253 35,377 34,891 Issuance of long-term debt - 163,152 4,150 Principal payments on long-term debt (27,738) (83,324) (36,508) Cash dividends paid (39,035) (30,429) (26,481) Proceeds from issuance of common stock Public offering - - 40,953 Employee incentive plans and warrants 2,203 3,904 1,508 Initial public offering of United Postal Bancorp, Inc. - 26,870 - Other, net 434 1,724 (618) ----------- ----------- ----------- Net Cash Used by Financing Activities (414,130) (279,233) (140,433) ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 65,665 (24,512) 1,658 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 971,508 996,020 994,362 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,037,173 $ 971,508 $ 996,020 =========== =========== =========== The accompanying notes to supplemental consolidated financial statements are an integral part of these statements.
5 8 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS NOTE A ACCOUNTING POLICIES Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") and its subsidiaries follow generally accepted accounting principles and reporting practices applicable to the banking industry. The significant accounting policies are summarized below. BASIS OF PRESENTATION: Consolidation: The Supplemental Consolidated Financial Statements include the accounts of Mercantile Bancorporation Inc. and its subsidiaries. All subsidiaries are wholly-owned. Material intercompany transactions are eliminated. Restatements: Effective January 3, 1994, Mercantile Bancorporation Inc. acquired Metro Bancorporation ("Metro"), and effective February 1, 1994, the Corporation acquired United Postal Bancorp, Inc. ("United Postal"), in transactions accounted for as poolings-of-interests. The Supplemental Consolidated Financial Statements give retroactive effect to the transactions and, as a result, the Supplemental Consolidated Statement of Income, Balance Sheet and Statement of Cash Flows are presented as if the combining companies had been consolidated for all periods presented. (As required by generally accepted accounting principles, the Supplemental Consolidated Financial Statements will become the historical consolidated financial statements upon issuance of the financial statements for the period that includes the date of the transactions.) The Supplemental Consolidated Statement of Changes in Shareholders' Equity reflects the accounts of Mercantile Bancorporation Inc. as if the common stock issued in the Metro acquisition had been outstanding during all periods presented. The Supplemental Statement of Changes in Shareholders' Equity reflects the accounts of the Corporation as if the additional common stock issued in the United Postal acquisition was outstanding effective March 20, 1992, the date United Postal made its initial public offering of common stock. The Supplemental Consolidated Financial Statements, including the notes thereto, should be read in conjunction with the historical consolidated financial statements of the Corporation included in its 1993 Annual Report on Form 10-K. A three-for-two stock split, which was paid in the form of a dividend, was distributed on April 11, 1994 to shareholders of record March 10, 1994. All per share amounts, as well as ending and average common shares data, reflect the three-for-two stock split. 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. Earnings of United Postal are excluded from the earnings per share calculation from January 1, 1991 through March 20, 1992, which is the date United Postal made its initial public offering of common stock. Also on March 20, 1992, United Postal Savings Association, a wholly-owned subsidiary of United Postal, converted from a Missouri state-chartered mutual savings association to a Missouri state-chartered stock association. INVESTMENTS IN DEBT AND EQUITY SECURITIES: Trading securities, which include any security held primarily for near-term sale, are valued at fair value. Gains and losses on trading securities, both realized and unrealized, are recorded in investment banking income. Available-for-sale securities, which include any security for which the Corporation has no immediate plan to sell but which may be sold in the future under different circumstances, are valued at fair value. Realized gains and losses, based on the amortized cost of the specific security, are included in other income as securities gains. Unrealized gains and losses are recorded, net of related income tax effects, in retained earnings. 6 9 Held-to-maturity securities, which include any security for which the Corporation has the positive intent and ability to hold until maturity, are valued at historical cost adjusted for amortization of premiums and accretion of discounts computed by the level-yield method. Prior to December 31, 1993, realized gains and losses, based on the amortized cost of the specific security, were included in other income as securities gains. Prior to December 31, 1993, marketable equity securities were stated at the lower of cost or fair value. Changes in the valuation of marketable equity securities which were considered to be temporary were recorded as adjustments to retained earnings. 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. 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 Supplemental 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 Supplemental Consolidated Balance Sheet. Goodwill, the excess of cost over the net assets acquired in business combinations accounted for as purchases, is amortized using the straight-line method over the estimated period to be benefited, most recently 15 years, but not exceeding 40 years. Core deposit premium represents the premiums paid, net of any rebate on assets acquired, plus the insurance funds' entrance and exit fees, for deposits acquired from failed thrift institutions in Resolution Trust Corporation-assisted transactions. This intangible asset is amortized, on an accelerated basis, over the estimated life of the core deposit base acquired, but not exceeding 10 years. 7 10 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 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 Supplemental Consolidated Statement of Cash Flows. FINANCIAL INSTRUMENTS: Financial instruments include cash, evidence of an ownership interest in an entity or a contract that both (a) imposes on the Corporation a contractual obligation, (1) to deliver a financial instrument to another party or (2), to exchange other financial instruments on potentially unfavorable terms with another party; and (b) conveys to another party a contractual right, (1) to receive a financial instrument from the Corporation or (2), to exchange other financial instruments on potentially favorable terms with the Corporation. NOTE B SUBSIDIARIES ACQUISITIONS: As described in Note A, effective February 1, 1994, the Corporation acquired United Postal, holding company for St. Louis, Missouri-based United Postal Savings Association, with assets totaling $1.3 billion. Effective January 3, 1994, Mercantile completed a merger with Metro, a Waterloo, Iowa- based holding company for The Waterloo Savings Bank with assets totaling $370 million. A total of 5,631,953 and 1,638,278 shares of Mercantile common stock were issued in the United Postal and Metro transactions, respectively, which were accounted for as poolings-of-interests. Net income and net income per share for the Corporation and the pooled companies prior to restatement were as follows:
YEAR ENDED DECEMBER 31 1993 1992 1991 ($ IN THOUSANDS EXCEPT PER SHARE DATA) Corporation Net income $116,972 $85,295 $72,318 Net income per share 3.32 2.53 2.40 United Postal Net income (loss) $ (58) $ 7,259 $(7,269) Net income (loss) per share (.01) 1.21 - Metro Net income $ 1,950 $ 2,486 $ 3,105 Net income per share 3.76 4.81 5.81
During the fourth quarter of 1993, certain adjustments were recorded by United Postal 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. 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 Supplemental Consolidated Financial Statements from the respective acquisition dates. On January 4, 1993, the Corporation acquired MidAmerican Corporation and Johnson County Bankshares, Inc., two northeast Kansas-based holding companies with assets totaling $1.1 billion. A total of 4,736,424 shares of Mercantile common stock was issued in the transaction, which was accounted for as a pooling-of-interests. Net income and net income per share for the Corporation, MidAmerican Corporation and Johnson County Bankshares, Inc. prior to restatement were as follows:
YEAR ENDED DECEMBER 31 1992 1991 ($ 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. 8 11 MidAmerican Corporation acquired Jayhawk Bancshares, Inc., a $52,000,000-asset, one-bank holding company in Lawrence, Kansas, in July 1992. This acquisition was accounted for as a purchase and, accordingly, the results of operations, which were not material, were included in the Supplemental Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $10,872,000 in cash and $2,200,000 in notes, 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 Supplemental Consolidated Financial Statements from the acquisition date. The total cost of the acquisition was $8,851,000 in cash and 1,975,421 shares of Mercantile common stock. The following unaudited pro forma combined consolidated financial information gives effect to the April 30, 1992 acquisition of Ameribanc, Inc. as if it had been consummated on January 1, 1991.
YEAR ENDED DECEMBER 31 1992 1991 ($ IN THOUSANDS EXCEPT PER SHARE DATA) Net interest income $468,362 $407,453 Other income 188,053 166,957 Net income 95,115 68,916 Net income per share 2.32 2.25
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 Supplemental 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. 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 Supplemental 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; Mercantile Bank of West Central Missouri acquired $163,055,000 in deposits and $156,818,000 in assets of First State Savings Association of Sedalia in April 1992; and United Postal Savings Association acquired $79,000,000 in deposits and $80,000,000 in assets of First Federal Savings and Loan Association in Manchester, Missouri in December 1992. 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. During the year ended December 31, 1991, The Waterloo Savings Bank acquired the Waterloo and Cedar Falls, Iowa offices of Statesman Federal Savings Bank and American Federal Savings Association, with assets of $33,000,000 and deposits of $142,000,000. Unamortized core deposit premium was $11,261,000, $14,047,000 and $12,879,000 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 several reorganization transactions 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. 9 12 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) NOTE C CASH FLOWS The Corporation paid interest on deposits, short-term borrowings and long-term debt of $335,574,000, $429,793,000 and $516,099,000 in 1993, 1992 and 1991, respectively. The Corporation paid Federal income taxes of $61,493,000, $45,174,000 and $35,745,000 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) $(1,679,456) $(697,675) Liabilities assumed 166,400 1,603,529 663,391 Issuance of common stock 15,182 51,295 20,908 --------- ----------- --------- Net cash paid for acquisitions (4,809) (24,632) (13,376) Cash and cash equivalents acquired 15,894 425,944 327,994 --------- ----------- --------- CASH AND CASH EQUIVALENTS FROM ACQUISITIONS, NET OF CASH PAID $ 11,085 $ 401,312 $ 314,618 ========= =========== =========
NOTE D CASH AND DUE FROM BANKS RESTRICTIONS The Corporation's subsidiary banks and thrift institution 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 $166,330,000. 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 Supplemental Consolidated Balance Sheet on that date. The most significant impact of the new accounting requirements is that unrealized holding gains and losses, net of applicable income taxes, on securities classified as available-for-sale are recorded as an adjustment to retained earnings. In 1992 these securities were classified as held-for-sale, and were carried at the lower of amortized cost or fair value determined on an aggregate basis with adjustments recorded in current year earnings. The adoption of FAS 115 did not have a material effect on the financial condition or results of operations for the year ended December 31, 1993, and prior year Supplemental Consolidated Financial Statements have not been restated. On December 31, 1993, debt securities with an amortized cost of $2,970,160,000 were classified as "held-to-maturity;" and debt and equity securities with an amortized cost of $409,688,000 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 and December 31, 1992 were as follows:
AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE (THOUSANDS) DECEMBER 31, 1993 U.S. government $359,362 $2,289 $ 604 $361,047 State and political subdivisions- tax-exempt 14,259 925 11 15,173 Other 36,067 4,240 1,244 39,063 -------- ------ ------ -------- Total $409,688 $7,454 $1,859 $415,283 ======== ====== ====== ======== DECEMBER 31, 1992 U.S. government $89,424 $2,672 $ - $92,096 ======= ====== === =======
10 13 HELD-TO-MATURITY: The amortized cost, estimated fair values, and unrealized gains and losses of held-to-maturity securities were as follows:
AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE (THOUSANDS) DECEMBER 31, 1993 U.S. government $2,492,458 $42,756 $3,492 $2,531,722 State and political subdivisions Tax-exempt 235,030 10,290 272 245,048 Taxable 101,467 338 671 101,134 ---------- ------- ------ ---------- Total State and Political Subdivisions 336,497 10,628 943 346,182 Other 141,205 1,809 327 142,687 ---------- ------- ------ ---------- Total $2,970,160 $55,193 $4,762 $3,020,591 ========== ======= ====== ========== DECEMBER 31, 1992 U.S. government $2,664,816 $67,137 $7,055 $2,724,898 State and political subdivisions Tax-exempt 216,060 7,839 1,052 222,847 Taxable 12,195 317 131 12,381 ---------- ------- ------ ---------- Total State and Political Subdivisions 228,255 8,156 1,183 235,228 Other 401,098 5,782 859 406,021 ---------- ------- ------ ---------- Total $3,294,169 $81,075 $9,097 $3,366,147 ========== ======= ====== ========== DECEMBER 31, 1991 U.S. government $1,888,213 $78,400 $ 394 $1,966,219 State and political subdivisions Tax-exempt 173,071 5,658 1,912 176,817 Taxable 3,479 244 1 3,722 ---------- ------- ------ ---------- Total State and Political Subdivisions 176,550 5,902 1,913 180,539 Other 386,366 7,850 650 393,566 ---------- ------- ------ ---------- Total $2,451,129 $92,152 $2,957 $2,540,324 ========== ======= ====== ==========
Securities with a carrying value of $1,963,837,000 at December 31, 1993, $2,084,829,000 at December 31, 1992 and $1,778,625,000 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 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, and at December 31, 1993, these securities were classified as available-for-sale. The following table presents proceeds from sales of securities and the components of net securities gains.
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Proceeds from sales of: Held-to-maturity securities $ 27,970 $166,118 $160,361 Available-for-sale securities 538,755 307,597 160,606 Securities from acquired entities 14,491 58,219 - Securities gains on: Held-to-maturity securities $ 1,013 $ 4,141 $ 4,925 Available-for-sale securities 5,230 3,610 - ------- ------- ------ Total Securities Gains 6,243 7,751 4,925 Securities losses on: Held-to-maturity securities 863 1,362 591 Available-for-sale securities 1,638 871 - ------- ------- ------ Total Securities Losses 2,501 2,233 591 ------- ------- ------- Net Securities Gains Before Income Taxes 3,742 5,518 4,334 Applicable income taxes (1,310) (1,876) (1,474) ------- ------- ------- Net Securities Gains $ 2,432 $ 3,642 $ 2,860 ======= ======= =======
NOTE F LOANS AND LEASES Loans and leases consisted of the following:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Commercial $1,932,116 $2,033,191 $2,006,501 Real estate-commercial 1,267,085 1,350,775 1,175,380 Real estate-construction 162,765 163,764 159,357 Real estate-residential 2,315,059 2,403,917 2,241,945 Consumer 941,044 935,471 875,924 Credit card 763,243 610,429 483,208 Foreign 462 1,674 3,222 ---------- ---------- ---------- Loans and Leases $7,381,774 $7,499,221 $6,945,537 ========== ========== ==========
Changes in the reserve for possible loan losses were as follows:
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Beginning Balance $165,575 $146,078 $148,660 Provision 61,013 74,579 58,076 Charge-offs (83,811) (88,387) (77,132) Recoveries 23,632 15,317 11,777 -------- -------- -------- Net Charge-offs (60,179) (73,070) (65,355) Acquired Reserves 2,242 17,988 4,697 -------- -------- -------- Ending Balance $168,651 $165,575 $146,078 ======== ======== ========
11 14 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Non-performing loans consisted of the following:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Non-accrual $49,018 $ 91,679 $125,504 Renegotiated 8,465 13,881 3,606 ------- -------- -------- Non-performing Loans $57,483 $105,560 $129,110 ======= ======== ========
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 $ 35,993 $ 33,901 $ 25,359 Bank premises 200,552 194,605 154,222 Leasehold improvements 17,907 17,129 14,806 Furniture and equipment 167,856 156,658 133,121 --------- --------- -------- Total Cost 422,308 402,293 327,508 Accumulated depreciation (222,945) (201,741) (163,452) --------- --------- --------- Net Carrying Value $ 199,363 $ 200,552 $164,056 ========= ========= ========
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 $ 4,463 1995 3,609 1996 3,030 1997 2,547 1998 1,178 1999 and later 4,884 ------- Total $19,711 =======
Net rental expense for all operating leases was $6,775,000 in 1993, $7,165,000 in 1992 and $6,455,000 in 1991. NOTE H SHORT-TERM BORROWINGS Short-term borrowings were as follows:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Federal funds purchased and repurchase agreements $ 602,997 $744,101 $613,339 Treasury tax and loan notes 502,260 215,521 253,074 Commercial paper 18,390 9,198 7,928 Other short-term borrowings - 16,574 40,434 --------- -------- -------- Total $1,123,647 $985,394 $914,775 ========== ======== ========
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 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 BANKS AND OTHER SUBSIDIARIES 9.000% mortgage-backed notes, due 1999 53,041 52,966 52,783 Mortgage payable 23,653 24,337 24,968 Advance from Federal Home Loan Bank - - 16,000 Other 107 239 - -------- -------- ------- Total 76,801 77,542 93,751 -------- -------- -------- Total Long-term Debt $272,778 $299,109 $203,270 ======== ======== ========
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. 12 15 On January 25, 1994, Mercantile Bank of St. Louis N.A. issued $75,000,000 of 6.375% 10-year, non-callable subordinated debt, due January 15, 2004. This debt qualifies as Tier II capital. The Corporation used the proceeds of this subordinated debt issue to: (1) prepay in full on February 23, 1994 the $30,550,000 8.500% unsecured debentures of the Corporation; and (2) prepay in full on February 1, 1994 the $23,653,000 8.250% mortgage secured by the Corporation's headquarters building. The 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 were direct, unsecured obligations of the Corporation. Required minimum annual redemptions of $1,050,000 were met through 1993. These debentures were prepaid in full on February 23, 1994 as part of the debt refinancing described above. 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 with an interest rate of 6.500% 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. In July 1989, United Postal Savings Association issued $100 million of 9.000% fixed-rate mortgage-backed notes with a maturity of July 1999. United Postal Savings Association used a portion of the proceeds from the sale of the notes as, or to purchase, eligible collateral which was pledged to the trustee simultaneously with the initial sale of the notes. During 1990, $46,600,000 of the mortgage-backed notes were repurchased on the open market at a discount. The mortgage payable, which bears interest at a rate of 8.250%, was a direct obligation of a bank subsidiary secured by the Corporation's headquarters building, Mercantile Tower, which had a carrying value of $23,548,000 at December 31, 1993. The Corporation prepaid this mortgage in full on February 1, 1994 as part of the debt refinancing described above. The advance from the Federal Home Loan Bank was paid in full during 1993 by United Postal Savings Association. A summary of annual principal reductions of long-term debt, after the effects of the debt refinancing described above, is presented below:
ANNUAL PERIOD PRINCIPAL REDUCTIONS (THOUSANDS) 1994 $ 1,939 1995 13,557 1996 38 1997 - 1998 - 1999 and later 257,244 -------- Total $272,778 ========
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 and 1992. The effect on 1991 net income of adopting FAS 109 was a reduction to income tax expense of $18,000,000. Income tax expense was as follows:
CURRENT DEFERRED TOTAL (THOUSANDS) YEAR ENDED DECEMBER 31, 1993 U.S. FEDERAL $58,989 $5,479 $64,468 STATE AND LOCAL 10,338 762 11,100 ------- ------ ------- TOTAL $69,327 $6,241 $75,568 ======= ====== ======= Year ended December 31, 1992 U.S. Federal $44,020 $ 915 $44,935 State and local 7,078 333 7,411 ------- ------ ------- Total $51,098 $1,248 $52,346 ======= ====== ======= Year ended December 31, 1991 U.S. Federal $31,516 $(18,995) $12,521 State and local 6,406 (254) 6,152 ------- -------- ------- Total $37,922 $(19,249) $18,673 ======= ======== =======
13 16 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 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 $ 53,507 $ 54,245 $ 45,375 Foreclosed property 2,172 2,745 3,041 Deferred compensation 2,792 1,874 1,447 Net operating losses from pooled subsidiary 4,527 10,377 15,192 Expenses not currently allowable for tax purposes 7,598 5,802 1,769 State tax liabilities 1,266 1,567 1,462 Other 3,066 11,447 10,206 -------- -------- -------- Total Gross Deferred Tax Assets 74,928 88,057 78,492 Deferred tax liabilities Leasing (55,050) (55,187) (49,460) Pension settlement gain (6,005) (5,833) (5,833) Intangible assets (8,369) (8,355) (6,936) Depreciation (2,542) (2,793) (2,826) Investments in debt and equity securities-FAS 115 (1,959) - - Other (1,819) (8,505) (8,592) -------- -------- -------- Total Gross Deferred Tax Liabilities (75,744) (80,673) (73,647) -------- -------- -------- Net Deferred Tax Assets/(Liabilities) $ (816) $ 7,384 $ 4,845 ======== ======== ========
The 1992 and 1993 net deferred tax assets/(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 $68,051 $50,112 $29,521 Increase (reduction) in income taxes resulting from Tax-exempt income (5,565) (4,023) (5,661) State and local income taxes, net of federal income tax benefit 7,214 4,892 4,060 Change in valuation allowance for deferred tax assets - - (21,080) Goodwill write-off - - 10,874 Thrift bad debt recapture 6,070 - - Other, net (202) 1,365 959 ------- ------- ------- Total Tax Expense $75,568 $52,346 $18,673 ======= ======= =======
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. United Postal Savings Association is a member of the Financial Institutions Retirement Fund ("Fund"). This trust provides retirement and death benefits to multiple employers. All contributions to the Fund are comingled, and all assets of the Fund are invested on a pooled basis, without allocation to the individual employers. Therefore, United Postal Savings Association's pension plan assets and actuarial liabilities are not included in the qualified plan tables listed below. Due to an overfunding of the Fund, pension expense for the periods presented has been comprised primarily of an administrative fee. The net periodic pension expense (credit) related to the qualified plan included in the Supplemental Consolidated Statement of Income is summarized as follows:
YEAR ENDED DECEMBER 31 1993 1992 1991 (THOUSANDS) Service cost-benefits earned during the period $ 4,762 $3,661 $ 3,270 Interest cost on projected benefit obligation 7,293 5,811 4,893 Actual return on plan assets (9,839) (7,807) (18,542) Net amortization and deferral (959) (1,547) 10,181 ------- ------- -------- Net Periodic Pension Expense (Credit) $ 1,257 $ 118 $ (198) ======= ====== ========
14 17 The table below sets forth the funded status and amounts recognized in the Supplemental Consolidated Balance Sheet for the qualified plan:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Actuarial present value of Vested benefit obligation $77,877 $63,328 $49,944 ======= ======= ======= Accumulated benefit obligation $84,795 $67,862 $53,392 ======= ======= ======= Projected benefit obligation $103,744 $ 83,237 $ 66,960 Plan assets at fair value 118,159 112,087 103,004 -------- -------- -------- Plan assets in excess of projected benefit obligation (overfunded) (14,415) (28,850) (36,044) Unrecognized net gain (loss) (10,671) 1,885 7,909 Unrecognized prior service cost 1,843 1,608 2,104 Unrecognized net asset at December 31 6,865 8,078 9,292 -------- -------- -------- Prepaid Pension $ (16,378) $ (17,279) $(16,739) ========= ========= ======== 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 $1,641,000 in 1993, $1,337,000 in 1992 and $996,000 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, "Employers' 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 Supplemental 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 1992, and 35,000,000 shares as of December 31, 1991, $5.00 par value, of which 42,802,322, 42,031,973 and 33,639,248 shares were issued and outstanding at December 31, 1993, 1992 and 1991, respectively. An increase of authorized common stock to 100,000,000 shares was approved by the Corporation's shareholders on April 28, 1994. 15 18 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 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. 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 233,523 Outstanding 2,263,103 $5.41-$34.33 Exercisable 887,871 5.41- 29.00 Changes in options outstanding were as follows: SHARES PRICE ------ ----- BALANCE AT DECEMBER 31, 1990 1,052,334 $11.19-$17.83 Granted 272,400 14.67- 21.78 Exercised (127,293) 11.19- 17.17 Canceled (50,730) 11.19- 17.50 --------- BALANCE AT DECEMBER 31, 1991 1,146,711 11.19- 21.78 Granted 1,146,347 5.41- 29.00 Exercised (320,565) 5.41- 24.09 Canceled (60,582) 17.00- 26.33 Assumed 72,223 14.60- 25.83 --------- BALANCE AT DECEMBER 31, 1992 1,984,134 5.41- 29.00 GRANTED 580,419 18.01- 34.33 EXERCISED (261,225) 5.41- 26.33 CANCELED (40,225) 17.17- 32.67 --------- BALANCE AT DECEMBER 31, 1993 2,263,103 5.41- 34.33 =========
As of February 1, 1994, the acquisition date of United Postal, the remaining unvested options, totaling 391,082 shares, of the United Postal plans became exercisable. 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 and thrift subsidiaries. At December 31, 1993, approximately $251,139,000 of the equity of bank and thrift 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 and thrift institution below present minimum standards. An additional $94,218,000 would be available for loans to the Parent Company under Federal Reserve regulations. The remaining equity of bank and thrift subsidiaries approximating $679,312,000 was restricted as to transfers to the Parent Company. 16 19 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 36% of all such instruments of the Corporation. However, of this total, approximately 64% 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 83% 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 Supplemental Consolidated Balance Sheet approximated fair values. Investments in Debt and Equity Securities: Fair values for held-to-maturity and available-for-sale securities were based upon quoted market prices where available. Fair values for trading securities, which also were the amounts reported in the Supplemental Consolidated Balance Sheet, were based on quoted market prices where available. If quoted market prices were not available, fair values were based upon quoted market prices of comparable instruments. Loans and Leases: The fair values for most 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 $135,000,000 to $165,000,000 in excess of the fair value at December 31, 1993 as compared to approximately $110,000,000 to $135,000,000 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 Supplemental Consolidated Balance Sheet. Fair values for certificates of deposit and foreign deposits were estimated using a discounted cash flow calculation that applied interest rates 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 $180,000,000 to $275,000,000 at December 31, 1993 as compared to approximately $185,000,000 to $280,000,000 at December 31, 1992 and was neither considered in the fair value amounts below nor recorded as an intangible asset in the Supplemental 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. 17 20 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) The estimated fair values of the Corporation's financial instruments were as follows:
DECEMBER 31 1993 1992 -------------------------------------- -------------------------------------- (THOUSANDS) CARRYING FAIR CARRYING FAIR FINANCIAL ASSETS VALUE VALUE VALUE VALUE Cash and due from banks and short-term investments $1,037,173 $1,037,173 $ 971,508 $ 971,508 Trading securities 15,735 15,735 17,684 17,684 Held-to-maturity securities 2,970,160 3,020,591 3,294,169 3,366,147 Available-for-sale securities 415,283 415,283 89,424 92,096 Net loans and leases 7,213,123 7,298,682 7,333,646 7,440,358 FINANCIAL LIABILITIES Deposits 9,602,083 9,658,117 9,927,959 10,007,100 Short-term borrowings 1,123,647 1,123,647 985,394 985,394 Long-term debt 272,778 301,669 299,109 302,112 FAIR FAIR VALUE VALUE OFF-BALANCE-SHEET Foreign exchange contracts purchased $ 5,375 $(2,034) Foreign exchange contracts sold (6,890) 1,392 Interest rate contracts (4,125) (5,300) Commitments to extend credit (11,950) (9,307) Standby letters of credit (2,247) (2,051) 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 Supplemental Consolidated Balance Sheet. Financial instruments with off-balance-sheet credit risk for which the contract amounts represent potential credit risk were as follows:
DECEMBER 31 1993 1992 1991 (THOUSANDS) Commitments to extend credit Commercial $1,589,036 $1,567,572 $1,490,550 Consumer 2,988,382 2,585,768 1,969,493 ---------- ---------- ---------- Total $4,577,418 $4,153,340 $3,460,043 ========== ========== ========== Standby letters of credit $231,647 $212,179 $251,553 ======== ======== ======== Interest rate contracts $37,500 $71,000 $84,737 ======= ======= =======
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. Included in interest rate contracts are interest rate exchange agreements with major investment banking firms to convert short- term variable-rate liabilities into long-term fixed-rate liabilities, to secure interest margins, and to hedge against interest rate movements. 18 21 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. 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 54,726 65,005 45,981 -------- ------- ------- NET INCOME $118,864 $95,040 $68,154 ======== ======= =======
BALANCE SHEET (THOUSANDS)
DECEMBER 31 1993 1992 1991 ASSETS Cash $ 628 $ 175 $ 339 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 1,016,395 917,403 705,062 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 $1,189,084 $1,080,446 $806,049 ========== ========== ======== 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 958,557 851,324 690,262 ---------- ---------- -------- Total Liabilities and Shareholders' Equity $1,189,084 $1,080,446 $806,049 ========== ========== ========
19 22 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) STATEMENT OF CASH FLOWS (THOUSANDS)
YEAR ENDED DECEMBER 31 1993 1992 1991 OPERATING ACTIVITIES Net income $ 118,864 $ 95,040 $ 68,154 Adjustments to reconcile net income to net cash provided by operating activities Net income of subsidiaries (132,274) (109,082) (78,235) 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 Investments 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) (1,412) (7,971) --------- --------- -------- Net Cash Provided (Used) by Investing Activities (37,161) (67,672) 16,803 FINANCING ACTIVITIES Cash dividends paid by Mercantile Bancorporation Inc. (34,840) (27,506) (24,673) Issuance of common stock Public offering - - 40,953 Employee incentive plans and warrants 2,203 3,904 1,508 Issuance of long-term debt - 150,000 - Principal payments on long-term debt (742) (60,207) (397) Acquisitions (4,809) (8,347) (5,027) Net change in commercial paper 9,192 1,271 (22,150) Other, net (438) (4,305) 255 --------- --------- -------- Net Cash Provided (Used) by Financing Activities (29,434) 54,810 (9,531) --------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,537) 21,196 34,360 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 63,941 42,745 8,385 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 48,404 $ 63,941 $ 42,745 ========= ======== ========
20 23 INDEPENDENT AUDITORS' REPORT KPMG Peat Marwick Certified Public Accounts 1010 Market Street St. Louis, MO 63101 Shareholders and Board of Directors Mercantile Bancorporation Inc.: We have audited the accompanying supplemental consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1993, 1992, and 1991, and the related supplemental consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The supplemental consolidated financial statements give retroactive effect to the mergers of Metro Bancorporation and United Postal Bancorp, Inc. on January 3, 1994 and February 1, 1994, respectively, which have been accounted for using the pooling of interests method as described in the notes to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to consummated business combinations accounted for by the pooling of interest method in financial statements that do not include the dates of consummation. These financial statements do not extend through the dates of consummation; however, they will become the historical consolidated financial statements of Mercantile Bancorporation Inc. and subsidiaries after financial statements covering the dates of consummation of the business combinations are issued. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 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 applicable after financial statements are issued for a period which includes the date of consummation of the business combinations. /s/ KPMG PEAT MARWICK June 3, 1994 24 Item 7. Financial Statements and Exhibits. --------------------------------- (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Not Applicable (b) PRO FORMA FINANCIAL INFORMATION. Not Applicable (c) EXHIBITS. The following exhibit is included herein: 23.1 Consent of KPMG Peat Marwick 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: June 17, 1994 MERCANTILE BANCORPORATION INC. By /s/ MICHAEL T. NORMILE ------------------------------- Michael T. Normile Senior Vice President and Treasurer 26 EXHIBIT INDEX Exhibit No. Description Page No. - - - ----------- ----------- -------- 23.1 Consent of KPMG Peat Marwick EX-23.1 2 CONSENT OF EXPERT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Mercantile Bancorporation Inc. We consent to the incorporation by reference in the Registration Statements No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139, No. 33-43694, 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 June 3, 1994, relating to the supplemental consolidated balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1993, 1992 and 1991, and the related supplemental consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993, which report appears in the Current Report of Form 8-K dated June 17, 1994 of Mercantile Bancorporation Inc. /s/ KPMG PEAT MARWICK St. Louis, Missouri June 16, 1994 -----END PRIVACY-ENHANCED MESSAGE-----