-----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, YpK+459NptBNaf/owwKowGAKYZnxEFlpdgXOU05jX1cwjXKFlSdP8ysDni/KWVhn ODegBg51RpzlbcTP2Ru81w== 0000950114-94-000118.txt : 19941128 0000950114-94-000118.hdr.sgml : 19941128 ACCESSION NUMBER: 0000950114-94-000118 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19941123 SROS: NYSE 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: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 033-56603 FILM NUMBER: 94561803 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 S-4 1 MERCANTILE BANCORPORATION INC. FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1994 Registration No. 33- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 -------------------------- MERCANTILE BANCORPORATION INC. (Exact name of registrant as specified in its charter) MISSOURI 6712 43-0951744 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) -------------------------- RALPH W. BABB, JR. Vice Chairman Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) -------------------------- Copy to: JON W. BILSTROM, ESQ. ROBERT M. LaROSE, ESQ. ROBIN V.W. FOSTER, ESQ. General Counsel and Thompson & Mitchell Blackwell Sanders Matheny Secretary One Mercantile Center Weary & Lombardi Mercantile Bancorporation St. Louis, Missouri Two Pershing Square, Inc. 63101 Ste. 1100 P.O. Box 524 (314) 231-7676 Kansas City, Missouri St. Louis, Missouri 64108 63166-0524 (816) 274-6800 (314) 425-2525 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE ===================================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of securities to be registered registered offering price per Aggregate offering price registration fee unit - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, $5.00 par value 2,625,533 $18.38 $80,832,979 $27,873.64 shares ==================================================================================================================================== Includes one attached Preferred Share Purchase Right per share. Estimated solely for purposes of computing the Registration Fee pursuant to the provisions of Rule 457(f), and based upon the average of the high and low sale prices of the Common Stock, $1.00 par value, of Central Mortgage Bancshares, Inc. as reported by Nasdaq on November 18, 1994, of which up to 4,397,877 shares will be cancelled or received by the registrant in the exchange.
-------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. =============================================================================== 2 MERCANTILE BANCORPORATION INC. CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING HEADING OR LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-4 -----------------------------------------------------------
Form S-4 Item Number and Caption Heading or Location in Prospectus - -------------------------------- --------------------------------- A. Information about the Transaction 1. Forepart of Registration Facing Page; Cross Reference Sheet; Outside Statement and Outside Front Front Cover Page of Prospectus Cover Page of Prospectus>> 2. Inside Front and Outside Back Available Information; Incorporation of Cover Pages of Prospectus Certain Information by Reference; Table of Contents 3. Risk Factors, Ratio of Earnings Summary Information; Pro Forma Financial to Fixed Charges and Other Information Information 4. Terms of the Transaction Summary Information; Incorporation of Certain Information by Reference; Terms of the Proposed Merger; Certain Federal Income Tax Consequences of the Merger; Information Regarding MBI Common Stock 5. Pro Forma Financial Pro Forma Financial Information Information 6. Material Contacts with the Summary Information; Terms of the Company Being Acquired Proposed Merger 7. Additional Information Required Not Applicable for Reoffering by Persons and Parties Deemed to be Underwriters 8. Interests of Named Experts and Legal Matters Counsel 9. Disclosure of Commission Not Applicable on Indemnification for Securities Act Liabilities - i - 3 Form S-4 Item Number and Caption Heading or Location in Prospectus - -------------------------------- --------------------------------- B. Information About the Registrant 10. Information with Respect to S-3 Incorporation of Certain Information by Registrants Reference; Summary Information; Information Regarding MBI Common Stock 11. Incorporation of Certain Incorporation of Certain Information by Information by Reference Reference 12. Information with Respect to S-2 Not Applicable or S-3 Registrants 13. Incorporation of Certain Not Applicable Information by Reference 14. Information with Respect to Not Applicable Registrants Other Than S-2 or S-3 Registrants C. Information About the Company Being Acquired 15. Information with Respect to S-3 Not Applicable Companies 16. Information with Respect to S-2 Not Applicable or S-3 Companies 17. Information with Respect to Summary Information; Information Companies Other Than S-2 or Regarding Central Mortgage S-3 Companies D. Voting and Management Information 18. Information if Proxies, Consents Information Regarding Special Meeting; or Authorizations are to be Incorporation of Certain Information by Solicited Reference; Rights of Dissenting Shareholders of Central Mortgage; Information Regarding Central Mortgage 19. Information if Proxies, Consents Not Applicable or Authorizations are not to be Solicited in an Exchange Offer
- ii - 4 [CENTRAL MORTGAGE BANCSHARES, INC.] ---------------, 1995 Dear Fellow Shareholder: The Board of Directors cordially invites you to attend a Special Meeting of Shareholders of Central Mortgage Bancshares, Inc. ("Central Mortgage") to be held at ----- -.-., Central Time, on ---------, - -------------, at Blue Springs Country Club, 1600 North Circle Drive, Blue Springs, Missouri (the "Special Meeting"). At this important meeting, you will be asked to consider and vote upon the Amended and Restated Agreement and Plan of Merger dated as of November 1, 1994 (the "Merger Agreement"), pursuant to which Central Mortgage will be merged with and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). I have enclosed the following items relating to the Special Meeting and the merger: 1. Proxy Statement/Prospectus; 2. Proxy card; and 3. A pre-addressed return envelope to Central Mortgage for the proxy card. The Proxy Statement/Prospectus and related proxy materials set forth, or incorporate by reference, financial data and other important information relating to Central Mortgage and MBI and describe the terms and conditions of the proposed merger. The Board of Directors requests that you carefully review these materials before completing the enclosed proxy card or attending the Special Meeting. THE BOARD OF DIRECTORS OF CENTRAL MORTGAGE CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF CENTRAL MORTGAGE AND ITS SHAREHOLDERS. THE CENTRAL MORTGAGE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. --- APPROVAL OF THE MERGER AGREEMENT BY THE CENTRAL MORTGAGE SHAREHOLDERS IS A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important that your shares be represented at the Special Meeting, whether or not you plan to attend the Special Meeting in person. Please complete, date and sign the enclosed proxy card and return it to Central Mortgage in the enclosed pre-addressed envelope, which requires no postage if mailed within the United States. If you later decide to attend the Special Meeting and vote in person, or if you wish to revoke your proxy for any reason prior to the vote at the Special Meeting, you may do so and your proxy will have no further effect. You may revoke your proxy by delivering to the Secretary of Central Mortgage a written notice of revocation or another proxy relating to the same shares bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute a revocation of an earlier dated proxy. If you need assistance in completing your proxy card or if you have any questions about the Proxy Statement/Prospectus, please feel free to contact -------------------- at (816) ------------. Sincerely, Lynn A. Harmon Chairman and Chief Executive Officer 5 CENTRAL MORTGAGE BANCSHARES, INC. 4435 Main Street, Suite 100 Kansas City, Missouri 64111-1856 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held ------------, 1995 TO THE SHAREHOLDERS OF CENTRAL MORTGAGE: Notice is hereby given that a Special Meeting of Shareholders of CENTRAL MORTGAGE BANCSHARES, INC., a Missouri corporation ("Central Mortgage"), will be held at Blue Springs Country Club, 1600 North Circle Drive, Blue Springs, Missouri on --------, ------------, 1995, at --------- Central Time, for the following purposes: (1) To consider and vote upon the adoption and approval of the Amended and Restated Agreement and Plan of Merger dated as of November 1, 1994, pursuant to which Central Mortgage will be merged (the "Merger") with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), in a transaction which would result in the business and operations of Central Mortgage being continued through such wholly owned subsidiary, and whereby, upon the consummation of the Merger, each share of Central Mortgage Common Stock will be converted into the right to receive .5970 of a share of MBI Common Stock, as set forth in detail in the attached Proxy Statement/Prospectus. (2) To transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof. The record date for determining the shareholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof has been fixed as of the close of business on - ----------------. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. BY ORDER OF THE BOARD OF DIRECTORS Tom D. Harmon Secretary Kansas City, Missouri - ----------, 1994 6 SUBJECT TO COMPLETION DATED NOVEMBER 21, 1994 MERCANTILE BANCORPORATION INC. PROSPECTUS ------------------ CENTRAL MORTGAGE BANCSHARES, INC. PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ------------, 1995 This Prospectus of Mercantile Bancorporation Inc. ("MBI") relates to up to 2,625,533 shares of Common Stock, $5.00 par value, and attached Preferred Share Purchase Rights (the "Rights"), of MBI (the Common Stock and Rights are collectively referred to herein as the "MBI Common Stock"), to be issued to the shareholders of Central Mortgage Bancshares, Inc., a Missouri corporation ("Central Mortgage"), upon consummation of the proposed merger (the "Merger") of Central Mortgage with and into Ameribanc, Inc., a Missouri corporation ("ABNK") which is a wholly owned subsidiary of MBI. Upon receipt of the requisite shareholder and regulatory approvals, the Merger will be consummated pursuant to the terms of the Agreement and Plan of Merger dated as of September 21, 1994, as amended and restated as of November 1, 1994 (the "Merger Agreement"), by and among MBI, ABNK and Central Mortgage. This Prospectus also serves as the Proxy Statement of Central Mortgage for use in connection with the Special Meeting of Shareholders of Central Mortgage (the "Special Meeting"), which will be held on ------------, 1995, at the time and place and for the purposes stated in the Notice of Special Meeting of Shareholders accompanying this Proxy Statement/Prospectus. Pursuant to the Merger, MBI will issue up to an aggregate of 2,625,533 shares of MBI Common Stock. Upon consummation of the Merger, the business and operations of Central Mortgage will be continued through ABNK and each share of Central Mortgage common stock, $1.00 par value ("Central Mortgage Common Stock") will be converted into the right to receive .5970 of a share of MBI Common Stock. The fair market value of MBI Common Stock to be received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. See "TERMS OF THE PROPOSED MERGER - General Description of the Merger." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional Shares." The transaction is intended to qualify as a tax-deferred reorganization under the Internal Revenue Code of 1986, as amended (the "Code"). The Merger generally is intended to achieve certain tax-deferral benefits for federal income tax purposes for Central Mortgage shareholders. See "SUMMARY INFORMATION - Federal Income Tax Consequences in General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." MBI Common Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "MTL." On ----------, 1994 the closing sale price for MBI Common Stock as reported on the NYSE Composite Tape was $-----. This Proxy Statement/Prospectus, the Notice of Special Meeting and the form proxy were first mailed to the shareholders of Central Mortgage on or about ----------, 1994. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Proxy Statement/Prospectus is ----------, 1994. 7 AVAILABLE INFORMATION --------------------- MBI and Central Mortgage are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by MBI and Central Mortgage with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Suite 1300, Seven World Trade Center, New York, New York 10048 and Room 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. MBI Common Stock is listed on the NYSE, and such reports, proxy statements and other information concerning MBI are available for inspection and copying at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Central Mortgage Common Stock is quoted on the Nasdaq National Market System ("Nasdaq"), and such reports, proxy statements and other information concerning Central Mortgage are available for inspection and copying at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006. This Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement on Form S-4 and exhibits thereto (the "Registration Statement") covering the securities offered hereby which has been filed by MBI with the Commission. As permitted by the rules and regulations of the Commission, this Proxy Statement/Prospectus omits certain information contained or incorporated by reference in the Registration Statement. Statements contained in this Proxy Statement/Prospectus provide a summary of the contents of any contract or other document referenced herein but are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. For such further information, reference is made to the Registration Statement. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ------------------------------------------------- THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO MBI, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO JON W. BILSTROM, GENERAL COUNSEL AND SECRETARY, MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524, TELEPHONE (314) 425-2525. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY - ----------, 1994. The following documents filed with the Commission by MBI under the Exchange Act are incorporated herein by reference: (a) MBI's Report on Form 10-K for the year ended December 31, 1993. (b) MBI's Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1994. (c) MBI's Current Reports on Form 8-K dated February 11, 1994, June 17, 1994 and October 3, 1994. (d) The description of MBI's Common Stock set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. - 2 - 8 (e) The description of MBI's Preferred Share Purchase Rights set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. All documents filed by MBI pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and until the date of the Special Meeting shall be deemed to be incorporated by reference herein and made a part hereof from the date any such document is filed. The information relating to MBI contained in this Proxy Statement/Prospectus does not purport to be complete and should be read together with the information in the documents incorporated by reference herein. Any statement contained herein or in a document incorporated herein by reference shall be deemed to be modified or superseded for purposes hereof to the extent that a subsequent statement contained herein or in any other subsequently filed document incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part hereof. Any statements contained in this Proxy Statement/Prospectus involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBI OR CENTRAL MORTGAGE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR CENTRAL MORTGAGE OR ANY OF THEIR SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF. - 3 - 9 TABLE OF CONTENTS
Page ---- AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . 2 SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of MBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of ABNK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of Central Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The Proposed Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Special Meeting of Central Mortgage Shareholders . . . . . . . . . . . . . . . . . 9 Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Opinion of Financial Advisor to Central Mortgage . . . . . . . . . . . . . . . . . 10 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Federal Income Tax Consequences in General . . . . . . . . . . . . . . . . . . . . 11 Regulatory Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Markets and Market Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Comparative Unaudited Per Share Data . . . . . . . . . . . . . . . . . . . . . . . 13 Summary Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . 17 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Date, Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Record Date; Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 17 Solicitation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 TERMS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 General Description of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . 19 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Background of and Reasons for the Merger; Board Recommendations. . . . . . . . . . 22 Opinion of Financial Advisor to Central Mortgage . . . . . . . . . . . . . . . . . 24 Conditions of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Termination of the Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . 29 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Surrender of Central Mortgage Stock Certificates and Receipt of MBI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Regulatory Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Business Pending the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 34 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. . . . . . . . . . . . . . . . . . 35 - 4 - 10 Page ---- RIGHTS OF DISSENTING SHAREHOLDERS OF CENTRAL MORTGAGE. . . . . . . . . . . . . . . . . . 38 PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Comparative Unaudited Per Share Data . . . . . . . . . . . . . . . . . . . . . . . 39 Pro Forma Combined Consolidated Financial Statements (Unaudited) . . . . . . . . . 40 INFORMATION REGARDING CENTRAL MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . . 49 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Financial Condition, Capital Resources and Liquidity . . . . . . . . . . . . . . . 60 Impact of Future Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . 72 Results of Operation (Third Quarter Comparison). . . . . . . . . . . . . . . . . . 72 Financial Condition (Third Quarter Comparison) . . . . . . . . . . . . . . . . . . 74 Liquidity and Capital Resources (Third Quarter Comparison) . . . . . . . . . . . . 75 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . 75 INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Description of MBI Common Stock and Attached Preferred Share Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Restrictions on Resale of MBI Stock by Affiliates. . . . . . . . . . . . . . . . . 78 Comparison of the Rights of Shareholders of MBI and Central Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Certain Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 82 Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Support of Subsidiary Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 FIRREA and FDICIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Depositor Preference Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 The Interstate Banking and Community Development Legislation . . . . . . . . . . . 86 RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . 87 LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 - 5 - 11 Page ---- ANNEXES Annex A -- Opinion of Stifel, Nicolaus & Company, Incorporated. . . . . . . . . . . .A-1 Annex B -- Dissenters' Rights Provisions of The Missouri General Business Corporation Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1 - 6 - 12 SUMMARY INFORMATION ------------------- The following is a summary of the important terms of the proposed Merger and related information discussed elsewhere in this Proxy Statement/Prospectus but does not purport to be complete and is qualified in its entirety by reference to the more detailed information which appears elsewhere in this Proxy Statement/Prospectus and the documents incorporated by reference herein. Shareholders of Central Mortgage are urged to read this Proxy Statement/Prospectus in its entirety. All MBI per share data reflect a three-for-two stock split distributed in the form of a dividend on April 11, 1994. BUSINESS OF MBI MBI, a Missouri corporation, was organized in 1970 and is a registered bank holding company under the federal Bank Holding Company Act of 1956, as amended (the "BHCA"). At September 30, 1994, MBI owned, directly or indirectly, all of the capital stock of Mercantile Bank of St. Louis National Association ("Mercantile Bank") and 40 other commercial banks which operate from 244 banking offices and 241 Fingertip Banking automated teller machines, including 26 off-premises machines, located throughout Missouri, southern Illinois, eastern Kansas and Iowa. MBI's services concentrate in four major lines of business -- consumer, corporate, investment banking and trust services. MBI also operates non-banking subsidiaries which provide related financial services, including investment management, brokerage services and asset-based lending. As of September 30, 1994, MBI had 43,234,757 shares of its Common Stock issued and outstanding. As of September 30, 1994, MBI reported, on a consolidated basis, total assets of $12.2 billion, total deposits of $8.9 billion, total loans of $7.9 billion and shareholders' equity of $1.0 billion. In the first quarter of 1994, MBI completed the acquisition of United Postal Bancorp, Inc. ("UPB"), a Missouri-based holding company for United Postal Savings Association, which as of December 31, 1993 reported total assets of $1.3 billion and total deposits of $1.0 billion. Also during the first quarter of 1994, MBI acquired Metro Bancorporation, which as of December 31, 1993 reported total assets of $370 million and total deposits of $333 million. The acquisition of these entities was accounted for under the pooling-of-interests method of accounting and, accordingly, MBI has restated its consolidated financial statements for all periods reported herein. MBI has filed supplemental financial statements as of and for the years ended December 31, 1993, 1992 and 1991 in a Current Report on Form 8-K, dated June 17, 1994, which has been incorporated by reference into this Proxy Statement/ Prospectus. On July 6, 1994, MBI entered into an agreement to acquire Wedge Bank ("Wedge"), located in Alton, Illinois. Wedge is an Illinois state- chartered bank which reported, as of September 30, 1994, total assets of $205 million, total deposits of $153 million, total loans of $113 million and shareholders' equity of $19 million. On July 12, 1994, MBI entered into an agreement to acquire UNSL Financial Corp. ("UNSL"), located in Lebanon, Missouri. UNSL, a Delaware corporation, is a savings and loan holding company under the Home Owners Loan Act which owns United Savings Bank. As of September 30, 1994, UNSL reported total assets of $488 million, total deposits of $381 million, total loans of $444 million and shareholders' equity of $39 million. MBI's principal executive offices are located at One Mercantile Center, St. Louis, Missouri 63101 and its telephone number is (314) 425-2525. BUSINESS OF ABNK ABNK, a Missouri corporation, is a wholly owned subsidiary of MBI which was organized in 1991. ABNK is a registered bank holding company under the BHCA. ABNK currently owns all of the capital stock of 14 banks and 1 trust company which operate from 117 locations in - 7 - 13 Missouri. ABNK, which will continue to be a subsidiary of MBI, will be the surviving corporation upon consummation of the Merger with Central Mortgage. BUSINESS OF CENTRAL MORTGAGE Central Mortgage, a Missouri corporation, commenced operations in 1960 and is a registered bank holding company under the BHCA. Central Mortgage currently owns all of the issued and outstanding shares of capital stock of three Missouri-chartered state banks (collectively, the "Banks") which operate from 18 locations in the greater Kansas City, Missouri area and certain southwestern Missouri communities. As of December -----, 1994, 4,251,177 shares of Central Mortgage Common Stock were issued and outstanding, and stock options to purchase 146,700 shares of Central Mortgage Common Stock were outstanding, including options for 144,300 shares exercisable prior to the consummation of the Merger. All of the outstanding options will be exercisable upon approval of the Merger Agreement by the shareholders of Central Mortgage. As of September 30, 1994, Central Mortgage reported, on a consolidated basis, total assets of $626 million, total deposits of $538 million, total loans of $381 million and shareholders' equity of $52.5 million. See "INFORMATION REGARDING CENTRAL MORTGAGE." Central Mortgage's principal executive offices are located at 4435 Main Street, Suite 100, Kansas City, Missouri and its telephone number is (816) 561-3387. THE PROPOSED MERGER Subject to the satisfaction of the terms and conditions set forth in the Merger Agreement described below, Central Mortgage will be merged with and into ABNK. Upon consummation of the Merger, Central Mortgage's corporate existence will terminate and ABNK will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each share of Central Mortgage Common Stock will be converted into the right to receive .5970 of a share of MBI Common Stock. Such consideration is subject to certain anti- dilution protections but is not adjustable based upon the operating results, financial condition or other factors affecting either MBI or Central Mortgage prior to the consummation of the Merger. The fair market value of MBI Common Stock to be received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. KeyCorp Shareholder Services, Inc., the transfer agent for MBI Common Stock, has been selected as the Exchange Agent (the "Exchange Agent") for purposes of effecting the conversion of Central Mortgage Common Stock into MBI Common Stock. The Merger Agreement provides that the consummation of the Merger is subject to certain terms and conditions, including the approval of the Merger Agreement by the affirmative vote of the holders of at least two- thirds of the outstanding shares of Central Mortgage Common Stock and receipt of the requisite regulatory approvals and an opinion of counsel regarding certain federal income tax aspects of the transaction. For a discussion of each of the conditions to the Merger, see "TERMS OF THE PROPOSED MERGER - Conditions of the Merger." The Merger will be consummated and become effective on the date and at the time (the "Effective Time") that the certificate of merger is issued by the Missouri Secretary of State. Unless the parties otherwise agree, the date of the closing of the Merger (the "Closing Date") shall be no later than the first business day of the month immediately succeeding the month in which the last of the following events occurs (i) the approval of the Merger Agreement by the shareholders of Central Mortgage and (ii) the thirtieth day after the approval of the Merger by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Merger Agreement may be terminated at any time prior to the Closing Date by the mutual consent of the - 8 - 14 parties or, unilaterally, by either party upon the occurrence of certain events or if the Merger is not consummated by June 30, 1995; provided, however, such date shall automatically be extended to August 31, 1995 if the cause of the failure to consummate the Merger by such date is the result of regulatory delay not due to the fault or failure of MBI, ABNK or Central Mortgage. See "TERMS OF THE PROPOSED MERGER - Conditions of the Merger" and "- Termination of the Merger Agreement." OTHER AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI and Central Mortgage executed an Investment Agreement (the "Investment Agreement") and MBI and three of the nine directors of Central Mortgage executed separate Voting Agreements (the "Voting Agreements"). The following are summaries of the material terms of the Investment Agreement and the Voting Agreements. Investment Agreement. Concurrent with the execution of the Merger Agreement, MBI and Central Mortgage entered into the Investment Agreement pursuant to which Central Mortgage has issued MBI an option (the "Option") to purchase up to 736,667 shares of Central Mortgage Common Stock (or 19.9% of the outstanding shares of Central Mortgage Common Stock as of August 31, 1994) at an exercise price of $18.50 per share. The Option is exercisable upon the occurrence of certain events generally relating to the failure of Central Mortgage to consummate the Merger because of a material change or potential material change in the ownership of Central Mortgage, all as set forth in the Investment Agreement. None of such events has occurred as of the date hereof. Central Mortgage granted the Option as a condition of and in consideration for MBI's entering into the Merger Agreement. See "TERMS OF THE PROPOSED MERGER - Other Agreements - Investment Agreement." Voting Agreements. Concurrent with the execution of the Merger Agreement, MBI and each of Margaret K. Harmon, C. Adrian Harmon and Lynn A. Harmon, three of the nine directors of Central Mortgage, executed separate Voting Agreements by which each such director agreed that he or she will vote all of the shares of Central Mortgage Common Stock then owned or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Effective Time of the Merger, the termination of the Voting Agreement or the termination of the Merger Agreement, each director further agreed he or she will not vote any such shares in favor of the approval of any other competing acquisition proposal involving Central Mortgage and a third party. Each director also agreed that he or she will not transfer shares of Central Mortgage Common Stock unless, prior to such transfer, the transferee executes a Voting Agreement in substantially the same form. As of the Record Date (as defined below), such three directors owned beneficially an aggregate of 820,028 shares of Central Mortgage Common Stock, or approximately 19.29% of the issued and outstanding shares. SPECIAL MEETING OF CENTRAL MORTGAGE SHAREHOLDERS The Special Meeting will be held on ------------, 1995, at ----- - -.-. Central Time, at Blue Springs Country Club, 1600 North Circle Drive, Blue Springs, Missouri. Approval by the Central Mortgage shareholders of the Merger Agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Central Mortgage Common Stock. Only holders of record of Central Mortgage Common Stock at the close of business on --------------, 1994 (the "Record Date") will be entitled to notice of, and to vote at, the Special Meeting. At such date, there were 4,251,177 shares of Central Mortgage Common Stock outstanding. - 9 - 15 As of the Record Date, directors and officers of Central Mortgage and their affiliates owned beneficially an aggregate of 1,426,574 shares of Central Mortgage Common Stock, or approximately 33.56% of the shares entitled to vote at the Special Meeting. All of Central Mortgage's directors and officers and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement. Additionally, each of Margaret K. Harmon, C. Adrian Harmon and Lynn S. Harmon, directors of Central Mortgage, pursuant to the terms of his or her respective Voting Agreement, has committed to vote his or her shares of Central Mortgage Common Stock for approval of the Merger Agreement. As of the Record Date, such three directors owned beneficially an aggregate of 820,028 shares of Central Mortgage Common Stock, or approximately 19.29% of the issued and outstanding shares. THE BOARD OF DIRECTORS OF CENTRAL MORTGAGE CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AS BEING IN THE BEST INTEREST OF CENTRAL MORTGAGE AND ITS SHAREHOLDERS. THE CENTRAL MORTGAGE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE --- MERGER AGREEMENT. REASONS FOR THE MERGER The Board of Directors of Central Mortgage believes that the Merger is in the best interest of Central Mortgage and its shareholders. In the course of reaching its determination to approve the Merger and recommend it to the shareholders of Central Mortgage, the Board of Directors, without assigning any relative or specific weights, considered a number of factors, including (i) the exchange ratio and other terms of the Merger Agreement, (ii) the tax-free nature of the Merger for the shareholders of Central Mortgage, (iii) the benefits expected to result from the combination of Central Mortgage and MBI, (iv) information concerning the financial condition, results of operations and prospects of Central Mortgage and MBI on a combined basis, (v) the market prices of and dividend policies in respect of Central Mortgage Common Stock, (vi) results of due diligence investigations of MBI by Central Mortgage, (vii) recent federal and state legislative changes affecting the banking industry in general and (viii) the fairness opinion of Stifel, Nicolaus & Company, Incorporated ("Stifel"). See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations." MBI's Board of Directors believes that the Merger will enable MBI to (i) take advantage of an opportunity for MBI to increase its presence in the regional banking market in the greater Kansas City, Missouri area and in certain southwestern Missouri communities, through the acquisition of an established banking organization, and (ii) enhance MBI's ability to compete in the increasingly competitive banking and financial services industry. See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations." OPINION OF FINANCIAL ADVISOR TO CENTRAL MORTGAGE Stifel has served as financial advisor to Central Mortgage and its Board of Directors and has rendered an opinion to Central Mortgage's Board of Directors that the consideration to be offered to Central Mortgage's shareholders in the Merger is fair to Central Mortgage's shareholders from a financial point of view. A copy of such opinion is attached hereto as Annex A ------- and should be read in its entirety with respect to the assumptions made, other matters considered and limitations on the reviews undertaken. See "TERMS OF THE PROPOSED MERGER - Opinion of Financial Advisor to Central Mortgage." - 10 - 16 FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the former shareholders of Central Mortgage in connection with the Merger. Each former holder of Central Mortgage Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal on the Closing Date of the Merger. Cash received by Central Mortgage shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Merger and the restrictions described under the caption "TERMS OF THE PROPOSED MERGER - Business Pending the Merger," may be (i) waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits thereof or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors, whether before or after the Special Meeting; provided, however, that after approval of the Merger Agreement by the shareholders of Central Mortgage at the Special Meeting no such modification may alter or change any of the terms of the Merger Agreement if such alteration would (i) change the amount or kind of the consideration to be received by the Central Mortgage shareholders in the Merger or (ii) adversely affect the Central Mortgage shareholders. FEDERAL INCOME TAX CONSEQUENCES IN GENERAL Thompson & Mitchell, MBI's legal counsel, has delivered its opinion to the effect that, assuming the Merger occurs in accordance with the Merger Agreement and conditioned on the accuracy of certain representations made by MBI and Central Mortgage, the Merger will constitute a "reorganization" for federal income tax purposes and that, accordingly, no gain or loss will be recognized by Central Mortgage shareholders who exchange their shares of Central Mortgage Common Stock solely for shares of MBI Common Stock in the Merger. However, cash received in lieu of fractional shares may give rise to taxable income. EACH CENTRAL MORTGAGE SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL An application regarding the Merger has been filed with the Federal Reserve Board. The Merger cannot be consummated until receipt of approval from such agency. In reviewing the Merger, the Federal Reserve Board will consider various factors, including possible anticompetitive effects of the Merger, and will examine the financial and managerial resources and future prospects of the combined organization. There can be no assurance that the necessary regulatory approval will be received or as to the timing of such approval. See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and "SUPERVISION AND REGULATION." - 11 - 17 ACCOUNTING TREATMENT It is intended that the Merger will be accounted for under the pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER - Accounting Treatment." DISSENTERS' RIGHTS Under Missouri law, a holder of Central Mortgage Common Stock may dissent from the Merger and receive payment of the "fair value" of such shares in cash if the Merger is consummated by following certain procedures set forth in Section 351.455 of The General and Business Corporation Law of Missouri (the "Missouri Act"), the text of which is attached hereto as Annex B. -------- Failure to follow such procedures may result in the loss of dissenters' rights. Any Central Mortgage shareholder returning an executed proxy card which does not provide instructions to vote against the Merger will be deemed to have approved the Merger Agreement, thereby waiving any such dissenters' rights. See "RIGHTS OF DISSENTING SHAREHOLDERS OF CENTRAL MORTGAGE." Consummation of the Merger is contingent upon the holders of less than ten percent (10%) of the holders of Central Mortgage Common Stock exercising their dissenters' rights under Missouri law. MARKETS AND MARKET PRICES MBI Common Stock is currently traded on the NYSE under the symbol "MTL." Prior to March 25, 1993, MBI Common Stock was quoted on Nasdaq under the symbol "MTRC." The last sale price reported for MBI Common Stock on September 21, 1994, the last trading date preceding the public announcement of the Merger, was $37.75. Central Mortgage Common Stock is quoted on Nasdaq under the symbol "CMBI." Prior to October 23, 1992, Central Mortgage Common Stock was not traded in any established public trading market, although there had been limited numbers of transactions effected privately and through a Kansas City broker. Based solely on information made available to Central Mortgage from a limited number of buyers and sellers in private transactions, Central Mortgage believes the selling prices for the Central Mortgage Common Stock in such transactions during 1992 (to October 23) ranged from $8.50 to $10.00. There may have been, however, other transactions at other prices not known to Central Mortgage. The last sale price reported for Central Mortgage Common Stock on September 21, 1994, was $18.50. - 12 - 18
MBI Central Mortgage ---------------------------------- ------------------------------------- Sales Price Cash Sales Price Cash ----------------- Dividend ------------------- Dividend High Low Declared High Low Declared ---- --- -------- ---- --- -------- 1992 - ---- First Quarter $27.375 $23.125 $ .2325 $ -- $ -- $ .04 Second Quarter 29.500 25.625 .2325 -- -- .05 Third Quarter 29.375 25.375 .2325 -- -- .05 Fourth Quarter 32.125 25.875 .2325 11.750 9.750 .09 1993 - ---- First Quarter $35.625 $30.625 $ .2475 $14.750 $11.000 $ .09 Second Quarter 37.625 29.375 .2475 14.250 12.000 .09 Third Quarter 34.375 31.625 .2475 14.500 12.000 .09 Fourth Quarter 34.625 29.125 .2475 15.250 13.750 .10 1994 - ---- First Quarter $34.125 $29.875 $ .28 $14.750 $12.500 $ .10 Second Quarter 38.125 31.125 .28 15.750 12.500 .10 Third Quarter 39.250 34.875 .28 21.063 14.750 .12 Fourth Quarter (through November 18, 1994) 35.000 31.625 .28 20.750 18.250 -- - ----------------- For a recent sale price of MBI Common Stock, see the cover of this Proxy Statement/Prospectus.
COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Central Mortgage and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, the proposed acquisitions of UNSL and of Wedge and the acquisition of ABNK, which was completed on April 30, 1992. The data presented is based upon the consolidated financial statements and related notes of MBI and Central Mortgage, UNSL and Wedge included in this Proxy Statement/Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." These data are not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Merger, the completed merger of ABNK or the proposed mergers of UNSL and Wedge had been consummated prior to the periods indicated. - 13 - 19
MBI/Central Central Central Mortgage/ Central Mortgage Mortgage MBI/All Entities All Entities MBI Mortgage Pro Forma Pro Forma Pro Forma Pro Forma Reported Reported Combined Equivalent Combined Equivalent -------- -------- ------------ -------------- ------------- ---------------- Book Value per Share: September 30, 1994 $ 24.12 $ 12.10 $ 23.89 $ 14.29 $ 23.82 $ 14.22 December 31, 1993 22.40 11.20 22.17 13.24 22.16 13.23 Cash Dividends Declared per Share: Nine months ended September 30, 1994 $ .84 $ .32 $ .84 $ .50 $ .84 $ .50 Year ended December 31, 1993 .99 .37 .99 .59 .99 .59 Year ended December 31, 1992 .93 .23 .93 .56 .93 .56 Year ended December 31, 1991 .93 .16 .93 .56 .93 .56 Earnings per Share: Nine months ended September 30, 1994 $ 2.79 $ 1.38 $ 2.75 $ 1.64 $ 2.70 $ 1.61 Year ended December 31, 1993 2.80 1.54 2.77 1.65 2.79 1.67 Year ended December 31, 1992 2.36 1.79 2.33 1.39 2.37 1.41 Year ended December 31, 1991 2.37 1.57 2.26 1.35 2.21 1.32 Market Price per Share: At September 21, 1994 $ 37.75 $ 18.50 n/a $ 22.54 n/a $ 22.54 At November 18, 1995 31.63 18.25 n/a 18.88 n/a 18.88 - --------------------- Includes the effect of pro forma adjustments for Central Mortgage and ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION." Based on the pro forma combined per share amounts multiplied times .5970, the conversion ratio applicable to one share of Central Mortgage Common Stock. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION." Includes the effect of pro forma adjustments for Central Mortgage, ABNK, UNSL and Wedge, as appropriate. See "PRO FORMA FINANCIAL INFORMATION." The market value of MBI and Central Mortgage Common Stock was determined as of the last trading day preceding the public announcement of the proposed acquisition and as of the latest available date prior to the filing of the Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape and Nasdaq, respectively.
SUMMARY FINANCIAL DATA The following table sets forth for the periods indicated certain summary historical consolidated financial information for MBI and Central Mortgage. The balance sheet data and income statement data included in the summary financial data for the five years ended December 31, 1993 are taken from audited consolidated financial statements of MBI and Central Mortgage as of the end of and for such years. The balance sheet data and income statement data included in the summary financial data as of and for the nine months ended September 30, 1994 and 1993 are taken from the unaudited consolidated financial statements of MBI and Central Mortgage as of, and for the nine months ended, September 30, 1994 and 1993. These data include all adjustments which are, in the opinion of the respective managements of MBI and Central Mortgage, necessary to present a fair statement of these periods and are of a normal recurring nature. Results for the nine months ended September 30, 1994 are not necessarily indicative of results for the entire year. The following information should be read in conjunction with the consolidated financial statements of MBI and Central Mortgage, and the related notes thereto, included herein or in documents incorporated herein by reference, and in conjunction with the unaudited pro forma combined consolidated financial information, including the notes thereto, appearing elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." - 14 - 20 MERCANTILE BANCORPORATION INC. SUMMARY FINANCIAL DATA
Nine Months Ended September 30 Year Ended December 31 ---------------------- ---------------------------------------------------- 1994 1993 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income . . . . . . . . . . . $ 2.79 $ 2.42 $ 2.80 $ 2.36 $ 2.37 $ 2.18 $ .29 Dividends declared . . . . . . . . . .84 .74 1/4 .99 .93 .93 .93 .93 Book value at period end . . . . . . 24.12 22.19 22.40 20.25 18.86 17.14 15.86 Average common shares outstanding (thousands). . . . . . . . . . . . 43,034 42,339 42,439 39,492 31,791 30,144 29,092 EARNINGS (THOUSANDS) Interest income. . . . . . . . . . . $613,521 $626,939 $829,930 $873,447 $879,471 $882,148 $836,446 Interest expense . . . . . . . . . . 231,785 251,542 328,734 417,358 506,916 552,231 528,008 -------- -------- -------- -------- -------- -------- -------- Net interest income. . . . . . . . . 381,736 375,397 501,196 456,089 372,555 329,917 308,438 Provision for possible loan losses 24,909 41,440 61,013 74,579 58,076 50,886 104,708 Other income . . . . . . . . . . . . 142,789 148,935 199,158 183,944 155,696 137,356 150,038 Other expense. . . . . . . . . . . . 310,003 321,433 444,909 418,068 383,348 318,887 335,266 Income taxes (benefit) . . . . . . . 69,512 58,986 75,568 52,346 18,673 27,658 (1,804) -------- -------- -------- -------- -------- -------- -------- Net income . . . . . . . . . . . . . $120,101 $102,473 $118,864 $ 95,040 $ 68,154 $ 69,842 $ 20,306 ======== ======== ======== ======== ======== ======== ======== ENDING BALANCE SHEET (MILLIONS) Total assets . . . . . . . . . . . . $ 12,238 $ 11,896 $ 12,141 $ 12,273 $ 10,765 $ 10,137 $ 9,536 Earning assets . . . . . . . . . . . 11,247 10,937 11,114 11,186 9,827 9,016 8,477 Investment securities. . . . . . . . 3,148 3,376 3,401 3,401 2,475 1,886 1,904 Loans and leases, net of unearned income . . . . . . 7,873 7,370 7,382 7,499 6,946 6,884 6,358 Deposits . . . . . . . . . . . . . . 8,946 9,360 9,602 9,928 8,776 8,278 7,601 Long-term debt . . . . . . . . . . . 288 274 273 299 203 233 308 Shareholders' equity . . . . . . . . 1,043 947 959 851 690 581 536 Reserve for possible loan losses 172 160 169 166 146 149 149 SELECTED RATIOS Return on average assets . . . . . . 1.32% 1.12% .97% .80% .67% .73% .23% Return on average equity . . . . . . 15.95 15.18 13.00 11.95 10.52 12.51 3.81 Net interest rate margin . . . . . . 4.68 4.58 4.59 4.33 4.12 3.97 4.09 Equity to assets . . . . . . . . . . 8.52 7.96 7.90 6.94 6.41 5.73 5.62 Reserve for possible loan losses to: Outstanding loans. . . . . . . . . 2.18 2.17 2.28 2.21 2.10 2.16 2.35 Non-performing loans . . . . . . . 585.44 286.22 293.39 156.85 113.14 119.68 121.55 Based on weighted average common shares outstanding.
- 15 - 21 CENTRAL MORTGAGE BANCSHARES, INC. SUMMARY FINANCIAL DATA
Nine Months Ended September 30 Year Ended December 31 ---------------------- ---------------------------------------------------- 1994 1993 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income - primary . . . . . . . . $ 1.38 $ 1.15 $ 1.54 $ 1.79 $ 1.57 $ 1.44 $ 1.11 Net income - fully diluted . . . . . 1.24 1.01 1.36 1.51 1.35 1.29 1.03 Dividends declared . . . . . . . . . .32 .27 .37 .23 .16 .15 .13 Book value at period end . . . . . . 12.10 10.87 11.20 10.10 9.49 8.27 7.00 Average common shares outstanding (thousands). . . . . . . . . . . . 3,791 3,030 3,221 1,931 1,648 1,666 1,677 EARNINGS (THOUSANDS) Interest income. . . . . . . . . . . $ 32,483 $ 23,739 $ 34,452 $ 28,577 $ 25,706 $ 26,389 $ 23,948 Interest expense . . . . . . . . . . 13,570 9,951 14,194 13,616 13,260 14,699 13,136 -------- -------- -------- -------- -------- -------- -------- Net interest income. . . . . . . . . 18,913 13,788 20,258 14,961 12,446 11,690 10,812 Provision for possible loan losses 919 668 956 913 870 523 414 Other income . . . . . . . . . . . . 5,774 3,988 5,869 4,792 4,252 3,853 3,742 Other expense. . . . . . . . . . . . 16,113 12,131 18,127 13,854 11,933 11,188 10,996 Income taxes . . . . . . . . . . . . 2,266 1,364 1,913 1,245 924 962 797 Minority interest. . . . . . . . . . -- -- 1 -- 6 11 16 -------- -------- -------- -------- -------- -------- -------- Net income . . . . . . . . . . . . . $ 5,389 $ 3,613 $ 5,130 $ 3,741 $ 2,965 $ 2,859 $ 2,331 ======== ======== ======== ======== ======== ======== ======== ENDING BALANCE SHEET (THOUSANDS) Total assets . . . . . . . . . . . . $626,476 $604,278 $622,635 $413,807 $293,889 $272,385 $261,468 Earning assets . . . . . . . . . . . 576,143 554,870 568,791 384,734 266,677 249,960 236,701 Investment securities. . . . . . . . 187,191 184,110 184,226 143,096 69,031 68,204 62,966 Loans and leases, net of unearned income. . . . . . . . . . 380,773 344,887 357,107 214,896 177,858 163,700 145,918 Deposits . . . . . . . . . . . . . . 537,623 520,831 537,751 352,303 261,587 242,544 236,916 Long-term debt . . . . . . . . . . . 5,219 7,721 7,519 2,321 3,393 3,962 4,472 Shareholders' equity . . . . . . . . 52,504 47,055 48,522 34,365 20,885 18,244 15,614 Reserve for possible loan losses 6,396 5,978 4,693 2,648 2,282 2,058 1,872 SELECTED RATIOS Return on average assets . . . . . . 1.13% 1.08% 1.05% 1.01% 1.06% 1.06% .96% Return on average equity . . . . . . 14.93 13.68 13.59 14.85 14.41 14.75 13.28 Net interest rate margin . . . . . . 4.51 4.56 4.61 4.48 4.94 4.80 4.92 Equity to assets . . . . . . . . . . 8.38 7.79 7.79 8.30 7.11 6.70 5.97 Reserve for possible loan losses to: Outstanding loans. . . . . . . . . 1.68 1.73 1.31 1.23 1.28 1.26 1.28 Non-performing loans . . . . . . . 337.72 293.30 528.49 328.13 182.85 129.84 134.77
- 16 - 22 INFORMATION REGARDING SPECIAL MEETING ------------------------------------- GENERAL This Proxy Statement/Prospectus is being furnished to holders of Central Mortgage Common Stock in connection with the solicitation of proxies by the Board of Directors of Central Mortgage for use at the Special Meeting and any adjournments or postponements thereof at which the shareholders of Central Mortgage will consider and vote upon a proposal to approve the Merger Agreement and consider and vote upon any other business which may properly be brought before the Special Meeting or any adjournments or postponements thereof. Each copy of this Proxy Statement/Prospectus is accompanied by the Notice of Special Meeting of Shareholders of Central Mortgage, a proxy card and related instructions and a self-addressed return envelope to Central Mortgage for the proxy card. This Proxy Statement/Prospectus is also furnished by MBI to each holder of Central Mortgage Common Stock as a prospectus in connection with the issuance by MBI of shares of MBI Common Stock upon the consummation of the Merger. This Proxy Statement/Prospectus and the Notice of Special Meeting, proxy card and related materials are being first mailed to shareholders of Central Mortgage on ---------------, 1994. DATE, TIME AND PLACE The Special Meeting will be held at Blue Springs Country Club, 1600 North Circle Drive, Blue Springs, Missouri, on - --------------, ------------, 1995, at ----------- Central Time. RECORD DATE; VOTE REQUIRED On the Record Date, there were 4,251,177 shares of Central Mortgage Common Stock outstanding and entitled to vote at the Special Meeting. Each such share is entitled to one vote on each matter properly brought before the Special Meeting. The affirmative vote of the holders of at least two-thirds of the outstanding shares of Central Mortgage Common Stock is required to approve the Merger Agreement. As of the Record Date, directors and officers of Central Mortgage and their affiliates owned beneficially an aggregate of 1,426,574 shares of Central Mortgage Common Stock, or approximately 33.56% of the outstanding shares of Central Mortgage Common Stock entitled to vote at the Special Meeting. All directors and officers of Central Mortgage and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement at the Special Meeting. Additionally, each of Margaret K. Harmon, C. Adrian Harmon and Lynn A. Harmon, directors of Central Mortgage, pursuant to the terms of his or her respective Voting Agreement, have committed to vote his or her shares of Central Mortgage Common Stock for approval of the Merger Agreement. As of the Record Date, such three directors owned beneficially an aggregate of 820,028 shares of Central Mortgage Common Stock, or approximately 19.29% of the issued and outstanding shares. VOTING AND REVOCATION OF PROXIES Shares of Central Mortgage Common Stock which are represented by a properly executed proxy received prior to the vote at the Special Meeting will be voted at such Special Meeting in the manner directed on the proxy card, unless such proxy is revoked in the manner set forth herein in advance of such vote. ANY CENTRAL MORTGAGE SHAREHOLDER RETURNING AN EXECUTED PROXY CARD WHICH DOES NOT - 17 - 23 PROVIDE INSTRUCTIONS TO VOTE AGAINST THE MERGER WILL BE DEEMED TO HAVE APPROVED THE MERGER AGREEMENT. Failure to return a properly executed proxy card or to vote in person at the Special Meeting will have the practical effect of a vote against the Merger Agreement. Shares subject to abstentions, broker "non-votes" (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares with respect to which the brokers or nominees do not have discretionary power to vote without such instructions) and votes withheld will be treated as shares that are present at the Special Meeting for purposes of determining the presence of a quorum. Such shares will have the effect of votes against adoption of the Merger Agreement. Any shareholder of Central Mortgage giving a proxy may revoke it at any time prior to the vote at the Special Meeting. Shareholders of Central Mortgage wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of Central Mortgage at 4435 Main Street, Suite 100, Kansas City, Missouri 64111 a written notice of revocation bearing a later date than the proxy or a later dated proxy relating to the same shares, or by attending the Special Meeting and voting such shares in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. The Board of Directors of Central Mortgage is not currently aware of any business to be brought before the Special Meeting other than that described herein. If, however, other matters are properly brought before such Special Meeting, or any adjournments or postponements thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment as to the best interest of Central Mortgage. SOLICITATION OF PROXIES Central Mortgage will bear its own costs of soliciting proxies, except that MBI will pay printing and mailing expenses and registration fees incurred in connection with preparing this Proxy Statement/Prospectus. Proxies will initially be solicited by mail, but directors, officers and selected other employees of Central Mortgage may also solicit proxies in person or by telephone. Directors, executive officers and any other employees of Central Mortgage who solicit proxies will not be specially compensated for such services. Brokerage houses, nominees, fiduciaries, and other custodians will be requested to forward proxy materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. HOLDERS OF CENTRAL MORTGAGE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. TERMS OF THE PROPOSED MERGER ---------------------------- The following is a summary of the material terms and conditions of the Merger Agreement, which document is incorporated by reference herein. This summary is qualified in its entirety by the full text of the Merger Agreement. MBI, upon written or oral request, will furnish a copy of the Merger Agreement, without charge, to any person who receives a copy of this Proxy Statement/Prospectus. Such requests should be directed to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524, telephone (314) 425-2525. - 18 - 24 GENERAL DESCRIPTION OF THE MERGER Pursuant to the Merger Agreement, Central Mortgage, a Missouri corporation, will be merged on the Closing Date with and into ABNK, a Missouri corporation which is a wholly owned subsidiary of MBI. Upon consummation of the Merger, Central Mortgage's corporate existence will terminate and ABNK will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each share of Central Mortgage Common Stock will be converted into the right to receive .5970 of a share of MBI Common Stock. Such consideration is subject to certain anti-dilution protections but is not adjustable based upon the operating results, financial condition or other factors affecting either MBI or Central Mortgage prior to the consummation of the Merger. The fair market value of MBI Common Stock received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. The amount and nature of the consideration was established through arm's-length negotiations between MBI and Central Mortgage, and reflects the balancing of a number of countervailing factors. The total amount of the consideration reflects a price both parties concluded was appropriate. See "- Background of and Reasons for the Merger; Board Recommendations." The fact that the consideration is payable in shares of MBI Common Stock reflects the potential for change in the value of the MBI Common Stock and the desire to have the favorable tax attributes of a "reorganization" for federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A CENTRAL MORTGAGE SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A CENTRAL MORTGAGE SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS. Following the Closing Date, each shareholder of Central Mortgage will be required to submit to the Exchange Agent a properly executed letter of transmittal and surrender to the Exchange Agent the stock certificate(s) formerly representing the shares of Central Mortgage Common Stock in order to obtain issuance of a new stock certificate evidencing the shares of MBI Common Stock to which such shareholder is entitled. Within five business days following the Closing Date, the Exchange Agent will mail to each Central Mortgage shareholder a notice of consummation of the Merger and a form of letter of transmittal, together with instructions and a return envelope to facilitate the exchange of such holder's certificate(s) formerly representing Central Mortgage Common Stock for certificate(s) evidencing MBI Common Stock. No dividends or other distributions will be paid to a former Central Mortgage shareholder with respect to shares of MBI Common Stock until such shareholder's letter of transmittal and stock certificates formerly representing Central Mortgage Common Stock, or documentation reasonably acceptable to the Exchange Agent in lieu of lost or destroyed certificates, is delivered to the Exchange Agent. See "TERMS OF THE PROPOSED MERGER - Surrender of Central Mortgage Stock Certificates and Receipt of MBI Common Stock." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares, such cash being calculated by multiplying the holder's fractional share interest by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal on the Closing Date of the Merger. See "Fractional Shares." The shares of MBI Common Stock to be issued pursuant to the Merger will be freely transferable except by certain shareholders of Central Mortgage who are deemed to be "affiliates" of Central Mortgage. The shares of MBI Common Stock issued to such affiliates will be restricted in their - 19 - 25 transferability in accordance with the rules and regulations promulgated by the Commission. See "INFORMATION REGARDING MBI STOCK - Restrictions on Resale of MBI Stock by Affiliates." OTHER AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI and Central Mortgage executed the Investment Agreement and MBI and three of the nine directors of Central Mortgage executed separate Voting Agreements. The following are summaries of the material terms of the Investment Agreement and the Voting Agreements: Investment Agreement. Concurrent with the execution of the Merger Agreement, MBI and Central Mortgage entered into the Investment Agreement pursuant to which Central Mortgage issued the Option to MBI. The Option was granted by Central Mortgage as a condition of and in consideration for MBI's entering into the Merger Agreement. The following description does not purport to be complete and is qualified in its entirety by reference to the Investment Agreement, which is attached as an exhibit to the Registration Statement and is incorporated herein by reference. The shares issued pursuant to an exercise of the Option (the "Option Shares") would represent 19.9% of the number of shares of Central Mortgage Common Stock issued and outstanding as of August 31, 1994. The Option is exercisable (after receipt of the required regulatory approval) upon the occurrence of any of the following Triggering Events: (i) the failure of the shareholders of Central Mortgage to approve the Merger Agreement or, if not previously held, the failure of Central Mortgage to promptly hold the Special Meeting and the failure of the shareholders of Central Mortgage to thereafter approve the Merger Agreement, in each case, after (a) any person (other than MBI or any subsidiary of MBI) makes a public announcement of an offer to acquire 10% or more of the Central Mortgage Common Stock, or to acquire, merge or consolidate with Central Mortgage or any subsidiary of Central Mortgage or to purchase all or any substantial part of the assets of Central Mortgage or any subsidiary of Central Mortgage, (b) any person (other than MBI, any subsidiary of MBI, the persons who executed the Voting Agreements or Central Mortgage's Employee Stock Option Plan) shall have acquired beneficial ownership or the right to acquire beneficial ownership of 10% or more of the outstanding shares of Central Mortgage Common Stock, (c) any person shall have commenced a bona fide tender offer or exchange offer to purchase shares of Central Mortgage Common Stock such that, upon consummation of said offer, said person would own or control 25% or more of the outstanding shares of Central Mortgage Common Stock, or (d) any person shall have solicited proxies in a proxy solicitation in opposition to approval of the Merger Agreement by the shareholders of Central Mortgage; or - 20 - 26 (ii) Central Mortgage shall have entered into an agreement with a person (other than MBI or a subsidiary of MBI) for such person to acquire, merge or consolidate with Central Mortgage or to purchase all or any substantial part of the assets of either Central Mortgage or any subsidiary of Central Mortgage (except for the merger of Barton County State Bank with Citizens State Bank of Nevada, which was consummated on November 1, 1994). The Option terminates on the earlier of: (a) the termination of the Merger Agreement by (1) the mutual consent of each party (a "Party") thereto, (2) by any Party if the Merger is not consummated by June 30, 1995, or by August 31, 1995 in the event the cause of the failure to consummate the Merger by such date is the result of regulatory delay not due to the fault or failure of any Party, (3) any Party if the Federal Reserve Board or any other federal and/or state regulatory agency whose approval is required for the Merger shall have issued a final nonappealable denial of such approval, (4) Central Mortgage where MBI has materially breached the Merger Agreement and failed to cure such breach within 45 days after notice thereof from Central Mortgage, or (5) MBI based upon a non-volitional breach by Central Mortgage of certain representations, warranties or agreements contained in the Merger Agreement, which breach is not cured within 45 days after notice thereof from MBI; or (b) twelve months after termination of the Merger Agreement by MBI if Central Mortgage shall have materially breached the Merger Agreement and failed to cure such breach within 45 days after notice thereof from MBI, except for a termination of the Merger Agreement by MBI based upon a non-volitional breach of selected provisions of the Merger Agreement which Central Mortgage has used its best efforts to cure after notice from MBI prior to such termination. Provided, however, if a Triggering Event occurs prior to the termination of the Option, the Option will terminate twelve months after the date on which the first Triggering Event occurred. From and after the date on which a Triggering Event occurs until the termination of the Option in accordance with its terms, and subject to applicable regulatory restrictions, MBI will be entitled, in lieu of exercising the Option, to require Central Mortgage to purchase the Option for cash at a purchase price equal to the higher of (i) the number of shares of Central Mortgage Common Stock then subject to the Option multiplied by the highest price per share paid for shares of Central Mortgage Common Stock by a third party in a tender or exchange offer or pursuant to an agreement with Central Mortgage less the then current exercise price per share under the Option (the "Exercise Price"), and (ii) in the event of the sale of all or any substantial part of the assets of Central Mortgage, the number of shares of Central Mortgage Common Stock for which the Option is then exercisable (the "Conversion Number") multiplied by the excess of (x) (I) the sum of (a) the price paid for such assets, (b) the current market value of the - 21 - 27 remaining assets of Central Mortgage and (c) the Exercise Price multiplied by the Conversion Number, divided by (II) the sum of the number of shares of Central Mortgage Common Stock then outstanding and the Conversion Number (the "Sales Price"), over (y) the Exercise Price. In the event a transaction is consummated in which a Market/Offer Price (as defined below) or a Sale Price is established, MBI will be entitled to require Central Mortgage to repurchase any shares previously purchased pursuant to the Option on or prior to termination of the Option, at a purchase price equal to the highest of (i) the highest of (a) the highest price per share paid for shares of Central Mortgage Common Stock by a third party in a tender or exchange offer or (b) the highest price per share paid by any third party pursuant to an agreement with Central Mortgage (the "Market/Offer Price"), multiplied by the number of shares of Central Mortgage Common Stock to be repurchased, or (ii) in the event of a sale of all or any substantial part of the assets of Central Mortgage, the Sale Price multiplied by the number of such shares to be repurchased. In addition, on or prior to the termination of the Option, MBI will be entitled to require Central Mortgage to repurchase any shares previously purchased pursuant to the Option at a price equal to the exercise price per share multiplied by the number of such shares. In the event of any change in Central Mortgage Common Stock by reason of stock dividends, split-ups, recapitalizations or the like, the type and number of shares subject to the Option, and the purchase price per share, as the case may be, will be adjusted appropriately. In the event that any additional shares of Central Mortgage Common Stock are issued after the date of the Investment Agreement (other than pursuant to an event described in the preceding sentence or pursuant to the Investment Agreement), Central Mortgage shall issue additional options to MBI (on the same terms and conditions as the Option), such additional options to be exercisable for a number of shares of Central Mortgage Common Stock equal to 19.9% of the number of additional shares of Central Mortgage Common Stock so issued. To the best of MBI's and Central Mortgage's knowledge, no Triggering Event has occurred as of the date of this Proxy Statement/Prospectus. Voting Agreements. Concurrent with the execution of the Merger Agreement, MBI and each of Margaret K. Harmon, C. Adrian Harmon and Lynn A. Harmon, three of the nine directors of Central Mortgage, executed separate Voting Agreements by which each such director agreed that he or she will vote all of the shares of Central Mortgage Common Stock that he or she then owned or subsequently acquires in favor of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Effective Time of the Merger, the termination of the Voting Agreements or the abandonment of the Merger, each such director further agreed that he or she will not vote any such shares in favor of the approval of any other competing acquisition proposal involving Central Mortgage and a third party. Each such director also agreed that he or she will not transfer shares of Central Mortgage Common Stock owned by him or her unless, prior to such transfer, the transferee executes a Voting Agreement in substantially the same form. As of the Record Date, such three directors owned beneficially an aggregate of 820,028 shares of Central Mortgage Common Stock, or approximately 19.29% of the issued and outstanding shares. BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS Central Mortgage's Reasons and Board Recommendation. The Board of Directors of Central Mortgage has periodically evaluated Central Mortgage's corporate strategy based upon general conditions in the banking industry, legislative changes and other developments affecting the industry in general and Central Mortgage specifically. These developments have included the ongoing consolidation of the banking industry, and recent state and federal legislative changes that will facilitate nationwide consolidation of the banking industry. - 22 - 28 In August 1994, senior executive officers of Central Mortgage and MBI held discussions concerning a possible merger of Central Mortgage with MBI or a subsidiary of MBI. During that time, Central Mortgage senior executives also had contact with several other regional bank holding companies concerning possible business combinations with those companies. On August 17, 1994, the Board appointed a special committee consisting of three directors to review and evaluate possible business combinations of Central Mortgage with other parties. The special committee met on August 29, 1994, and reviewed potential business combinations of the company, including the possibility of a transaction with MBI. The special committee reviewed proposals from MBI, as well as several other regional bank holding companies. The committee determined that MBI's proposal was the most advantageous to the shareholders of Central Mortgage, and authorized formal negotiations with MBI. During the first part of September 1994, representatives of Central Mortgage and MBI met to negotiate the terms of a definitive agreement between Central Mortgage and a subsidiary of MBI. The Merger consideration and other terms and conditions of the Merger Agreement and the Investment Agreement were established through arms-length negotiations between Central Mortgage and MBI and their respective advisors. Central Mortgage's Board of Directors sought a stock- for-stock transaction so that the Merger would be accounted for on a pooling-of-interests accounting basis and would constitute a "reorganization" for federal income tax purposes. On September 19, 1994, the special committee of Central Mortgage's Board of Directors held a second meeting at which it reviewed the terms and conditions proposed for the Merger Agreement and the Investment Agreement. This meeting resulted in the special committee's recommendation to the full board that the Merger Agreement and the Investment Agreement be approved. The full Board of Directors of Central Mortgage met on September 21, 1994, in a meeting attended by Central Mortgage's legal and financial advisors. After carefully considering the terms in the Merger Agreement and the Investment Agreement, the full Board of Directors unanimously approved the Merger Agreement and Investment Agreement as being in the best interests of Central Mortgage and its shareholders. The recommendation of Central Mortgage's Board of Directors is based upon a number of factors, including the exchange ratio and other terms of the Merger Agreement, the tax-free nature of the Merger for Central Mortgage's shareholders, the benefits expected to result from the combination of Central Mortgage and MBI, information concerning the financial condition, results of operations and prospects of Central Mortgage and MBI on a combined basis, the market prices of and dividend policies with respect to Central Mortgage Common Stock and MBI Common Stock, results of due diligence investigations of MBI by Central Mortgage, recent federal and state legislative changes affecting the banking industry in general and the fairness opinion of Stifel. THE BOARD OF DIRECTORS OF CENTRAL MORTGAGE UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF CENTRAL MORTGAGE VOTE FOR THE --- PROPOSAL TO APPROVE THE MERGER AGREEMENT. MBI's Reasons and Board Recommendations. The Executive Committee of the Board of Directors of MBI considered a number of factors, including, among other things, the financial condition of Central Mortgage and projected synergies which are anticipated to result from the Merger. The Executive Committee concluded that the Merger presents an unique opportunity for MBI to increase its presence in the greater Kansas City, Missouri area and certain southwestern Missouri communities through the acquisition of an established banking organization having significant operations in the targeted area. MBI's decision to pursue discussions with Central Mortgage was primarily a result of MBI's assessment of the value of Central Mortgage's banking franchise, its substantial asset base within that area and the compatibility of the businesses of the two banking organizations. - 23 - 29 OPINION OF FINANCIAL ADVISOR TO CENTRAL MORTGAGE Pursuant to an engagement letter dated September 21, 1994 (the "Engagement Letter"), Central Mortgage retained Stifel to act as its financial advisor in connection with the consideration by Central Mortgage's Board of Directors of the transaction contemplated by the Merger Agreement. Stifel is a nationally recognized investment banking and securities firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with merger transactions and other types of acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Central Mortgage selected Stifel as its financial advisor on the basis of its experience and expertise in transactions similar to the Merger and its reputation in the banking and investment communities. The terms of the Merger Agreement, including the consideration to be received by Central Mortgage shareholders, were negotiated by Central Mortgage. At the September 21, 1994 meeting of Central Mortgage's Board of Directors, Stifel delivered its oral opinion, subsequently confirmed in writing as of September 21, 1994, that the consideration to be received by the Central Mortgage shareholders in the Merger is fair to the Central Mortgage shareholders from a financial point of view. No limitations were imposed by Central Mortgage on Stifel with respect to the investigations made or procedures followed in rendering its opinion. THE FULL TEXT OF STIFEL'S WRITTEN OPINION TO CENTRAL MORTGAGE'S BOARD OF DIRECTORS IS ATTACHED HERETO AS ANNEX A AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ ------- CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF STIFEL'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. STIFEL'S OPINION IS ADDRESSED ONLY TO CENTRAL MORTGAGE'S BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY CENTRAL MORTGAGE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. Stifel reviewed with Central Mortgage's directors the general analysis performed by Stifel in reaching its opinion. In connection with its opinion, Stifel, among other things: (i) reviewed certain publicly available financial and other data with respect to Central Mortgage and MBI, including the consolidated financial statements for the last five years and for the six months ended June 30, 1994 and certain other relevant financial operating data relating to Central Mortgage and MBI made available to Stifel from published sources; (ii) reviewed the Merger Agreement; (iii) reviewed certain historical market prices and trading volumes of Central Mortgage Common Stock and MBI Common Stock as reported by Nasdaq and the NYSE, respectively; (iv) compared Central Mortgage and MBI from a financial point of view with certain other companies in the banking industry that Stifel deemed to be relevant; (v) considered the financial terms, to the extent publicly available, of selected recent acquisitions of bank holding companies that Stifel deemed to be reasonably similar, in whole or in part, to the Merger and Central Mortgage; (vi) reviewed and discussed with representatives of the management of Central Mortgage and MBI certain information of a business and financial nature regarding Central Mortgage and MBI, furnished to Stifel by Central Mortgage and MBI, including financial forecasts and related assumptions of Central Mortgage; (vii) made inquiries regarding and discussed the Merger and the Merger Agreement and other matters related thereto with Central Mortgage's counsel; and (viii) performed such other analyses and examinations as Stifel deemed appropriate. In connection with its review, Stifel did not independently verify any of the foregoing information and relied on such information and assumed such information was complete and accurate in all material respects. With respect to the financial forecasts of Central Mortgage provided to Stifel by Central Mortgage's management, Stifel assumed for purposes of its opinion that they were reasonably prepared on bases reflecting the best available estimates and judgments of Central Mortgage's management at the time of preparation as to the future financial performance of Central Mortgage and that, in preparing such forecasts, Central Mortgage's management took into account all factors that were reasonably required to be taken into account by management in order to prepare such forecasts. - 24 - 30 Stifel also assumed that there were no material changes in Central Mortgage's or MBI's assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to Stifel. Stifel relied on advice of counsel to Central Mortgage as to all legal matters with respect to Central Mortgage, the Merger and the Merger Agreement. In addition, Stifel did not make or obtain an independent evaluation, appraisal or physical inspection of the assets, individual properties or liabilities of Central Mortgage or MBI, nor was Stifel furnished with any such appraisal. Further, Stifel's opinion was based on economic, monetary, market and other conditions existing as of the date of its opinion. No opinion was expressed as to the prices at which Central Mortgage Common Stock or MBI Common Stock might trade in the future. The following is a summary of the financial analyses performed by Stifel in connection with providing its oral advice to Central Mortgage's Directors on September 21, 1994 and the written confirmation of that advice contained in its written opinion, dated as of September 21, 1994. Contribution Analysis --------------------- Stifel reviewed certain historical and estimated fiscal 1994 operating and financial information including net revenues (before and after provision for loan losses), net income (before extraordinary items and preferred dividends), assets, loans, deposits and total equity, and compared the contribution of Central Mortgage to the pro forma combined figures for Central Mortgage and MBI to the percentage of total outstanding MBI Common Stock that would be owned by the Central Mortgage shareholders as a result of the Merger. The analysis showed the following percentage contribution of Central Mortgage to the pro forma combined equity:
PERCENTAGE CONTRIBUTION ----------------------- Year Ended Six Months Ended Fiscal 1994 12/31/93 6/30/94 Estimate ---------- ---------------- ----------- Common Stock Ownership 5.7% 5.7% 5.7% Net Revenues (Before Provision for Loan Loss) 3.3 3.7 3.7 Net Revenues (After Provision for Loan Loss) 3.7 3.7 3.7 Net Income Before Extraordinary Items and Preferred Dividend 4.2 4.1 4.1 Assets 5.6 5.0 5.1 Loans 5.6 4.7 4.7 Deposits 6.1 5.6 5.6 Total Equity 5.5 4.8 4.8 - --------------------- Net revenues include net interest income plus noninterest income net of noninterest expense.
Accretion/Dilution Summary -------------------------- Stifel reviewed certain financial information for the pro forma combined entity resulting from the Merger for the year ended December 31, 1993, and the six months ended June 30, 1994, and estimated future operating and financial information developed by both Central Mortgage and MBI for - 25 - 31 the year ended December 31, 1994. Based on this analysis, Stifel compared Central Mortgage's actual per share earnings, book value, tangible book value and common stock dividends for the relevant periods with such figures for the pro forma combined entity. [The Merger is accretive on a pro forma basis with respect to per share earnings, book value, tangible book value and common stock dividends per share of Central Mortgage Common Stock and is projected to be accretive for the year ended December 31, 1994.] Trading Liquidity Analysis -------------------------- Stifel prepared an analysis comparing the trading liquidity of Central Mortgage Common Stock relative to MBI Common Stock. The analysis found there to be substantially greater liquidity in MBI Common Stock in terms of total shares traded, approximate market value of shares traded, average daily volume and annual trading volume as a percentage of common stock outstanding. Present Value Analysis ---------------------- Applying discounted cash flow analysis to the theoretical future earnings and dividends of Central Mortgage and MBI, Stifel compared the calculated theoretical future value of a share of Central Mortgage to the calculated theoretical future value of the fractional share of the combined entity receivable in exchange for a share of Central Mortgage Common Stock pursuant to the Merger Agreement. The analysis was based upon a range of assumed returns on assets, a 5% annual asset growth, current dividend rates, a range of assumed price/earnings ratios and a 12% discount rate. Based on this analysis, Stifel concluded that the Merger increases the value of a share of Central Mortgage Common Stock. Summary Analysis of Bank Merger Transactions -------------------------------------------- Stifel analyzed certain information relating to transactions in the banking industry, including median information for 391 acquisitions announced in the U.S. between September 14, 1993 and September 14, 1994, as well as for 130 bank acquisitions announced in the Midwest between September 14, 1993 and September 14, 1994 (the "Selected Transactions"). Stifel calculated the following ratios with respect to the Merger and the Selected Transactions:
Central Mortgage/ U.S. Midwest Ratios MBI Merger Median Median - ------ -------------- ------ ------- Deal Price per Share/Book Value 192% 167% 163% Deal Price per Share/ Tangible Book Value 232 170 164 Deal Price per Share/ Trailing 4 Quarters Earnings' per Share 15.4 14.3 14.1 Deal Price/Assets 16.7 14.6 14.2 Premium over Tangible Book Value/Deposits 10.6 6.6 5.7 Deal Price/Deposits 19.4 16.8 16.5 - ------------------------ Central Mortgage ratios based on estimated exchange ratio and pre-announcement price for MBI Common Stock.
The summary set forth above does not purport to be a complete description of the presentation by Stifel to the Central Mortgage Board of Directors or of the analyses performed by Stifel. The preparation of a fairness opinion is not necessarily susceptible to partial analysis or summary - 26 - 32 description. Stifel believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses and of the factors considered, without considering all analyses and factors, would create an incomplete view of the process underlying the analyses set forth in its presentation to the Central Mortgage Board of Directors. In addition, Stifel may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any particular analysis described above should not be taken to be Stifel's view of the actual value of Central Mortgage or the combined companies. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis. In performing its analyses, Stifel made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Central Mortgage or MBI. The analyses performed by Stifel are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Stifel's analysis of the fairness of the Merger consideration to be received by the Central Mortgage shareholders from a financial point of view and were provided to the Central Mortgage Board of Directors in connection with the delivery of Stifel's opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Stifel used in its analyses various projections of future performance prepared by the managements of Central Mortgage and MBI. The projections are based on numerous variables and assumptions which are inherently unpredictable and must not be considered certain of occurrence as projected. Accordingly, actual results could vary significantly from those set forth in such projections. As described above, Stifel's opinion and presentation to the Central Mortgage Board of Directors were among the many factors taken into consideration by the Central Mortgage Board in making its determination to approve the Merger. For Stifel's services in connection with the Merger, Central Mortgage has paid Stifel $40,000 and will pay Stifel $185,000 upon the closing of the Merger pursuant to the terms of the Engagement Letter and has agreed to reimburse Stifel for certain out-of-pocket expenses. Pursuant to the Engagement Letter, the Company has agreed to indemnify Stifel, its affiliates and their respective partners, directors, officers, agents, consultants, employees and controlling persons against certain liabilities, including liabilities under the federal securities laws. In the ordinary course of its business, Stifel actively trades equity securities of Central Mortgage for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. CONDITIONS OF THE MERGER The respective obligations of MBI and Central Mortgage to consummate the Merger are subject to the satisfaction of certain mutual conditions, including the following: (1) The Merger Agreement shall be approved by the holders of at least two-thirds of the outstanding shares of Central Mortgage Common Stock at the Special Meeting. (2) The Merger Agreement and the transactions contemplated therein shall have been approved by the Federal Reserve Board and any other federal and/or state - 27 - 33 regulatory agency whose approval is required for the consummation of the transactions contemplated therein. (3) The Registration Statement of which this Proxy Statement/Prospectus is a part, registering shares of MBI Common Stock to be issued in the Merger, shall have been declared effective and not be subject to a stop order or any threatened stop order. (4) Neither Central Mortgage, MBI nor ABNK shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. The obligation of MBI and ABNK to consummate the Merger is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of Central Mortgage made in the Merger Agreement shall be true and correct in all material respects, except for inaccuracies therein that are not of a magnitude as to have a material adverse effect on Central Mortgage and its subsidiaries, taken as a whole, as of September 21, 1994 and as of the Effective Time, and all obligations required to be performed by Central Mortgage prior to or at the Closing Date shall have been performed in all material respects, and MBI shall have received an officers' certificate from Central Mortgage to that effect. (2) Central Mortgage shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of Central Mortgage for the lawful consummation of the Merger. (3) Since September 21, 1994, there shall have been no material adverse change in the business, financial condition or results of operations of Central Mortgage or its subsidiaries, taken as a whole. (4) Unless otherwise waived by MBI and ABNK in their sole discretion, holders of less than ten percent (10%) of the total value of shares of Central Mortgage Common Stock outstanding shall have taken such steps as are then possible to dissent from the Merger pursuant to Missouri law. (5) MBI and ABNK shall have received an opinion of KPMG Peat Marwick LLP, satisfactory to MBI, that the Merger will qualify for pooling-of-interests accounting treatment, which opinion shall not have been withdrawn. Baird, Kurtz and Dobson, independent auditors for Central Mortgage, shall have provided to Central Mortgage assurance that it knows of no facts that would prevent pooling-of-interests accounting treatment. (6) Blackwell Sanders Matheny Weary & Lombardi, counsel to Central Mortgage, shall have delivered to MBI an opinion regarding certain legal matters. Central Mortgage's obligation to consummate the Merger is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of MBI and ABNK made in the Merger Agreement shall be true and correct in all material respects, except for - 28 - 34 inaccuracies therein that are not of a magnitude as to have a material adverse effect on MBI and its subsidiaries, taken as a whole, as of September 21, 1994 and as of the Effective Time, and all obligations required to be performed by MBI and ABNK prior to or at the Effective Time shall have been performed in all material respects, and Central Mortgage shall have received an officer's certificate from MBI to that effect. (2) MBI and ABNK shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of MBI or ABNK for the lawful consummation of the Merger. (3) Since September 21, 1994, there shall have been no material adverse change in the business, financial condition or results of operations of MBI on a consolidated basis taken as a whole. (4) Thompson & Mitchell, counsel to MBI, shall have delivered to Central Mortgage an opinion regarding certain legal matters. (5) Central Mortgage shall have received from Thompson & Mitchell an opinion to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and to the effect that, as a result of the Merger, except with respect to fractional share interests, holders of Central Mortgage Common Stock who receive MBI Common Stock in the Merger will not recognize gain or loss for federal income tax purposes, the basis of such MBI Common Stock will equal the basis of the Common Stock for which it is exchanged, and the holding period of such MBI Common Stock will include the holding period of the Central Mortgage Common Stock for which it is exchanged, assuming that such Central Mortgage Common Stock is a capital asset in the hands of the holder thereof as of the Effective Time. TERMINATION OF THE MERGER AGREEMENT The Merger Agreement may be terminated at any time prior to the Closing Date, whether before or after approval by the shareholders of Central Mortgage, by mutual consent of the Executive Committee of the Board of Directors of MBI and the Boards of Directors of Central Mortgage and ABNK, or unilaterally by the Executive Committee of the Board of Directors of MBI or the Boards of Directors of Central Mortgage or ABNK: (i) at any time after June 30, 1995, if the Merger has not been consummated by such date; provided, however, such date will be automatically extended to August 31, 1995 if the cause of the failure to consummate the Merger by such date is the result of regulatory delay not due to the fault or failure of Central Mortgage, MBI or ABNK; (ii) if the Federal Reserve Board or any other federal and/or state regulatory authority whose approval is required for consummation of the Merger shall have issued a final nonappealable denial of such approval; or (iii) in the event of a breach by the other of any representation, warranty or agreement contained in the Merger Agreement, which breach is of such a magnitude as to be materially adverse to the financial condition, results of operations, business, assets, prospects or operations of the breaching party and its subsidiaries taken as a whole and is not cured after 45 days' written notice thereof is given to the party committing such breach or waived by such other party. No assurance can be given that the Merger will be consummated on or before June 30, 1995 (or, if extended as described above, August 31, 1995) or that MBI, ABNK or Central Mortgage will not elect to terminate the Merger Agreement if the Merger has not been consummated on or before June 30, 1995 or August 31, 1995, as the case may be. - 29 - 35 In the event of the termination of the Merger Agreement, it shall become void and there shall be no liability on the part of any party except, that (i) confidentiality and indemnification obligations shall survive termination; (ii) MBI shall pay all printing, mailing and filing expenses with respect to the Registration Statement and this Proxy Statement/Prospectus and (iii) in the case of termination due to continued material breach after notice and opportunity to cure, the breaching party shall not be relieved of liability to the nonbreaching party arising from the willful nonperformance of any covenant in the Merger Agreement. In addition, as described above under "- Other Agreements - Investment Agreement," in the case of certain terminations of the Merger Agreement, the Investment Agreement will become exercisable and Central Mortgage may be obligated to repurchase the Option and any Option Shares. INDEMNIFICATION Central Mortgage, MBI and ABNK have agreed to indemnify each other against any claims or liabilities to which any such party may become subject under federal or state securities laws or regulations, to the extent that such claim or liability arises out of information furnished to the party subject to such liability by the other party, or out of an omission by such other party to state a necessary or material fact in the Registration Statement of which this Proxy Statement/Prospectus is a part. CLOSING DATE The Merger will be consummated and become effective on the Closing Date upon issuance of a certificate of merger by the Missouri Secretary of State. Under the Merger Agreement, unless the parties otherwise agree, the Closing Date shall be the first business day of the month immediately succeeding the month in which the last of the following events occurs: (i) the receipt of the requisite approval of the Merger Agreement by the shareholders of Central Mortgage; (ii) the thirtieth day after the approval of the Merger by the Federal Reserve Board; and (iii) the approval of the Merger by any other bank regulatory agency that may be necessary or appropriate. SURRENDER OF CENTRAL MORTGAGE STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK At the Effective Time of the Merger, each outstanding share of Central Mortgage Common Stock will be converted into the right to receive .5970 of a share of MBI Common Stock. See "TERMS OF THE PROPOSED MERGER - General Description of the Merger." Each holder of Central Mortgage Common Stock, upon submission to the Exchange Agent of a properly executed letter of transmittal and surrender to the Exchange Agent of the stock certificate(s) formerly representing shares of Central Mortgage Common Stock, will be entitled to receive a stock certificate evidencing the shares of MBI Common Stock to which such shareholder is entitled. Within five business days after the Effective Time of the Merger, the Exchange Agent will mail to each former Central Mortgage shareholder of record as of the Effective Time notification of the consummation of the Merger. The Exchange Agent will also provide a letter of transmittal and instructions as to the procedure for the surrender of the stock certificates evidencing the Central Mortgage Common Stock and the receipt of shares of MBI Common Stock. Following the Effective Time of the Merger, it will be the responsibility of each former holder of Central Mortgage shares to submit all certificates evidencing that former holder's shares of Central Mortgage Common Stock to the Exchange Agent. No dividends or other distribution will be paid to a former Central Mortgage shareholder with respect to shares of MBI Common Stock until such shareholder's properly completed letter of transmittal and stock certificates formerly representing Central Mortgage Common Stock, or, in lieu thereof, such evidence of a lost, stolen or destroyed certificate and/or - 30 - 36 such surety bond as the Exchange Agent may reasonably require in accordance with customary exchange practices, are delivered to the Exchange Agent. All dividends or other distributions on the MBI Common Stock declared between the Closing Date of the Merger and the date of the surrender of a Central Mortgage stock certificate will be held for the benefit of the shareholder and will be paid to the shareholder, without interest thereon, upon the surrender of such stock certificate or documentation and/or insurance bond in lieu thereof. FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the former shareholders of Central Mortgage in connection with the Merger. Each former holder of Central Mortgage Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal on the Closing Date of the Merger. Cash received by Central Mortgage shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL In addition to the approval of the Merger Agreement by the shareholders of Central Mortgage, the obligations of the parties to effect the Merger are subject to prior approval of the Federal Reserve Board. As a bank holding company, MBI is subject to regulation under the BHCA. The Merger is subject to prior approval by the Federal Reserve Board under Section 3 and Section 4 of the BHCA. Under the BHCA, the Federal Reserve Board may withhold approval of the Merger if, among other things, it determines that the effect of the Merger would be to substantially lessen competition in the relevant markets. In addition, the Federal Reserve Board must consider whether the combined organization meets the requirements of the Community Reinvestment Act of 1977, as amended, by assessing the involved entities' respective records of meeting the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions. In its review, the Federal Reserve Board must also examine the financial and managerial resources and future prospects of the combined organization and analyze the capital structure and soundness of the resulting entity. The Federal Reserve Board has the authority to deny an application if it concludes that the combined organization would have inadequate capital. Applications for such approval have been filed with the Federal Reserve Board. MBI and Central Mortgage are not aware of any governmental approvals or actions that may be required for consummation of the Merger other than as described above. Should any other approval or action be required, it is presently contemplated that such approval or action would be sought. There can be no assurance that any necessary regulatory approvals or actions will be timely received or taken, that no action will be brought challenging such approval or action or, if such a challenge is brought, as to the result thereof, or that any such approval or action will not be conditioned in a manner that would cause the parties to abandon the Merger. See "SUPERVISION AND REGULATION." - 31 - 37 BUSINESS PENDING THE MERGER The Merger Agreement provides that, during the period from September 21, 1994 to the Effective Time, Central Mortgage will conduct its business according to the ordinary and usual course consistent with past and current practices and use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. Furthermore, from the date of the Merger Agreement to the Closing Date, except as provided in the Merger Agreement, Central Mortgage will not, and will cause each of its subsidiaries not to, without the prior written consent of MBI, which consent will not be unreasonably withheld: (1) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from any of the Central Mortgage subsidiaries to Central Mortgage), except that Central Mortgage may declare and pay regular quarterly cash dividends in amounts not to exceed (i) the amount determined pursuant to Section 7.3 of the Articles of Incorporation of Central Mortgage on the Central Mortgage Series A Preferred Stock, $10.00 par value (the "Central Mortgage Preferred Stock"), and (ii) $0.12 per share on the Central Mortgage Common Stock; provided, however, no dividend will be paid to a Central Mortgage shareholder for any quarter in which such Central Mortgage shareholder will be entitled to receive a regular quarterly dividend on the shares of MBI Common Stock to be issued in the Merger; (2) enter into or amend any employment, severance or similar agreement or arrangement with any director or officer or employee, or materially modify any of the Central Mortgage employee plans or policies or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract, and except for such increases of which Central Mortgage notifies MBI in writing and which MBI does not disapprove within ten days of the receipt of such notice; (3) propose or adopt any amendments to the Articles of Incorporation or the Articles of Association of Central Mortgage or any subsidiary of Central Mortgage, as the case may be, or its respective by-laws; (4) issue any shares of capital stock, except with respect to the issuance of Central Mortgage Common Stock upon the exercise or conversion of employee stock options or Central Mortgage Preferred Stock outstanding as of September 21, 1994, or effect any stock split or otherwise change its capitalization as it existed on September 21, 1994; (5) grant, confer or award any options, warrants, conversion rights or other rights not existing on September 21, 1994 to acquire any shares of its capital stock; (6) purchase or redeem any shares of its capital stock, except, in the case of Central Mortgage, the redemption of any or all shares of Central Mortgage Preferred Stock, and in the case of Cenco Insurance Company, Inc. (an Arizona corporation of - 32 - 38 which Central Mortgage owns approximately 79.9% of the issued and outstanding shares of capital stock ("Cenco")), capital stock held by persons other than Central Mortgage; (7) enter into or increase any loan or credit commitment (including stand-by letters of credit but excluding commitments in respect of the packaging of mortgages for sale in the ordinary course of business) to, or invest or agree to invest in any person or entity (i) in an amount in excess of $750,000, without first consulting with MBI, and, in the case of persons or entities to which it has outstanding aggregate credit commitments and loans exceeding $750,000, subject to (ii) below, increase or agree to increase the loan or credit commitment to, or invest or agree to invest in, such person or entity by more than twenty-five percent (25%) of the amount of such loan, credit commitment or investment, without first consulting with MBI, and (ii) in an amount in excess of $1,000,000, without first obtaining the prior written consent of MBI, which consent will not be unreasonably withheld; provided, however, notwithstanding (i) and (ii), Central Mortgage and/or any subsidiary of Central Mortgage shall not be prohibited from honoring any contractual and legally binding obligation in existence on September 21, 1994; (8) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or take or omit to take any other action which would make any of the representations and warranties in the Merger Agreement untrue or incorrect in any respect if made anew after engaging in such activity, entering into such transaction or taking or omitting such other act; or (9) take any action (i) that would (a) materially impede or delay the consummation of the transactions contemplated by the Merger Agreement or the ability of MBI or Central Mortgage to obtain any necessary approvals of any regulatory authority required for the transactions contemplated by the Merger Agreement or to perform its covenants and agreements under the Merger Agreement, or (b) prevent or impede the Merger from qualifying as a pooling-of-interests for accounting purposes or as a reorganization within the meaning of Section 368 of the Code, or (ii) that is not in the ordinary course of business consistent with past practices unless otherwise expressly permitted by the Merger Agreement; (10) directly or indirectly, including through its officers, directors, employees or other representatives: (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than MBI or ABNK) relating to the disposition of any significant portion of the business or assets of Central Mortgage or any of its subsidiaries or the acquisition of the capital stock (or rights or options exercisable for, or securities convertible or exchangeable into, capital stock) of Central Mortgage or any of its subsidiaries or the merger of Central Mortgage or any of its subsidiaries with any person (other than MBI or ABNK) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or (ii) provide any third party with information or assistance or negotiate with any third party with respect to an Acquisition Transaction, and Central Mortgage shall promptly notify MBI orally of all the relevant details relating to - 33 - 39 all inquiries, indications of interest and proposals which it or any of its subsidiaries may receive with respect to any Acquisition Transaction. On November 11, 1994, Central Mortgage, in accordance with the provisions of its Articles of Incorporation, issued a notice of redemption of all shares of Central Mortgage Preferred Stock then outstanding. As of the Record Date, all issued and outstanding shares of Central Mortgage Preferred Stock had been converted into shares of Central Mortgage Common Stock. WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Merger and the restrictions described under "- Business Pending the Merger," may be (i) waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits thereof, or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors (in the case of Central Mortgage) or Executive Committees, whether before or after the Special Meeting; provided, however, that after approval of the Merger Agreement by the shareholders of Central Mortgage at the Special Meeting no such modification may alter or change the amount or form of consideration to be received by the Central Mortgage shareholders in the Merger, or adversely affect the Central Mortgage shareholders. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER" of this Proxy Statement/Prospectus. ACCOUNTING TREATMENT The Merger is intended to be accounted for under the pooling-of-interests method of accounting. Data regarding the financial condition and results of operations of Central Mortgage will be included in MBI's consolidated financial statements for all periods presented by MBI as if the Merger had occurred on the first day of the earliest period presented. It is a condition to MBI's and ABNK's consummation of the Merger that KPMG Peat Marwick LLP, MBI's independent accountants, deliver to MBI and ABNK an opinion that the Merger will qualify for pooling-of-interests accounting treatment. INTERESTS OF CERTAIN PERSONS IN THE MERGER Central Mortgage has entered into change of control agreements with each of Lynn A. Harmon, Edward A. Mangone, Tom D. Harmon, Michael R. Rankin, Thomas R. Main, Stephen D. Taylor and Dean Derks (the "Executives"). The agreements provide that each Executive will receive compensation in an amount determined by multiplying three times 98% of the annual average compensation (annualized for any partial year) received by such Executive for the last five years. At the Effective Time, MBI shall pay to each Executive the amount due to such Executive under his respective agreement, without regard to any notice or waiting periods set forth in such change of control agreement. Based upon compensation received by the Executives for the years 1990-1994, the estimated aggregate present value of amounts presently payable to the Executives upon consummation of the Merger would be approximately $4,000,000. MBI has agreed to assume all outstanding stock options to purchase Central Mortgage Common Stock held by Central Mortgage employees. Each such option outstanding at the Effective Time, whether or not exercisable or vested, shall, at the Effective Time, be converted into an option to purchase such number of shares of MBI Common Stock as is equal to the number of shares of Central Mortgage Common Stock subject to such option multiplied by .5970, and at a per share exercise price which shall equal the per share exercise price under such option divided by .5970, subject to adjustment as appropriate to reflect any stock split, stock dividend, capitalization or similar transaction subsequent to the Effective - 34 - 40 Time. With respect to options which qualify as "incentive stock options" under Section 422 of the Code, any adjustment is intended to satisfy the requirements of Section 422. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ----------------------------------------------------- The following is a discussion of the material federal income tax consequences of the Merger to certain Central Mortgage shareholders and does not purport to be a complete analysis or listing of all potential tax effects relevant to a decision whether to vote for the approval of the Merger. The discussion does not address all aspects of federal income taxation that may be applicable to Central Mortgage shareholders subject to special federal income tax treatment including (without limitation) foreign persons, insurance companies, tax-exempt entities, retirement plans, dealers in securities and persons who acquired their Central Mortgage Common Stock pursuant to the exercise of employee stock options or otherwise as compensation. The discussion addresses neither the effect of any applicable state, local or foreign tax laws, nor the effect of any federal tax laws other than those pertaining to the federal income tax. IN VIEW OF THE INDIVIDUAL NATURE OF FEDERAL INCOME TAX CONSEQUENCES, EACH CENTRAL MORTGAGE SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The discussion is based on the Code, regulations and rulings now in effect or proposed thereunder, current administrative rulings and practice, and judicial precedent, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences discussed herein. The discussion is also based on certain assumptions regarding the factual circumstances that will exist at the Effective Time of the Merger, including certain representations of MBI, Central Mortgage and certain shareholders of Central Mortgage. If any of these factual assumptions is inaccurate, the tax consequences of the Merger could differ from those described herein. The discussion assumes that shares of Central Mortgage Common Stock are held as capital assets (within the meaning of Section 1221 of the Code) at the Effective Time. Assuming the Merger occurs in accordance with the Merger Agreement, the Merger will constitute a "reorganization" for federal income tax purposes under Section 368(a)(1)(A) of the Code, by reason of the application of Section 368(a)(2)(D) of the Code, with the following federal income tax consequences: (1) Central Mortgage shareholders will recognize no gain or loss as a result of the exchange of their Central Mortgage Common Stock solely for shares of MBI Common Stock pursuant to the Merger, except with respect to cash received in lieu of fractional shares, if any, as discussed below. (2) The aggregate adjusted tax basis of the shares of MBI Common Stock received by each Central Mortgage shareholder in the Merger (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph (4) below) will be equal to the aggregate adjusted tax basis of the shares of Central Mortgage Common Stock surrendered. (3) The holding period of the shares of MBI Common Stock received by each Central Mortgage shareholder in the Merger (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 4 below) will include the holding period of the shares of Central Mortgage Common Stock exchanged therefor. - 35 - 41 (4) A Central Mortgage shareholder who receives cash in the Merger in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received in the Merger and then redeemed by MBI in return for the cash. The receipt of such cash will cause the recipient to recognize capital gain or loss equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share interest. (5) A Central Mortgage shareholder who receives only cash as a result of the exercise of dissenters' rights will realize gain or loss for federal income tax purposes (determined separately as to each block of Central Mortgage Common Stock exchanged) in an amount equal to the difference between (x) the amount of cash received by such shareholder, and (y) such shareholder's tax basis for the shares of Central Mortgage Common Stock surrendered in exchange therefor, provided that the cash payment does not have the effect of the distribution of a dividend. Any such gain or loss will be recognized for federal income tax purposes and will be treated as capital gain or loss. However, if the cash payment does have the effect of the distribution of a dividend, the amount of taxable income recognized generally will equal the amount of cash received; such income generally will be taxable as a dividend; and no loss (or other recovery of such shareholder's tax basis for the shares of Central Mortgage Common Stock surrendered in the exchange) generally will be recognized by such shareholder. The determination of whether a cash payment has the effect of the distribution of a dividend will be made pursuant to the provisions and limitations of Section 302 of the Code, taking into account the constructive stock ownership rules of Section 318 of the Code. See "Impact of Section 302 of the Code," below. Impact of Section 302 of the Code. With regard to dissenters, the determination of whether a cash payment has the effect of the distribution of a dividend generally will be made pursuant to the provisions of Section 302 of the Code. A cash payment to a Central Mortgage shareholder will be considered not to have the effect of the distribution of a dividend under Section 302 of the Code and such shareholder will recognize capital gain or loss only if the cash payment (i) results in a "complete redemption" of such shareholder's actual and constructive stock interest, (ii) results in a "substantially disproportionate" reduction in such shareholder's actual and constructive stock interest or (iii) is "not essentially equivalent to a dividend." A cash payment will result in a "complete redemption" of a shareholder's stock interest and such shareholder will recognize capital gain or loss if such shareholder does not actually or constructively own any stock after the receipt of the cash payment. A reduction in a shareholder's stock interest will be "substantially disproportionate" and such shareholder will recognize capital gain or loss if (i) the percentage of outstanding shares actually and constructively owned by such shareholder after the receipt of the cash payment is less than four-fifths (80%) of the percentage of outstanding shares actually and constructively owned by such shareholder immediately prior to the receipt of the cash payment and (ii) such shareholder actually and constructively owns less than 50 percent of the number of shares outstanding after the receipt of the cash payment. A cash payment will qualify as "not essentially equivalent to a dividend" and a shareholder will recognize capital gain or loss if it results in a meaningful reduction in the percentage of outstanding shares actually and constructively owned by such shareholder. No specific tests apply to determine whether a reduction in a shareholder's ownership interest is meaningful; rather, such determination will be made based on all the facts and circumstances applicable to such Central Mortgage shareholder. No general guidelines dictating the appropriate interpretation of facts and circumstances have been announced by the courts or issued by the Internal Revenue Service (the "Service"). However, the Service has indicated in Revenue Ruling 76-385 that a minority shareholder (i.e., a holder who ---- exercises no control over corporate affairs and whose proportionate stock interest is - 36 - 42 minimal in relation to the number of shares outstanding) generally is treated as having had a "meaningful reduction" in interest if a cash payment reduces such holder's actual and constructive stock ownership to any extent. Under the traditional analysis (which apparently continues to be used by the Service), Section 302 of the Code will apply as though the cash payment were made by Central Mortgage in a hypothetical redemption of Central Mortgage Common Stock immediately prior to, and in a transaction separate from, the Merger (a "deemed Central Mortgage redemption"). Thus, under the traditional analysis, the determination of whether a cash payment results in a complete redemption of interest, qualifies as a substantially disproportionate reduction of interest, or is not essentially equivalent to a dividend will be made by comparing (x) the shareholder's actual and constructive stock interest in Central Mortgage before the deemed Central Mortgage redemption, with (y) such shareholder's actual and constructive stock interest in Central Mortgage after the deemed Central Mortgage redemption (but before the Merger). However, the law is unclear regarding whether the deemed redemption approach of the Service is correct, and Counsel has rendered no opinion on the correctness of the Service's approach. Counsel has noted in its opinion that some tax practitioners believe that the determination of whether a cash payment has the effect of a distribution of a dividend should be made as if the Central Mortgage Common Stock exchanged for cash in the Merger had instead been exchanged in the Merger for shares of MBI Common Stock followed immediately by a redemption of such shares by MBI for the cash payment (a "deemed MBI redemption"). Under this analysis, the determination of whether a cash payment satisfies any of the foregoing tests would be made by comparing (i) the shareholder's actual and constructive stock interest in MBI before the deemed MBI redemption (determined as if such shareholder had received solely MBI Common Stock in the Merger) with (ii) such shareholder's actual and constructive stock interest in MBI after the deemed MBI redemption. Because this analysis is more likely to result in capital gain treatment than the traditional analysis, each Central Mortgage shareholder who receives solely cash in exchange for all of the Central Mortgage Common Stock he or she actually owns should consult his or her own tax advisor with regard to the proper treatment of such cash. The determination of ownership for purposes of the three foregoing tests will be made by taking into account both shares owned actually by such shareholder and shares owned constructively by such shareholder pursuant to Section 318 of the Code. Under Section 318 of the Code, a shareholder will be deemed to own stock that is actually or constructively owned by certain members of his or her family (spouse, children, grandchildren and parents) and other related parties including, for example, certain entities in which such shareholder has a direct or indirect interest (including partnerships, estates, trusts and corporations), as well as shares of stock that such shareholder (or a related person) has the right to acquire upon exercise of an option or conversion right. Section 302(c)(2) of the Code provides certain exceptions to the family attribution rules for the purpose of determining whether a complete redemption of a shareholder's interest has occurred for purposes of Code section 302. Because the determination of whether a payment will be treated as having the effect of the distribution of a dividend will generally depend upon the facts and circumstances of each Central Mortgage shareholder, Central Mortgage shareholders are strongly advised to consult their own tax advisors regarding the tax treatment of cash received in the Merger. Central Mortgage has received from Thompson & Mitchell, counsel for MBI, an opinion to the effect that the Merger will be a "reorganization" for federal income tax purposes under Section 368(a)(1)(A) of the Code, by reason of Section 368(a)(2)(D) of the Code, and that the federal income tax consequences of the Merger are in all material respects as described in this section. The opinion is available without charge upon written request to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. Such opinion is subject to the conditions and assumptions stated therein and relies on various representations made by MBI, - 37 - 43 Central Mortgage and certain shareholders of Central Mortgage. Pursuant to the terms of the Merger Agreement, Central Mortgage shall receive an update of such opinion dated as of the Closing Date. An opinion of counsel, unlike a private letter ruling from the Service, has no binding effect on the Service. The Service could take a position contrary to counsel's opinion and, if the matter is litigated, a court may reach a decision contrary to the opinion. The Service is not expected to issue a ruling on the tax effects of the Merger, and no such ruling has been requested. THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH CENTRAL MORTGAGE SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH CENTRAL MORTGAGE SHAREHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, EACH CENTRAL MORTGAGE SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS. RIGHTS OF DISSENTING SHAREHOLDERS OF CENTRAL MORTGAGE ----------------------------------------------------- Each holder of Central Mortgage Common Stock has the right to dissent from the Merger and receive the fair value of such shares of Central Mortgage in cash if the shareholder follows the procedures set forth under Section 351.455 of the Missouri Act set forth as Annex B hereto and the material provisions of which are ------- summarized below. Under Section 351.455 of the Missouri Act, a holder of Central Mortgage Common Stock may dissent and ABNK, as the surviving corporation, will pay to such shareholder the fair value of such shareholder's shares of Central Mortgage Common Stock as of the day prior to the Special Meeting if such shareholder (1) files with Central Mortgage prior to or at the Special Meeting a written objection to the Merger; (2) does not vote in favor thereof; and (3) within 20 days after the Effective Date of the --- Merger makes written demand on ABNK for payment of the fair value of the shares held by such shareholder as of the day prior to the date of the Special Meeting. MBI will include notice of the Effective Date of the Merger in its letter to all shareholders of Central Mortgage notifying them of the procedures to exchange their shares for those of MBI. Such letter will be sent promptly following the Effective Date of the Merger. Such demand by a dissenting shareholder shall state the number of shares owned by such dissenting shareholder. Any shareholder failing to make demand within the 20-day period shall be conclusively presumed to have consented to the Merger and shall be bound by the terms thereof. A PROXY OR VOTE AGAINST THE MERGER WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS. If within 30 days after the Effective Date of the Merger, the value of such shares is agreed upon between the dissenting shareholder and ABNK, payment therefor shall be made within 90 days after the Effective Date of the Merger, upon the surrender by such shareholder of the certificate or certificates representing said shares. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in such shares or in ABNK or MBI. If within 30 days after the Effective Date of the Merger, the shareholder and ABNK do not agree as to value, then the dissenting shareholder may, within 60 days after the expiration of the 30-day period, file a petition in any court of competent jurisdiction asking for a finding and determination - 38 - 44 of the fair value of such shares, and shall be entitled to judgment against ABNK for the amount of such fair value as of the day prior to the date of the Special Meeting with interest thereon to the date of such judgment. The "fair value" determined by the court may be more or less than the amount offered to Central Mortgage shareholders under the Merger Agreement. The judgment shall be payable only upon and simultaneously with the surrender to ABNK of the certificate or certificates representing said shares. Upon the payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares or in ABNK or MBI. Unless a dissenting shareholder shall file such petition within such 60-day period, such shareholder and all persons claiming under such shareholder shall be conclusively presumed to have approved and ratified the Merger, and shall be bound by the terms thereof. THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE MISSOURI ACT IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTION 351.455 OF THE MISSOURI ACT WHICH IS ATTACHED HERETO AS ANNEX B. ------- Central Mortgage shareholders who are interested in perfecting dissenters' rights pursuant to Section 351.455 of the Missouri Act in connection with the Merger should consult with their counsel for advice as to the procedures required to be followed. PRO FORMA FINANCIAL INFORMATION ------------------------------- COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Central Mortgage and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, the proposed acquisitions of UNSL and of Wedge and the acquisition of Ameribanc, Inc. by merger with and into a wholly owned subsidiary of MBI, which was completed on April 30, 1992 (ABNK is the surviving entity from that merger). The data presented is based upon the consolidated financial statements and related notes of MBI and Central Mortgage, UNSL and Wedge included in this Proxy Statement/ Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." This data is not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Merger, the completed merger of ABNK or the proposed mergers of UNSL and Wedge had been consummated prior to the periods indicated. - 39 - 45
MBI/Central Central Central Mortgage/ Central Mortgage Mortgage MBI/All Entities All Entities MBI Mortgage Pro Forma Pro Forma Pro Forma Pro Forma Reported Reported Combined Equivalent Combined Equivalent -------- -------- ------------ -------------- ------------ -------------- Book Value per Share: September 30, 1994 $24.12 $ 12.10 $ 23.89 $ 14.29 $ 23.82 $ 14.22 December 31, 1993 22.40 11.20 22.17 13.24 22.16 13.23 Cash Dividends Declared per Share: Nine months ended September 30, 1994 $ .84 $ .32 $ .84 $ .50 $ .84 $ .50 Year ended December 31, 1993 .99 .37 .99 .59 .99 .59 Year ended December 31, 1992 .93 .23 .93 .56 .93 .56 Year ended December 31, 1991 .93 .16 .93 .56 .93 .56 Earnings per Share: Nine months ended September 30, 1994 $ 2.79 $ 1.38 $ 2.75 $ 1.64 $ 2.70 $ 1.61 Year ended December 31, 1993 2.80 1.54 2.77 1.65 2.79 1.67 Year ended December 31, 1992 2.36 1.79 2.33 1.39 2.37 1.41 Year ended December 31, 1991 2.37 1.57 2.26 1.35 2.21 1.32 Market Price per Share: At September 21, 1994 $37.75 $ 18.50 n/a $ 22.54 n/a $ 22.54 At November 18, 1994 31.63 18.25 n/a 18.88 n/a 18.88 - -------------------- Includes the effect of pro forma adjustments for Central Mortgage and ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION." Based on the pro forma combined per share amounts multiplied times .5970, the conversion ratio applicable to one share of Central Mortgage Common Stock. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION." Includes the effect of pro forma adjustments for Central Mortgage, ABNK, UNSL and Wedge, as appropriate. See "PRO FORMA FINANCIAL INFORMATION." The market value of MBI and Central Mortgage Common Stock was determined as of the last trading day preceding the public announcement of the proposed acquisition and as of the latest available date prior to the filing of the Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape and Nasdaq, respectively.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined consolidated balance sheet gives effect to the Merger and the proposed acquisitions of UNSL and of Wedge, as if each of the mergers were consummated on September 30, 1994. MBI acquired ABNK on April 30, 1992, which acquisition was accounted for under the purchase method of accounting. Accordingly, the historical results of operations of MBI include the results of operations of ABNK from May 1, 1992 forward. The following pro forma combined consolidated income statements include the results of operations of ABNK from January 1, 1991 through the date of acquisition. The following pro forma combined consolidated income statements for the nine months ended September 30, 1994 and 1993 and for the years ended December 31, 1993, 1992 and 1991 set forth the results of operations of MBI combined with the results of operations of Central Mortgage, UNSL and Wedge as if the Merger and the proposed acquisitions of UNSL and of Wedge had occurred as of the first day of the period presented. As stated above, the pro forma combined consolidated income statements for the years ended December 31, 1992 and 1991 include the results of operations of ABNK from January 1, 1991 through the date of acquisition. - 40 - 46 The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to the Pro Forma Combined Consolidated Financial Statements and with the historical Financial Statements of MBI, Central Mortgage, UNSL, Wedge and ABNK. The historical interim financial information for the nine months ended September 30, 1994 and 1993, used as a basis for the pro forma combined consolidated financial statements, include all necessary adjustments, which, in management's opinion, are necessary to present the data fairly. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the completed and proposed mergers had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. - 41 - 47 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1994 (THOUSANDS) (UNAUDITED)
Central Mortgage Central Pro Forma Central Mortgage Combined MBI Mortgage Adjustments Consolidated ----------- -------- ----------- ------------ ASSETS Cash and due from banks . . . . . . . . . . . . $ 667,577 $ 28,502 $ $ 696,079 Due from banks - interest bearing . . . . . . . 231 200 431 Federal funds sold and repurchase agreements. . 225,472 2,400 227,872 Investments in debt and equity securities Trading. . . . . . . . . . . . . . . . . . 17,290 -- 17,290 Available-for-sale . . . . . . . . . . . . 271,709 38,028 309,737 Held-to-maturity . . . . . . . . . . . . . 2,859,335 149,163 3,008,498 ----------- -------- -------- ----------- Total . . . . . . . . . . . . . . . . 3,148,334 187,191 -- 3,335,525 Loans and leases. . . . . . . . . . . . . . . . 7,873,054 386,352 8,259,406 Reserve for possible loan losses. . . . . . . . (171,691) (6,396) (178,087) ----------- -------- -------- ----------- Net Loans and Leases . . . . . . . . . . . 7,701,363 379,956 -- 8,081,319 Bank premises and equipment . . . . . . . . . . 202,372 11,686 214,058 Due from customers on acceptances . . . . . . . 5,928 -- 5,928 Intangibles . . . . . . . . . . . . . . . . . . 65,510 8,561 74,071 Other assets. . . . . . . . . . . . . . . . . . 220,885 7,980 52,504 228,865 (52,504) ----------- -------- -------- ----------- Total Assets. . . . . . . . . . . . . . . . . $12,237,672 $626,476 $ -- $12,864,148 =========== ======== ======== =========== LIABILITIES Deposits Non-interest bearing . . . . . . . . . . . $ 1,456,287 $ 80,347 $ $ 1,536,634 Interest bearing . . . . . . . . . . . . . 7,397,091 457,276 7,854,367 Foreign. . . . . . . . . . . . . . . . . . 92,704 -- 92,704 ----------- -------- -------- ----------- Total Deposits. . . . . . . . . . . . . 8,946,082 537,623 -- 9,483,705 Federal funds purchased and repurchase agreements. . . . . . . . . . . . . . . . . . 1,455,765 23,574 1,479,339 Other short-term borrowings . . . . . . . . . . 338,362 1,100 339,462 Long-term debt. . . . . . . . . . . . . . . . . 288,447 3,400 291,847 Bank acceptances outstanding. . . . . . . . . . 5,928 -- 5,928 Other liabilities . . . . . . . . . . . . . . . 160,098 8,275 168,373 ----------- -------- -------- ----------- Total Liabilities . . . . . . . . . . . 11,194,682 573,972 -- 11,768,654 SHAREHOLDERS' EQUITY Preferred stock . . . . . . . . . . . . . . . . -- 430 (430) -- Common stock. . . . . . . . . . . . . . . . . . 216,175 3,735 12,690 228,865 (3,735) Capital surplus . . . . . . . . . . . . . . . . 168,974 24,376 15,675 184,649 (24,376) Retained earnings . . . . . . . . . . . . . . . 657,841 24,139 24,139 681,980 (24,139) Treasury stock. . . . . . . . . . . . . . . . . -- (176) 176 -- ----------- -------- -------- ----------- Total Shareholders' Equity . . . . . . . . 1,042,990 52,504 -- 1,095,494 ----------- -------- -------- ----------- Total Liabilities and Shareholders' Equity $12,237,672 $626,476 $ -- $12,864,148 =========== ======== ======== =========== All Entities Pro Forma UNSL & Wedge Combined UNSL Wedge Adjustments Consolidated -------- --------- ----------- ------------ ASSETS Cash and due from banks . . . . . . . . . . . . $ 2,438 $ 7,495 $ $ 706,012 Due from banks - interest bearing . . . . . . . 20,577 157 21,165 Federal funds sold and repurchase agreements. . -- -- 227,872 Investments in debt and equity securities Trading. . . . . . . . . . . . . . . . . . -- -- 17,290 Available-for-sale . . . . . . . . . . . . -- 54,771 364,508 Held-to-maturity . . . . . . . . . . . . . 14,814 24,029 3,047,341 -------- -------- -------- ----------- Total . . . . . . . . . . . . . . . . 14,814 78,800 -- 3,429,139 Loans and leases. . . . . . . . . . . . . . . . 443,799 113,154 8,816,359 Reserve for possible loan losses. . . . . . . . (3,665) (1,208) (182,960) -------- -------- -------- ----------- Net Loans and Leases . . . . . . . . . . . 440,134 111,946 -- 8,633,399 Bank premises and equipment . . . . . . . . . . 6,250 3,672 223,980 Due from customers on acceptances . . . . . . . -- -- 5,928 Intangibles . . . . . . . . . . . . . . . . . . 159 -- 74,230 Other assets. . . . . . . . . . . . . . . . . . 4,044 3,385 39,225 236,294 (39,225) 18,607 (18,607) -------- -------- -------- ----------- Total Assets. . . . . . . . . . . . . . . . . $488,416 $205,455 $ -- $13,558,019 ======== ======== ======== =========== LIABILITIES Deposits Non-interest bearing . . . . . . . . . . . $ 11,113 $ 21,650 $ $ 1,569,397 Interest bearing . . . . . . . . . . . . . 367,117 131,832 8,353,316 Foreign. . . . . . . . . . . . . . . . . . -- -- 92,704 -------- -------- -------- ----------- Total Deposits. . . . . . . . . . . . . 378,230 153,482 -- 10,015,417 Federal funds purchased and repurchase agreements. . . . . . . . . . . . . . . . . . -- 17,180 1,496,519 Other short-term borrowings . . . . . . . . . . 65,000 14,715 419,177 Long-term debt. . . . . . . . . . . . . . . . . -- -- 291,847 Bank acceptances outstanding. . . . . . . . . . -- -- 5,928 Other liabilities . . . . . . . . . . . . . . . 5,961 1,471 175,805 -------- -------- -------- ----------- Total Liabilities . . . . . . . . . . . 449,191 186,848 -- 12,404,693 SHAREHOLDERS' EQUITY Preferred stock . . . . . . . . . . . . . . . . -- Common stock. . . . . . . . . . . . . . . . . . 1,744 1,443 7,892 241,607 (1,744) 4,850 (1,443) Capital surplus . . . . . . . . . . . . . . . . 7,179 5,057 (2,582) 183,717 (7,179) 1,650 (5,057) Retained earnings . . . . . . . . . . . . . . . 33,915 12,107 33,915 728,002 (33,915) 12,107 (12,107) Treasury stock. . . . . . . . . . . . . . . . . (3,613) 3,613 -- -------- -------- -------- ----------- Total Shareholders' Equity . . . . . . . . 39,225 18,607 -- 1,153,326 -------- -------- -------- ----------- Total Liabilities and Shareholders' Equity $488,416 $205,455 $ $13,558,019 ======== ======== ======== =========== See notes to pro forma combined consolidated financial statements.
- 42 - 48 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Central Mortgage All Entities Pro Forma Pro Forma Central Combined Combined MBI Mortgage Consolidated UNSL Wedge Consolidated -------- -------- ------------ -------- -------- ------------ Interest Income. . . . . . . . . . . . . . $613,521 $32,483 $646,004 $21,684 $ 10,501 $ 678,189 Interest Expense . . . . . . . . . . . . . 231,785 13,570 245,355 11,564 4,142 261,061 -------- ------- -------- ------- -------- --------- Net Interest Income. . . . . . . . . . . 381,736 18,913 400,649 10,120 6,359 417,128 Provision for Possible Loan Losses . . . . 24,909 919 25,828 90 115 26,033 -------- ------- -------- ------- -------- --------- Net Interest Income after Provision for Possible Loan Losses. . . . . . . 356,827 17,994 374,821 10,030 6,244 391,095 Other Income Trust. . . . . . . . . . . . . . . . . . 45,844 -- 45,844 -- 337 46,181 Investment banking . . . . . . . . . . . 6,459 -- 6,459 -- -- 6,459 Service charges. . . . . . . . . . . . . 43,810 2,318 46,128 706 720 47,554 Credit card fees . . . . . . . . . . . . 17,918 -- 17,918 -- -- 17,918 Securities gains . . . . . . . . . . . . 380 450 830 20 171 1,021 Other. . . . . . . . . . . . . . . . . . 28,378 3,006 31,384 1,585 737 33,706 -------- ------- -------- ------- -------- --------- Total Other Income. . . . . . . . . 142,789 5,774 148,563 2,311 1,965 152,839 Other Expense Salaries and employee benefits . . . . . 165,832 8,185 174,017 3,759 3,176 180,952 Net occupancy and equipment. . . . . . . 44,330 2,029 46,359 824 919 48,102 Other. . . . . . . . . . . . . . . . . . 99,841 5,899 105,740 2,968 1,801 110,509 -------- ------- -------- ------- -------- --------- Total Other Expense . . . . . . . . 310,003 16,113 326,116 7,551 5,896 339,563 -------- ------- -------- ------- -------- --------- Income Before Income Taxes. . . . . 189,613 7,655 197,268 4,790 2,313 204,371 Income Taxes . . . . . . . . . . . . . . . 69,512 2,266 71,778 1,727 635 74,140 -------- ------- -------- ------- -------- --------- Net Income. . . . . . . . . . . . . $120,101 $ 5,389 $125,490 $ 3,063 $ 1,678 $ 130,231 ======== ======= ======== ======= ======== ========= Per Share Data Average Common Shares Outstanding 43,034,158 45,625,734 48,173,147 Net Income . . . . . . . . . . . . . . . $2.79 $2.75 $2.70 See notes to pro forma combined consolidated financial statements.
- 43 - 49 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Central Mortgage All Entities Pro Forma Pro Forma Central Combined Combined MBI Mortgage Consolidated UNSL Wedge Consolidated -------- -------- ------------ -------- -------- ------------ Interest Income. . . . . . . . . . . . . . $626,939 $23,739 $650,678 $20,946 $ 11,214 $ 682,838 Interest Expense . . . . . . . . . . . . . 251,542 9,951 261,493 10,530 4,229 276,252 -------- ------- -------- ------- -------- --------- Net Interest Income. . . . . . . . . . . 375,397 13,788 389,185 10,416 6,985 406,586 Provision for Possible Loan Losses . . . . 41,440 668 42,108 290 202 42,600 -------- ------- -------- ------- -------- --------- Net Interest Income after Provision for Possible Loan Losses. . . . . . . 333,957 13,120 347,077 10,126 6,783 363,986 Other Income Trust. . . . . . . . . . . . . . . . . . 45,723 -- 45,723 -- 306 46,029 Investment banking . . . . . . . . . . . 6,653 -- 6,653 -- -- 6,653 Service charges. . . . . . . . . . . . . 43,367 1,485 44,852 655 833 46,340 Credit card fees . . . . . . . . . . . . 17,550 -- 17,550 -- -- 17,550 Securities gains . . . . . . . . . . . . 3,589 -- 3,589 -- 187 3,776 Other. . . . . . . . . . . . . . . . . . 32,053 2,503 34,556 1,570 1,508 37,634 -------- ------- -------- ------- -------- --------- Total Other Income. . . . . . . . . . 148,935 3,988 152,923 2,225 2,834 157,982 Other Expense Salaries and employee benefits . . . . . 159,807 6,442 166,249 3,686 3,148 173,083 Net occupancy and equipment. . . . . . . 45,613 1,354 46,967 754 821 48,542 Other. . . . . . . . . . . . . . . . . . 116,013 4,335 120,348 2,596 1,932 124,876 -------- ------- -------- ------- -------- --------- Total Other Expense . . . . . . . . . 321,433 12,131 333,564 7,036 5,901 346,501 -------- ------- -------- ------- -------- --------- Income Before Income Taxes. . . . . . 161,459 4,977 166,436 5,315 3,716 175,467 Income Taxes . . . . . . . . . . . . . . . 58,986 1,364 60,350 1,958 967 63,275 -------- ------- -------- ------- -------- --------- Net Income Before Change in Accounting Principle. . . . . . . . . $102,473 $ 3,613 $106,086 $ 3,357 $ 2,749 $ 112,192 ======== ======= ======== ======= ======== ========= Per Share Data Average Common Shares Outstanding. . . . 42,338,859 44,475,466 47,038,323 Net Income Before Change in Accounting Principle . . . . . . . . . . . . . . $2.42 $2.39 $2.39 See notes to pro forma combined consolidated financial statements.
- 44 - 50 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Central Mortgage All Entities Pro Forma Pro Forma Central Combined Combined MBI Mortgage Consolidated UNSL Wedge Consolidated -------- -------- ------------ -------- -------- ------------ Interest Income. . . . . . . . . . . . . . $829,930 $34,452 $864,382 $27,834 $ 15,258 $ 907,474 Interest Expense . . . . . . . . . . . . . 328,734 14,194 342,928 14,071 5,505 362,504 -------- ------- -------- ------- -------- --------- Net Interest Income. . . . . . . . . . . 501,196 20,258 521,454 13,763 9,753 544,970 Provision for Possible Loan Losses . . . . 61,013 956 61,969 320 240 62,529 -------- ------- -------- ------- -------- --------- Net Interest Income after Provision for Possible Loan Losses. . . . . . . 440,183 19,302 459,485 13,443 9,513 482,441 Other Income Trust. . . . . . . . . . . . . . . . . . 61,138 -- 61,138 -- 409 61,547 Investment banking . . . . . . . . . . . 8,486 -- 8,486 -- -- 8,486 Service charges. . . . . . . . . . . . . 58,511 2,254 60,765 908 1,300 62,973 Credit card fees . . . . . . . . . . . . 24,060 -- 24,060 -- -- 24,060 Securities gains . . . . . . . . . . . . 3,742 -- 3,742 -- 195 3,937 Other. . . . . . . . . . . . . . . . . . 43,221 3,615 46,836 2,261 948 50,045 -------- ------- -------- ------- -------- --------- Total Other Income. . . . . . . . . . 199,158 5,869 205,027 3,169 2,852 211,048 Other Expense Salaries and employee benefits . . . . . 215,333 9,161 224,494 4,995 5,286 234,775 Net occupancy and equipment. . . . . . . 62,638 2,162 64,800 1,037 822 66,659 Other. . . . . . . . . . . . . . . . . . 166,938 6,805 173,743 3,714 1,810 179,267 -------- ------- -------- ------- -------- --------- Total Other Expense . . . . . . . . . 444,909 18,128 463,037 9,746 7,918 480,701 -------- ------- -------- ------- -------- --------- Income Before Income Taxes. . . . . . 194,432 7,043 201,475 6,866 4,447 212,788 Income Taxes . . . . . . . . . . . . . . . 75,568 1,913 77,481 2,549 964 80,994 -------- ------- -------- ------- -------- --------- Net Income Before Change in Accounting Principle. . . . . . . . . $118,864 $ 5,130 $123,994 $ 4,317 $ 3,483 $ 131,794 ======== ======= ======== ======= ======== ========= Per Share Data Average Common Shares Outstanding. . . . 42,439,298 44,690,298 47,248,436 Net Income Before Change in Accounting Principle . . . . . . . . . . . . . . $2.80 $2.77 $2.79 See notes to pro forma combined consolidated financial statements.
- 45 - 51 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (THOUSANDS EXCEPT FOR PER SHARE DATA) (UNAUDITED)
ABNK Central Mortgage All Entities ABNK Pro Forma Pro Forma Pro Forma 1/1/92- ABNK Combined Central Combined Combined MBI 4/30/92 Adjustments Consolidated Mortgage Consolidated UNSL Wedge Consolidated -------- ------- ----------- ------------ -------- ------------ ------- ------ ------------- Interest Income. . . . . . . $873,447 $30,729 $(1,692) $902,395 $28,577 $930,972 $32,332 $15,931 $979,235 (89) Interest Expense . . . . . . 417,358 16,549 433,907 13,616 447,523 18,517 6,875 472,915 -------- ------- ------- -------- ------- -------- ------- ------- -------- Net Interest Income. . . . 456,089 14,180 (1,781) 468,488 14,961 483,449 13,815 9,056 506,320 Provision for Possible Loan Losses . . . . . . . . . . 74,579 1,913 76,492 913 77,405 296 191 77,892 -------- ------- ------- -------- ------- -------- ------- ------- -------- Net Interest Income after Provision for Possible Loan Losses. . . . . . . 381,510 12,267 (1,781) 391,996 14,048 406,044 13,519 8,865 428,428 Other Income Trust. . . . . . . . . . . 57,501 613 58,114 -- 58,114 -- 444 58,558 Investment banking . . . . 8,918 136 9,054 -- 9,054 -- -- 9,054 Service charges. . . . . . 55,399 2,143 57,542 1,559 59,101 908 1,228 61,237 Credit card fees . . . . . 21,487 87 21,574 -- 21,574 -- -- 21,574 Securities gains . . . . . 5,518 -- 5,518 -- 5,518 -- 439 5,957 Other. . . . . . . . . . . 35,121 1,130 36,251 3,233 39,484 2,221 574 42,279 -------- ------- ------- -------- ------- -------- ------- ------- -------- Total Other Income . . . 183,944 4,109 -- 188,053 4,792 192,845 3,129 2,685 198,659 Other Expense Salaries and employee benefits . . . . . . . . 192,015 7,199 199,214 7,617 206,831 4,521 5,123 216,475 Net occupancy and equipment. . . . . . . . 55,588 2,027 (31) 57,584 1,630 59,214 944 771 60,929 Other. . . . . . . . . . . 170,465 5,339 (93) 175,711 4,607 180,318 3,415 2,218 185,951 -------- ------- ------- -------- ------- -------- ------- ------- -------- Total Other Expense. . . 418,068 14,565 (124) 432,509 13,854 446,363 8,880 8,112 463,355 -------- ------- ------- -------- ------- -------- ------- ------- -------- Income Before Income Taxes. . . . . . . . . 147,386 1,811 (1,657) 147,540 4,986 152,526 7,768 3,438 163,732 Income Taxes . . . . . . . . 52,346 513 (595) 52,264 1,245 53,509 2,540 1,025 57,074 -------- ------- ------- -------- ------- -------- ------- ------- -------- Net Income . . . . . . . $ 95,040 $ 1,298 $(1,062) $ 95,276 $ 3,741 $ 99,017 $ 5,228 $ 2,413 $106,658 ======== ======= ======= ======== ======= ======== ======= ======= ======== Per Share Data Average Common Shares Outstanding. . . . . . . 39,492,237 40,188,849 41,669,849 44,255,654 Net Income . . . . . . . . $2.36 $2.32 $2.33 $2.37 See notes to pro forma combined consolidated financial statements.
- 46 - 52 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (THOUSANDS EXCEPT FOR PER SHARE DATA) (UNAUDITED)
ABNK Central Mortgage All Entities Pro Forma Pro Forma Pro Forma ABNK Combined Central Combined Combined MBI ABNK Adjustments Consolidated Mortgage Consolidated UNSL Wedge Consolidated -------- ---- ----------- ------------ -------- ------------ ------- ------ ------------- Interest Income. . . . . . . $879,471 $103,630 $(5,075) $977,760 $25,706 $1,003,466 $39,191 $16,461 $1,059,118 (266) Interest Expense . . . . . . 506,916 63,042 569,958 13,260 583,218 26,417 8,882 618,517 -------- -------- ------- -------- ------- ---------- ------- ------- ---------- Net Interest Income. . . . 372,555 40,588 (5,341) 407,802 12,446 420,248 12,774 7,579 440,601 Provision for Possible Loan Losses . . . . . . . . . . 58,076 2,477 60,553 870 61,423 1,263 1,132 63,818 -------- -------- ------- -------- ------- ---------- ------- ------- ---------- Net Interest Income after Provision for Possible Loan Losses. . . . . . . 314,479 38,117 (5,341) 347,249 11,576 358,825 11,511 6,447 376,783 Other Income Trust. . . . . . . . . . . 49,400 1,860 51,260 -- 51,260 -- 442 51,702 Investment banking . . . . 7,463 -- 7,463 -- 7,463 -- -- 7,463 Service charges. . . . . . 47,504 6,008 53,512 1,458 54,970 952 1,051 56,973 Credit card fees . . . . . 20,636 -- 20,636 -- 20,636 -- -- 20,636 Securities gains . . . . . 4,334 4 4,338 -- 4,338 244 493 5,075 Other. . . . . . . . . . . 26,359 3,389 29,748 2,794 32,542 1,705 393 34,640 -------- -------- ------- -------- ------- ---------- ------- ------- ---------- Total Other Income . . . 155,696 11,261 -- 166,957 4,252 171,209 2,901 2,379 176,489 Other Expense Salaries and employee benefits . . . . . . . . 172,155 21,245 193,400 6,494 199,894 3,895 3,846 207,635 Net occupancy and equipment. . . . . . . . 50,098 6,102 (92) 56,108 1,549 57,657 973 754 59,384 Other. . . . . . . . . . . 161,095 16,150 (280) 176,965 3,896 180,861 5,263 2,347 188,471 -------- -------- ------- -------- ------- ---------- ------- ------- ---------- Total Other Expense. . . 383,348 43,497 (372) 426,473 11,939 438,412 10,131 6,947 455,490 -------- -------- ------- -------- ------- ---------- ------- ------- ---------- Income Before Income Taxes. . . . . . . . . 86,827 5,875 (4,969) 87,733 3,889 91,622 4,281 1,879 97,782 Income Taxes . . . . . . . . 18,673 1,466 (1,785) 18,354 924 19,278 1,767 679 21,724 -------- -------- ------- -------- ------- ---------- ------- ------- ---------- Net Income . . . . . . . $ 68,154 $ 4,409 $(3,184) $ 69,379 $ 2,965 $ 72,344 $ 2,514 $ 1,200 $ 76,058 ======== ======== ======= ======== ======= ========== ======= ======= ========== Per Share Data Average Common Shares Outstanding. . . . . . . 31,790,914 33,867,754 35,179,754 37,748,653 Net Income . . . . . . . . $2.37 $2.26 $2.26 $2.21 See notes to pro forma combined consolidated financial statements.
- 47 - 53 MERCANTILE BANCORPORATION INC. NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) The acquisitions of Central Mortgage, UNSL and Wedge will be accounted for as poolings-of-interests. (2) Acquisition of Central Mortgage with 2,625,533 shares of MBI Common Stock, based on exchange ratio of .5970 of a share of MBI Common Stock per share of Central Mortgage Common Stock. As of December 16, 1994, all issued and outstanding shares of Central Mortgage Preferred Stock had been converted to a total of 549,328 shares of Central Mortgage Common Stock. (3) Elimination of MBI's investment in Central Mortgage. (4) Acquisition of UNSL with 1,578,445 shares of MBI Common Stock, based on the exchange ratio of 1.0604 of a share of MBI Common Stock per share of UNSL Common Stock. (5) Elimination of MBI's investment in UNSL. (6) Acquisition of Wedge with 970,000 shares of MBI Common Stock. (7) Elimination of MBI's investment in Wedge. (8) The acquisition of ABNK by MBI, on April 30, 1992, was accounted for as a purchase transaction. The MBI historical financial data includes ABNK from the date of acquisition. The results of operations of ABNK were included in the MBI pro forma combined income statement from January 1, 1991. (9) Amortization of purchase price adjustment of $7,690,000 on investment securities portfolio. (10) Interest income, at an estimated short-term interest rate of 3%, lost on cash of $8,851,000 paid to ABNK's shareholders. (11) Reduced depreciation and amortization of bank premises and equipment as a result of the valuation adjustment of $1,102,000. (12) Goodwill of $2,285,000 amortized under the straight line method over a period of 15 years, net of the elimination of ABNK's annual goodwill amortization of $432,000. (13) Tax effect of pro forma adjustments. - 48 - 54 INFORMATION REGARDING CENTRAL MORTGAGE -------------------------------------- BUSINESS GENERAL. Central Mortgage is a multi-bank holding company engaged primarily in the banking and mortgage banking businesses in the greater Kansas City, Missouri area and in certain southwestern Missouri communities. As of September 30, 1994, Central Mortgage and its four bank subsidiaries had total assets of $626 million in 18 locations and Central Mortgage's Mortgage Division was servicing a mortgage loan portfolio of $579 million. As of September 30, 1994, Central Mortgage reported total consolidated shareholders' equity of $52.5 million and book value per share of $12.10. For the nine-month period ended September 30, 1994, Central Mortgage reported net income of $5.4 million, or $1.24 per share. Central Mortgage's lead Bank, Citizens-Jackson County Bank ("Citizens-Jackson Bank"), had total assets at September 30, 1994 of $504 million (80.5% of Central Mortgage's total assets). Central Mortgage's other subsidiary banks are Farmers Bank of Stover ("Stover Bank") and Citizens Bank of Southwest Missouri ("Citizens Bank Southwest"). On November 1, 1994, Citizens State Bank of Nevada, a wholly owned subsidiary of Central Mortgage ("Nevada Bank"), was merged with and into Barton County State Bank, a wholly owned subsidiary of Central Mortgage ("Barton Bank"). Upon consummation of the merger, the surviving bank was renamed "Citizens Bank of Southwest Missouri." At September 30, 1994, Nevada Bank, Barton Bank and Stover Bank had total assets of $50 million, $48 million and $24 million, respectively. The following discussion does not reflect the merger of Nevada Bank with Barton Bank. BANKS AND MARKET AREAS The Banks are community banks, which target the needs of their local communities. They are independently managed by boards of directors and officers who are primarily residents of those communities. Central Mortgage has historically emphasized single family real estate lending, both for the construction of new homes and the resale of existing residences and also makes commercial and installment loans to local businesses and consumers. The Banks are located in diverse markets and, as a result, the Banks' loan portfolio mirrors these markets. These markets include growing suburban markets in eastern Jackson County, urban markets in downtown Kansas City, the educational, military and light industrial markets of Warrensburg, the recreational and resort markets of the Lake of the Ozarks and the agricultural markets of southwestern Missouri. Each of the Banks offers a full range of financial services to commercial, industrial and individual customers, including short and medium term loans, real estate loans, agricultural loans, installment and consumer loans, inventory and accounts receivable financing, equipment financing, safe deposit services, savings accounts and various investment programs, interest and noninterest-bearing checking accounts, cash management programs for business and commercial customers and federal tax depository and night depository services. The Banks offer twenty- four hour automated teller machine ("ATM") services at eighteen locations and all are members of the CIRRUS network, thereby providing customers with access to their accounts through ATMs maintained by other members of the CIRRUS network. Upon request a Bank will issue credit cards in the Bank's name through a profit and loss sharing arrangement with Mercantile Trust Company National Association, a wholly owned subsidiary of MBI. Citizens-Jackson Bank and Nevada Bank also have trust powers and offer trust services with trust accounting and bookkeeping being provided by an independent unaffiliated bank and trust company. - 49 - 55 Although primary responsibility for management of the Banks rests with their officers and directors, Central Mortgage provides services and assistance to the Banks with respect to accounting, centralized data processing, personnel, retirement benefits, lending and investment policies, legal compliance and other management areas. As part of an affiliated group, the Banks are better able to satisfy the credit needs of their customers through loan participations with sister Banks. Central Mortgage charges each of the Banks for specific services rendered to the Bank and a pro rata share of Central Mortgage's overhead and expenses which relate to banking operations. Dividends are generally paid by each of the Banks consistent with regulatory requirements relating to required capital and consistent with their respective earnings, growth, and capital needs. The Banks are Missouri-chartered banks, the deposits of which are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the full extent provided by applicable laws and regulations. None of the Banks, other than the Barton Bank, are members of the Federal Reserve System. All of the Banks are wholly owned by Central Mortgage. Citizens-Jackson Bank. Citizens-Jackson Bank was established in Warrensburg, Missouri in 1888 as the Citizens Bank of Warrensburg, was acquired by the Company in 1960 and is the successor by merger to Jackson County State Bank of Jackson County Missouri (1989) and Blue Springs Bank of Blue Springs, Missouri (1993). Citizen-Jackson Bank's twelve locations are concentrated in three relatively contiguous areas: (a) the center of the Kansas City, Missouri metropolitan area (Plaza, Meyer Boulevard and Waldo offices); (b) the eastern edge of the Kansas City Metropolitan area in eastern Jackson County (Blue Springs, Lee's Summit and Independence offices); and (c) 39 miles further to the east, in Warrensburg and Chilhowee, Missouri. Warrensburg has a population of 14,598, is the county seat of Johnson County, and is the location of Central Missouri State University ("CMSU"). Although Warrensburg is in the center of a largely rural economy, the community contains a substantial amount of light industrial and commercial activities. Whiteman Air Force Base, which began receiving 20 B-2 "Stealth" bombers in 1993, is located ten miles east of Warrensburg and has a civilian and military employment of 3,971. The eastern Jackson County communities of Blue Springs, Lee's Summit and Independence are Kansas City suburbs whose populations have grown from approximately 166,000 to 199,000 between the 1980 and 1990 census. Citizens-Jackson Bank's downtown Kansas City office is located at the north edge of the Plaza shopping district along the "Main Street Corridor." The Meyer Boulevard and Waldo offices are in close proximity to Kansas City's Research Medical Center, a principal customer of Citizens-Jackson Bank. A substantial portion of Citizens-Jackson Bank's December 31, 1993, loan portfolio consisted of single family real estate loans, including residential construction loans, with the balance of the portfolio being divided primarily among small business loans and consumer loans. The real estate loans include loans originated by the Mortgage Division or by Citizens-Jackson and which are being held as short-term investments for sale into the secondary market directly or through the Mortgage Division (see "Mortgage Banking Operations"). Citizens-Jackson Bank is an active single family construction lender in the growing eastern Jackson County market. The bank's commercial loans include loans as a regional McDonald's lender to franchisees of McDonald's fast food restaurants, and loans to Research Medical Center and affiliated physicians and entities. The consumer loans include government guaranteed student loans made primarily to CMSU students. - 50 - 56 Barton Bank. Barton Bank was organized in 1919 and was acquired by Central Mortgage in 1973. Its main banking house is in a modern facility on the northwest corner of the square in the downtown business district of Lamar, Missouri. A second facility with drive in and ATM services is located on U.S. Highway 160 on the west edge of Lamar. Lamar, the county seat of Barton County, is 26 miles due south of Nevada Bank at the intersection of U.S. Highways 71 and 160. It has a population of 4,090, which is primarily devoted to agriculture and light industries such as O'Sullivan Industries, which manufactures furniture and accessories for computer equipment, Thorpe Manufacturing which manufactures wire display racks for retail outlets, and Finley Engineering, a firm that specializes in telecommunications. Barton Bank has a long history of lending to the agricultural industry in Southwestern Missouri, with a substantial portion of its December 31, 1993, loan portfolio devoted to agriculture or agricultural related loans. Southwestern Missouri is a major producer of fescue grass seed and Barton Bank has specialized in lending to seed processors. Nevada Bank. Nevada Bank was organized in 1959 and acquired by Central Mortgage in 1984 at a time when the bank was subject to a Cease and Desist Order issued by the Missouri Division of Finance (the "Missouri Division"). The order was issued due to poor asset quality and operating losses. It was lifted in 1986 and Nevada Bank has been operating profitably since 1987. Nevada Bank operates a modern facility in the central business district of Nevada. Nevada, the county seat of Vernon County, has a population of 8,567 and is located 95 miles due south of Kansas City at the intersection of two major transportation routes, U.S. Highways 71 and 54. Major employers in Nevada include 3M Corp., Crane Plumbing L.P. and an automotive filter plant of the Fram Division of Allied-Signal, Inc. Although agriculture plays an important role in the community, Nevada Bank's loan portfolio is concentrated in single family real estate loans, consumer loans consisting primarily of installment loans for the purchase of automobiles, commercial real estate loans, including loan participations and commercial loans to small businesses, with less than 25% of the portfolio consisting of agriculture and agricultural related loans. Nevada Bank performs certain bookkeeping functions for Barton Bank and also operates a small travel agency. In June 1993, Nevada Bank acquired $14.1 million of deposits and the fixed assets of the Butler, Missouri Office of Mercantile Bank of West Central Missouri in exchange for an assumption of the deposit liabilities and the payment of a $50,000 premium. Butler, Missouri, the county seat of Bates County, Missouri, has a population of 4,100 and is located 30 miles north of Nevada Bank and 50 miles south of Kansas City at the intersection of U.S. Highway 71 and State Highway 52. Stover Bank. Stover Bank was organized in 1905 and acquired by Central Mortgage in 1974. It operates the only banking facilities in Stover and Gravois Mills, two communities in the growing Lake of the Ozarks region of Missouri. Stover Bank's main banking location is in Stover, which has a population of 949. Stover is located at the junction of State Routes 52 and 135, north of the Lake of the Ozarks. Gravois Mills is located 16 miles southeast of Stover on the Gravois arm of the Lake of the Ozarks on State Highway 5. Although Stover and Gravois Mills are rural communities, Stover Bank has focused its lending activities primarily on markets which serve the needs of Lake of the Ozark tourists and vacationers. As a consequence, a large portion of Stover Bank's December 31, 1993, loan portfolio consisted of single family real estate loans, primarily for lake and vacation homes, loans to small businesses that serve recreational markets, such as marinas and lake shops and restaurants, consumer and installment loans - 51 - 57 for automobiles, watercraft and similar uses, and participations in commercial loans generated by the Banks. Competition. The activities in which the Banks engage are highly competitive. Those activities in the geographic markets served involve primarily competition with other banks, most of which are affiliated with large bank holding companies. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality of services rendered, the convenience of banking facilities and, in the case of loans to large commercial borrowers, relative lending limits. In addition to competition with other banks within their primary service areas, the Banks also compete with other financial institutions, such as savings and loan associations, credit unions, industrial loan associations, securities firms, insurance companies, small loan companies, finance companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit organizations and other enterprises. Additional competition for depositors' funds comes from United States Government securities, private issuers of debt obligations, mutual funds and suppliers of other investment alternatives for depositors. Many of the Banks' non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks and state regulations governing state chartered banks. As a result, such non-bank competitors may have certain advantages over the Banks in providing some services. MORTGAGE BANKING OPERATIONS General. The Mortgage Division is engaged primarily in originating, selling and servicing mortgage loans which are principally first-lien mortgage loans secured by single family residences. The Mortgage Division's principal sources of revenues consist of (a) mortgage loan servicing fees, (b) loan origination fees, (c) gain (loss) on the sale of mortgage loans and (d) commissions from the sale of home owners, credit life and accident and health insurance in connection with loan origination activities. Mortgage loans are originated by the Mortgage Division in markets located primarily in Springfield, Joplin, Blue Springs and throughout the western half of Missouri. Loans are usually purchased by Citizens-Jackson Bank for investment pending resale into the secondary market. Loans are usually sold (normally with servicing rights retained) to FNMA or FHLMC and also to investment banking firms and other investors either as whole loans or as collateral in conjunction with securities sold under guarantee programs of GNMA, FNMA or FHLMC. The following table shows the principal sources of the Mortgage Division's revenues, the amounts of such revenues for each of the periods indicated, and information concerning the size of the Mortgage Division's loan servicing portfolio at the end of each of the periods indicated: - 52 - 58
Year Ended December 31, ------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (Dollars in thousands, except average loan size and loans serviced) Loan servicing income and fees $ 2,468 $ 2,282 $ 2,080 $ 1,853 $ 1,574 Loan origination income. . . . . . . . 1,064 872 416 384 478 Gain (loss) on sale of loans . . . . . 456 325 103 25 (12) Insurance commissions. . . . . . . . . 102 116 95 92 84 Loans originated/purchased (Mortgage Division Only) Number of loans . . . . . . . . 2,112 1,490 956 867 1,143 Volume of loans . . . . . . . . $ 123,574 $ 83,589 $ 51,871 $ 46,552 $ 57,601 Average loan size . . . . . . . $ 58,511 $ 58,295 $ 54,259 $ 53,694 $ 50,395 At end of period: Number of loans serviced 13,607 13,484 11,720 11,273 9,967 Total Servicing Portfolio. . . . . . . $ 561,842 $ 529,602 $ 454,806 $ 424,292 $ 354,659
The Mortgage Division's principal business strategy is to replenish and expand its loan servicing portfolio through increased origination activity and selective acquisitions of loan servicing rights. It intends to increase origination activity by strategically increasing the size of origination staff, adding branches where appropriate and by continuing to seek loan servicing from sources such as other mortgage bankers and financial institutions. Loan Origination. The Mortgage Division originates mortgage loans primarily through referrals from real estate brokers, builders, developers, prior customers and media advertising. The origination of a loan from the date of initial application to a loan closing normally takes three to eight weeks. It involves the processing of the borrower's loan application, evaluating the borrower's credit and other qualifications consistent with underwriting criteria established by private institutional investors and insuring or guaranteeing agencies, obtaining investor approvals, property appraisals and title insurance, arranging for hazard insurance and handling various other matters customarily associated with the closing of a residential loan. For this service the Mortgage Division typically collects an origination fee of one percent of the principal amount of the loan. Costs that are incurred in originating mortgage loans include: overhead, origination commissions paid to Mortgage Division originators, certain out-of-pocket costs and in some cases commitment fees where the loans are made subject to a purchase commitment from wholesale lenders, private investors or intermediaries like the Missouri Housing Development Commission ("MHDC"). The Mortgage Division originates mortgage loans insured by the FHA, loans partially guaranteed by the VA and FMHA and conventional mortgage loans. The preponderance of conventional loans originated by Central Mortgage qualify for inclusion in purchase and guarantee programs sponsored by the FHLMC and FNMA. Sale of Mortgage Loans. Loans originated by the Mortgage Division are usually sold to Citizens-Jackson Bank, with servicing retained at competitive rates, as short-term investments pending resale into the secondary mortgage market through the Mortgage Division. The sale to Citizens-Jackson Bank must satisfy the requirements of that Bank's Mortgage Loan Acquisition Policy that has been approved and monitored by the Federal Reserve Bank of Kansas City, the FDIC and the Missouri Commissioner of Finance (the "Policy"). The Mortgage Division customarily sells mortgage loans that it or Citizens-Jackson Bank originates in the secondary market (generally retaining the servicing rights on such loans) to investors such as FNMA and FHLMC. FHA, VA or FMHA insured or guaranteed loans are normally pooled to form -------- - 53 - 59 GNMA securities, issued by the Mortgage Division, which are sold to investment banking firms that are primary dealers in government securities. Conventional conforming loans are also occasionally pooled by the Mortgage Division and sold to FNMA or exchanged for FHLMC securities, which are then sold. Sales of loans in the secondary market are generally made without recourse to Central Mortgage in the event of default by the borrower, except in the case of GNMA mortgage-backed securities transactions. In GNMA transactions, the Mortgage Division packages substantially all of its FHA and FMHA insured and VA guaranteed first mortgage loans into pools of loans. It then sells the pools in the form of modified pass-through mortgage-backed securities guaranteed by GNMA to broker/dealers. With respect to loans securitized through GNMA programs, GNMA has recourse against Central Mortgage with respect to the timely payment of principal and interest on pooled loans. However, Central Mortgage is insured or guaranteed against certain losses by the FHA, FMHA and VA. Generally the VA guarantees range from 25% to 60% of VA loans, up to a maximum amount of $36,000, FMHA insures 90% of FMHA loans, and the FHA insures 100% of the principal balance of FHA loans plus certain costs and expenses associated with foreclosure. The sale of mortgage loans can generate a gain or a loss. A gain (loss) from the sale of loans may occur if interest rates fall (rise) between the time the Mortgage Division fixes the interest rates charged to the borrowers on the loans and the time the loans are committed to an investor. To reduce the risk of a loss, the Mortgage Division usually obtains commitments permitting it to sell loans at predetermined rates. It has in the past and may from time-to-time in the future use financial futures, options, or other instruments to attempt to protect against interest rate fluctuations and the decline in market value of loans originated. Loan Servicing. When the Mortgage Division sells the mortgage loans it or Citizens-Jackson Bank has originated, it generally retains the rights to service those loans and to receive the related fees. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, holding escrow funds for payment of mortgage-related expenses such as taxes and insurance, making advances to cover delinquent payments, making inspections as required of the mortgage premises, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering the loans. Fees received by the Mortgage Division for servicing mortgage loans generally range from 0.25% to 0.50% per annum on the declining principal balances of the loans. Servicing fees are collected by the Mortgage Division monthly from mortgage payments. Other sources of loan servicing revenues include late charges, assumption and transfer fees. Since 1987, the Mortgage Division has substantially improved its loan servicing efficiency, increasing the average number of loans serviced per employee from 365 at December 31, 1987, to 619 at December 31, 1993, an increase of 69.6% in loans serviced per employee. The improved loan servicing efficiency is due primarily to the use of enhanced data processing equipment and systems, a reduction in the number of investors serviced and the continued employment of experienced and effective supervisory personnel. Furthermore, due to the capacity of such systems and the Mortgage Division's Springfield offices, the Mortgage Division believes that it has the capacity to increase by 50% the number of loans it services without significantly increasing its fixed operating costs. The Mortgage Division's loan servicing portfolio is comprised of retained servicing rights in the mortgage loans it and Citizens-Jackson have originated and servicing rights that it has purchased. As of December 31, 1993, approximately 12.2% of the Mortgage Division's $562 million servicing portfolio consisted of loan servicing purchased from others. - 54 - 60 Central Mortgage's servicing portfolio is subject to reduction ("run-off") by normal amortization, by prepayment or by foreclosure of outstanding loans. Thirty-year mortgage interest rates in the Mortgage Division's primary markets declined from nearly 10% to 7 3/8% from January 1, 1991 to December 31, 1993. Although the lower rates accelerated run off in the portfolio during that period, the negative effect on the Mortgage Division's income was more than offset by increased origination income resulting from refinancing of loans from the Mortgage Division's loan portfolio as of December 31, 1993 as well as externally generated mortgage loans. Mortgage Division Insurance Agency. The Mortgage Division operates an insurance agency (the "Agency") incidental to its mortgage banking business. The Agency markets homeowners, group life, accident and health, disability, accidental death and, to a lesser extent, auto and boat coverage, primarily, but not exclusively, to customers of the Mortgage Division. The Agency collects a percentage of insurance premiums as a commission for insurance sold. Competition. The business of mortgage banking is highly competitive. The Mortgage Division competes with other financial institutions, such as mortgage bankers, state and national commercial banks, savings and loan associations, credit unions and insurance companies for loan originations. Many of the Mortgage Division's competitors have financial resources that are substantially greater than those available to Central Mortgage. The Mortgage Division competes principally by providing competitive pricing, by motivating its sales force through the payment of commissions on loans originated and by providing high-quality service to builders, borrowers and realtors. REINSURANCE Central Mortgage owns 79.9% of the capital stock of Cenco, a small captive life reinsurance company that was organized by Central Mortgage under Arizona law in 1976, and that had shareholders' equity at December 31, 1993, of $389,000. The remaining 20.1% stock interest is owned by officers of the Banks, some of whom are officers of Central Mortgage, subject to Central Mortgage's right and obligation to repurchase the stock at book value upon the officers' request. Cenco has entered into insurance treaties with life insurance companies pursuant to which Cenco reinsures the first $15,000 of credit life and the first $5,000 of credit accident and health insurance sold to customers of the Banks in connection with an extension of credit to the customer. Cenco is paid a portion of the premiums paid to the primary carrier. At December 31, 1993, Cenco had approximately $3.2 million of reinsurance in force. The activities of Cenco are regulated by Arizona insurance regulatory authorities and are also restricted by limitations imposed by the BHCA on activities that may be engaged in by bank holding companies. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section presents an analysis of the consolidated financial condition of Central Mortgage and its subsidiaries at December 31, 1993 and 1992 and the consolidated results of operations for the years ended December 31, 1993, 1992 and 1991. This review should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other financial data presented elsewhere in this Proxy Statement/Prospectus. In addition, this review does not reflect the merger of Nevada Bank with and into Barton Bank on November 1, 1994. - 55 - 61 December 31, 1993, 1992 and 1991 RESULTS OF OPERATION NET INCOME. Net income for the year ended December 31, 1993 was $5.1 million or $1.36 per share, a 37.8% improvement over net income of $3.7 million or $1.51 per share for the year ended December 31, 1992. The per share results reflect an increase in fully diluted shares outstanding due to public offerings in October, 1992 and August, 1993. The improvement in net income was primarily due to a $5.3 million increase in net interest income, and an increase in noninterest income of $1.1 million. Offsetting the improvement were increased operating expenses of $4.3 million which were primarily due to increased salaries and employee benefits of $1.5 million, occupancy expenses of $532,000 and other noninterest expenses of $2.2 million. Net income for the year ended December 31, 1992 was $3.7 million or $1.51 per share, a 23% improvement over net income of $3.0 million or $1.35 per share for the year ended December 31, 1991. The improvement was primarily due to a $2.5 million increase in net interest income, and an increase in noninterest income of $540,000 which included an increase in gain on sale of mortgages of $222,000. Offsetting the improvement were increased noninterest expenses of $1.9 million which were primarily due to increased salaries and employee benefits of $1.1 million. NET INTEREST INCOME. The $5.3 million improvement in net interest income for the year ended December 31, 1993 as compared to the year ended December 31, 1992 was primarily due to the $111 million increase in average earning assets for 1993. In addition, during 1993 Central Mortgage slightly increased the net interest spread of 4.07% as compared to the 3.91% for 1992. Average earning assets increased due to two acquisitions completed in 1993, which resulted in an increase in total assets of $189 million and an increase in total deposits of $178 million. In addition, the acquisition of Blue Springs Bank in August, 1993 favorably impacted the net interest spread by increasing average yield on loans and increasing noninterest-bearing deposits. Net interest income increased during the year ended December 31, 1992 by $2.5 million as compared to 1991. This improvement was primarily the result of an increase in average earning assets of $84.9 million for the year 1992 as compared to 1991. The increase in earning assets was due primarily to Citizens-Jackson Bank's acquisition of $80.2 million of deposits (after "run-off") from the former Home Federal Savings Association ("Home Federal"). Central Mortgage deployed the growth in average assets by increasing average loans for the year ended December 31, 1992 by $28.1 million, investment securities by $50.2 million and other interest earning assets by $6.6 million. The improvement in net interest income due to the increased earning assets was partially offset by a reduction in the net interest spread from 4.12% for the year ended December 31, 1991 to 3.91% for the year ended December 31, 1992. The reduction in the spread was the result of the purchases of deposits at higher interest rates and declining yields on interest earning assets. The following table sets forth certain information relating to Central Mortgage's average consolidated statements of financial condition and reflects the yield on average assets and cost of average liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities. Average balances are derived from daily balances. - 56 - 62 AVERAGE BALANCES, YIELDS AND RATES
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1993 1992 1991 -------------------------- --------------------------- ------------------------------ AVERAGE AVERAGE AVERAGE INTEREST YIELD/ INTEREST YIELD/ INTEREST YIELD/ AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID ------- ------- ---- ------- ------- ---- ------- ------- ---- (dollars in thousands) ASSETS Loans (net of unearned interest) $ 266,676 $ 24,556 9.21% $ 198,368 $ 19,982 10.07% $ 170,291 $ 19,239 11.30% Investment securities: Taxable . . . . . . . . . . . . . . . . 129,803 6,729 5.18 99,646 5,955 5.98 53,925 4,070 7.55 Tax exempt. . . . . . . . . . . . . 33,643 2,430 7.22 18,139 1,537 8.47 13,693 1,211 8.84 Other investments . . . . . . . . . . . 385 22 5.71 557 33 5.92 441 40 9.07 Interest-bearing deposits. . . . . . . . 361 14 3.88 2,326 102 4.39 3,066 187 6.10 Federal funds sold . . . . . . . . . . . 10,517 307 2.92 13,960 523 3.75 7,741 439 5.67 Mortgage loans held for sale . . . . . . 13,065 1,082 8.28 10,509 880 8.38 9,487 859 9.05 -------- ------- -------- ------- -------- ------- Total interest earning assets/interest income/overall yield. . . . . . . . 454,450 35,140 7.73 343,505 29,012 8.45 258,644 26,045 10.07 Allowance for loan losses. . . . . . . . (3,621) (2,440) (2,207) Noninterest-bearing deposits and cash 19,105 14,663 11,218 Other assets . . . . . . . . . . . . . . 18,703 13,142 12,102 -------- -------- -------- Total assets. . . . . . . . . . . . . . $ 488,637 $ 368,870 $ 279,757 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits $ 112,434 $ 2,882 2.56% $ 86,515 $ 2,893 3.34% $ 64,176 $ 2,805 4.37% Savings deposits . . . . . . . . . . . . 28,741 650 2.26 17,853 579 3.24 13,091 596 4.55 Time deposits. . . . . . . . . . . . . . 218,393 9,524 4.36 180,513 9,330 5.17 136,910 9,252 6.76 Short-term borrowings. . . . . . . . . . 23,872 888 3.72 10,077 417 4.14 4,218 229 5.43 Notes payable. . . . . . . . . . . . . . 4,311 250 5.80 5,103 397 7.78 4,362 378 8.67 -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities/ interest expense/overall rate . . . . 387,751 14,194 3.66 300,061 13,616 4.54 222,757 13,260 5.95 Demand deposits. . . . . . . . . . . . . 57,181 39,312 33,503 Other liabilities. . . . . . . . . . . . 4,866 4,294 3,978 -------- -------- -------- Total liabilities . . . . . . . . . . . 449,798 343,667 260,238 Minority interest. . . . . . . . . . . . 87 98 117 Shareholders' equity . . . . . . . . . . 38,752 25,105 19,402 -------- -------- -------- Total liabilities and shareholders' equity. . . . . . . . . . . . . . . . $ 488,637 $ 368,870 $ 279,757 ======== ======== ======== Net interest income/net interest rate spread. . . . . . . . . . . . . . . . . $ 20,946 4.07% $ 15,396 3.91% $ 12,785 4.12% ======= ==== ======= ==== ======= ==== Net earning assets/net yield on average interest-earning assets . . . . . . . . $ 66,699 4.61% $ 43,444 4.48% $ 35,887 4.94% ======== ==== ======== ==== ======== ==== - --------------- Average balance includes nonaccrual loans. Interest and yields are presented on a tax-equivalent basis at a tax rate of 34% and have been adjusted downward by the disallowance of the interest cost to carry tax exempt loans and securities.
The following table sets forth changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities compared to changes in interest rates for the periods indicated. The change in interest due to both volume and rate has been allocated to the change in interest due to rate. - 57 - 63 VOLUME AND RATE VARIANCE
INCREASE (DECREASE) ATTRIBUTABLE TO CHANGE IN: --------------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 1993 DECEMBER 31, 1992 COMPARED TO COMPARED TO DECEMBER 31, 1992 DECEMBER 31, 1991 --------------------------------- -------------------------------- RATE VOLUME NET RATE VOLUME NET ---- ------ --- ---- ------ --- (dollars in thousands) INTEREST INCOME Loans. . . . . . . . . . . . . . . $(2,305) $ 6,879 $ 4,574 $(2,430) $3,173 $ 743 Investment securities: Taxable. . . . . . . . . . . . . . . (1,029) 1,803 774 (1,567) 3,452 1,885 Tax exempt . . . . . . . . . . . (420) 1,313 893 (67) 393 326 Other investments. . . . . . . . . . (1) (10) (11) (18) 11 (7) Interest-bearing deposits. . . . . . . (2) (86) (88) (39) (45) (84) Federal funds sold . . . . . . . . . . (87) (129) (216) (269) 352 83 Mortgage loans held for sale . . . . . (12) 214 202 (71) 92 21 ------- ------ ------ ------- ----- ------ Total interest income. . . . . . . . (3,856) 9,984 6,128 (4,461) 7,428 2,967 INTEREST EXPENSE Interest-bearing demand deposits (877) 866 (11) (888) 976 88 Savings deposits . . . . . . . . . . . (282) 353 71 (234) 217 (17) Time deposits. . . . . . . . . . . . . (1,764) 1,958 194 (2,870) 2,948 78 Interest on short-term borrowings (100) 571 471 (130) 318 188 Interest on notes payable. . . . . . . (85) (62) (147) (45) 64 19 ------- ------- ------- ------- ----- ------ Total interest expense . . . . . . . (3,108) 3,686 578 (4,167) 4,523 356 Net interest income. . . . . . . . . $ (748) $ 6,298 $ 5,550 $ (294) $ 2,905 $ 2,611 ======= ====== ====== ======= ====== ====== - ---------------------------- Average balance includes nonaccrual loans. Presented on a fully tax-equivalent basis assuming a tax rate of 34%.
NONINTEREST INCOME. The following table shows Central Mortgage's noninterest income for the periods indicated: NONINTEREST INCOME
YEAR ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ---- ---- ---- (dollars in thousands) Service charges on deposit accounts $2,254 $1,559 $1,458 Loan servicing income . . . . . . . . . . 2,034 1,869 1,725 Gain/Loss on sale of loans. . . . . . . . 456 325 103 Other operating income. . . . . . . . . . 1,125 1,039 966 ------ ------ ------ Total noninterest income . . . . . . . $5,869 $4,792 $4,252 ====== ====== ====== Noninterest income as a percent of average total assets . . . . . . . . 1.20% 1.30% 1.52%
Noninterest income for the year ended December 31, 1993 increased by $1.1 million as compared to the year ended December 31, 1992. The improvement was primarily due to an increase in service charges on deposit accounts of $695,000, increased Mortgage Division income on loan servicing of $165,000 and an increase in gain on sale of loans of $131,000. The increase in service charges is - 58 - 64 directly related to the greater volume of accounts acquired in the Blue Springs Bank acquisition. Loan servicing income increased due to higher average loan sizes and an increase in the principal balance of loans serviced by the Mortgage Division. The increase in gain on sale of mortgages was due to a favorable interest rate environment and a greater volume of loans sold on a servicing released basis carried out in the normal course of business. The sale of mortgage loans can generate a gain or loss. A gain (loss) from the sale of loans may occur if interest rates fall (rise) between the time the Mortgage Division fixes the interest rates charged to the borrowers on the loans and the time the loans are committed to an investor. To reduce the risk of loss, the Mortgage Division obtains commitments for a portion of loans closed and in process, permitting it to sell loans at predetermined rates. The Mortgage Division has in the past and may from time-to-time use financial futures, options, or other instruments to attempt to protect against interest rate fluctuations and the decline in market value of loans originated. Noninterest income increased by $540,000 for the year ended December 31, 1992 as compared to the year ended December 31, 1991. The improvement was primarily due to the increase in the Mortgage Division's gain on the sale of mortgage loans of $222,000 and an increase in loan servicing income of $144,000. The increase in gain on sale of mortgage loans was primarily due to declining interest rates during 1992 resulting in a large volume of loans and management of commitments and coverages during a period of high production at the Mortgage Division. Loan servicing income was up due to a larger outstanding loan balance serviced. In addition, service charge income on deposit accounts increased by $101,000 due to a larger volume of accounts and an increase in fees. NONINTEREST EXPENSE. The following table shows Central Mortgage's noninterest expense for the periods indicated: NONINTEREST EXPENSE
YEAR ENDED DECEMBER 31, --------------------- 1993 1992 1991 ---- ---- ---- (dollars in thousands) Salaries and employee benefits. . . . . . $ 9,161 $ 7,617 $ 6,494 Net occupancy expense . . . . . . . . . . 2,162 1,630 1,549 FDIC and state assessments. . . . . . . . 1,015 778 538 Data processing . . . . . . . . . . . . . 528 467 411 Supplies. . . . . . . . . . . . . . . . . 507 444 331 Professional fees . . . . . . . . . . . . 409 439 248 Postage and freight . . . . . . . . . . . 540 369 317 Advertising . . . . . . . . . . . . . . . 485 322 229 Other noninterest expense . . . . . . . . 3,320 1,788 1,816 ------- ------- ------- Total noninterest expense. . . . . . . $18,127 $13,854 $11,933 ======= ======= =======
Noninterest expense increased by $4.3 million for the year ended December 31, 1993 as compared to the year ended December 31, 1992. The major factor was a $1.5 million increase in salaries and employee benefits. The increase in salaries and benefits was primarily due to the increased number of personnel at Citizens- Jackson Bank as a result of the Blue Springs Bank acquisition. Additional areas of increased noninterest expense included increases in occupancy expense of $532,000 and of FDIC insurance costs of $237,000, again due primarily to the Blue Springs Bank acquisition. Other noninterest expense increased by $1.5 million, primarily due to amortization of the intangible assets associated with - 59 - 65 the Blue Springs Bank acquisition and expenses related to the disposition of other real estate owned. During 1993, other noninterest expense was impacted by a one time expense of approximately $196,000 related to the acquisition of Blue Springs Bank. Noninterest expense increased by $1.9 million for the year ended December 31, 1992 as compared to the year ended December 31, 1991. Primarily, the increase in noninterest expense consisted of salaries and benefits totaling $1.1 million, which included 12 new full time employees at Citizens-Jackson Bank due to the Home Federal acquisition and increased salaries and commissions at the Mortgage Division due to the increase in volume of lending activity. The increase was also due to salary and wage increases and the increasing cost of employee benefits. FDIC and state assessments increased $240,000, which was directly related to the growth in insured deposits. Professional fees expense increased by $191,000 due to merger and acquisition activity. Supplies expense increased by $113,000 directly reflecting the increased volume of services and locations of Citizens-Jackson Bank and the increased volume of loans at the Mortgage Division. The remaining areas of noninterest expense increased primarily due to the growing volume of business. During 1992, other noninterest expense was impacted by a one time expense of approximately $200,000 related to the purchase of Home Federal deposits. The following table reflects a summary of operations of Central Mortgage by quarter for 1993 and 1992: SUMMARY OF OPERATIONS BY QUARTER
Three Months Ended Three Months Ended -------------------------------------------- -------------------------------------------- December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31 ----------- ------------ ------- -------- ----------- ------------ ------- -------- 1993 1992 -------------------------------------------- -------------------------------------------- (dollars in thousands, except per share data) Interest income. . . . . . . . . $10,713 $8,731 $7,666 $7,342 $7,571 $7,390 $7,414 $6,202 Interest expense . . . . . . . . 4,243 3,468 3,232 3,251 3,185 3,591 3,987 2,853 ------- ------ ------ ------ ------ ------ ------ ------ Net interest income . . . . . 6,470 5,263 4,434 4,091 4,386 3,799 3,427 3,349 Provision for loan losses 288 202 235 231 329 232 204 148 Noninterest income . . . . . . . 1,881 1,518 1,307 1,163 1,143 1,298 1,226 1,125 Noninterest expense. . . . . . . 5,995 4,826 3,848 3,458 3,755 3,418 3,383 3,298 Minority interest in earnings 2 -- 1 (2) 1 1 (1) (1) Income tax provision . . . . . . 549 473 463 428 336 377 271 261 ------- ------ ------ ------ ------ ------ ------ ------ Net income . . . . . . . . . $ 1,517 $1,280 $1,194 $1,139 $1,108 $1,069 $ 796 $ 768 ======= ====== ====== ====== ====== ====== ====== ====== Earnings per common share fully diluted . . . . . . . . $ 0.35 $ 0.33 $ 0.35 $ 0.33 $ 0.35 $ 0.47 $ 0.35 $ 0.34 ======= ====== ====== ====== ====== ====== ====== ======
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY LENDING ACTIVITIES. Central Mortgage's major source of income is interest on loans. Central Mortgage's loan portfolio largely reflects the communities served by the Banks and Central Mortgage's continued emphasis on residential real estate lending. The following table presents the composition of Central Mortgage's loan portfolio net of unearned interest at the end of each of the periods indicated: - 60 - 66 LOAN PORTFOLIO
December 31, ------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 --------------- --------------- ------------- -------------- ------------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % ------ --- ------ --- ------ --- ------ --- ------ --- (dollars in thousands) Commercial, financial, and other . . . . . . . $ 46,327 12.9% $ 26,278 12.1% $23,671 13.2% $ 22,505 13.5% $ 23,996 16.3% Agricultural. . . . . . . 13,086 3.6 12,274 5.6 12,210 6.8 10,381 6.2 8,728 5.9 Real estate: Mortgage-residential (1-4 family) . . . . . 132,058 36.9 62,163 28.6 49,625 27.6 45,259 27.2 42,177 28.7 Mortgage-commercial and multi-family . . . 75,192 20.9 43,329 20.0 30,358 16.9 26,850 16.1 23,916 16.3 Construction. . . . . . 18,397 5.1 17,614 8.1 17,474 9.7 15,623 9.4 15,735 10.7 Agricultural real estate 9,873 2.7 9,055 4.2 7,580 4.2 7,840 4.7 7,177 4.9 Consumer. . . . . . . . . 62,195 17.4 45,698 21.1 38,293 21.3 37,594 22.7 25,362 17.2 Lease Financing . . . . . 1,900 0.5 586 0.3 513 0.3 273 0.2 19 0.0 ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- Total loans . . . . . . . 359,028 100% 216,997 100% 179,724 100% 166,325 100% 147,100 100% ==== ==== ==== ==== ==== Unearned interest . . . . (1,921) (2,101) (1,866) (2,625) (1,192) ------- ------- ------- ------- ------- Total . . . . . . . . . $357,107 $214,896 $177,858 $163,700 $145,918 ======== ======== ======== ======== ========
The following table sets forth the remaining maturities for certain loan categories at December 31, 1993: MATURITIES OF LOANS
ONE YEAR ONE TO OVER OR LESS FIVE YEARS FIVE YEARS TOTAL -------- ---------- ---------- ----- (dollars in thousands) Commercial, financial, agricultural and other. . . . . . $37,575 $17,645 $4,193 $59,413 Real estate construction . . . . . . . . . . . . . . . . 15,475 2,668 254 18,397
Of the commercial, financial, agricultural, and other loans due after one year, all had fixed rates as of December 31, 1993. Central Mortgage makes substantially all its loans to customers located within the Banks' service areas. Central Mortgage has no foreign loans or highly leveraged transaction loans as defined by the Federal Reserve Bank. DISCUSSION OF LENDING ACTIVITIES. Net loans at December 31, 1993 were $357 million, an increase of $142 million from December 31, 1992. The increase was primarily due to the loans acquired in the Blue Springs Bank acquisition. In addition, Citizens-Jackson Bank continued to experience increased loan activity in real estate, consumer, commercial and agricultural loans. The eastern Jackson County market continues to show signs of growth; however, there is no assurance that the increase in loan activity will continue. Although the risk of non-payment for any reason exists with respect to all loans, certain other more specific risks are associated with each type of loan. The primary risks associated with commercial loans, including commercial real estate loans, are quality of the borrower's management and a number of economic and other factors which can induce business failures and depreciate the value of business assets pledged to secure the loan, including competition, insufficient capital, product - 61 - 67 obsolescence, changes in the costs of production, environmental hazards, weather, changes in laws and regulations and general changes in the marketplace. With respect to agricultural loans, the primary risks are mismanagement, weather, commodity and livestock prices and unexpected increases in operating costs. Primary risks associated with residential real estate loans include fluctuating land and property values and rising interest rates with respect to fixed rate long term loans. Consumer loans are affected primarily by domestic instability and a variety of factors that may lead to the borrower's unemployment, including deteriorating economic conditions in one or more segments of a local or broader economy. Central Mortgage's strategy with respect to the management of these types of risks, whether loan demand is weak or strong, is to encourage the Banks to follow loan policies and underwriting practices which include (i) granting loans on a sound and collectible basis, (ii) investing funds profitably for the benefit of shareholders and the protection of depositors, (iii) serving the legitimate needs of the community and the Banks' general market area while maintaining a balance between maximum yield and minimum risk, (iv) ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan, (v) administering loan policies through an officers loan committee, (vi) developing and maintaining adequate diversification of the loan portfolio as a whole and of the loans within each loan category and (vii) ensuring that each loan is properly documented and, if appropriate, secured or guaranteed by government agencies, and that insurance coverage is adequate. Commercial, financial and other lending activities are directed principally towards small to medium-sized professional firms, retail and wholesale outlets and light industrial and manufacturing concerns. Commercial, financial and other loans increased during 1993 by $20.0 million, primarily due to loans acquired in the Blue Springs Bank acquisition. Agricultural loans, including agricultural real estate loans, are typically made to family farms, small corporate farms, feed and grain dealers and wholesale seed dealers. These are operating loans for crop production, livestock production and purchasing seed and grain for cleaning, and processing for resale. Demand for agricultural loans increased over the past several years. Agricultural loans increased by $1.6 million during 1993 due to normal loan demand. The largest single component of Central Mortgage's loan portfolio is real estate loans. Central Mortgage actively pursues mortgage loans on single family dwellings. Generally, on an ongoing basis the Banks sell on a non-recourse basis the fixed rate long-term mortgages and retain only short-term or adjustable rate mortgages. Residential mortgages increased in 1993 by $69.9 million or 112% from 1992 to 1993. This increase was the result of the $56.3 million of mostly fixed rate, long term residential mortgages acquired in the Blue Springs Bank acquisition. The remaining increase occurred in new loans at Citizens-Jackson Bank and Nevada Bank. Commercial and multi-family real estate loans increased by $31.9 million from December 31, 1992 to December 31, 1993. The increase was comprised of $17.0 million in loans acquired with the Blue Springs Bank. The remaining increase of $14.9 million is due to, for the most part, loans originated at the Citizens-Jackson Bank in metropolitan Kansas City. Real estate construction loans, which are made primarily by Citizens-Jackson Bank, include loans for the construction of commercial properties such as medical office buildings, retail buildings, multi-family (five or more family) residential developments, single family homes, and loans for developing single family home sites. Construction loans increased slightly to $18.4 million at December 31, 1993 compared to $17.6 million at December 31, 1992. - 62 - 68 Consumer loans primarily include student loans, loans to individuals for the purchase of automobiles, boats, recreational vehicles, home improvements and other personal, family and household items, and indirect loans purchased through automobile dealers. Consumer loans may have fixed interest rates, or variable interest rates tied to an index, both of which typically carry higher interest rates than other types of loans and typically carry greater credit risks than other types of loans in Central Mortgage's portfolio. Central Mortgage increased the size of its consumer loan portfolio by 36.1% or $16.5 million in 1993 as the result of the acquisition of the Blue Springs Bank and management's decision to focus on expanding these types of loans in the Kansas City market area, believing that in Central Mortgage's marketplace these loans would yield superior overall returns. Lease financing is limited to Citizens-Jackson Bank and Barton Bank. Central Mortgage does not actively pursue lease financing. NONPERFORMING LOANS. Potential problem credits are monitored by the lending staff and reports are submitted for review by an official at Central Mortgage and a credit committee. Loans over 90 days past due are placed on a nonaccrual status unless well secured and in the process of collection. The allowance for loan losses was 528.49% of nonperforming loans at year end 1993 and 328% at December 31, 1992. Central Mortgage does not have any material amounts of interest-earning assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans. Nonperforming loans consist of loans on a nonaccrual basis, loans which are contractually past due 90 days or more, and loans the original terms of which have been restructured. The following table sets forth the amounts of such loans at the end of the periods indicated: NONPERFORMING ASSETS
December 31, -------------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ (dollars in thousands) Nonaccrual loans . . . . . . . . . . . . . . . $ 238 $ 104 $ 355 $ 119 $ 119 Loans contractually past due 90 days or more . 569 485 339 905 520 Restructured loans . . . . . . . . . . . . . . 81 218 554 561 750 ------ ------ ------ ------ ------ Total nonperforming loans . . . . . . . . . 888 807 1,248 1,585 1,389 Foreclosed assets held for sale. . . . . . . . 2,225 406 415 459 999 ------ ------ ------ ------ ------ Total nonperforming assets. . . . . . . . . $3,113 $1,213 $1,663 $2,044 $2,388 ====== ====== ====== ====== ====== Nonperforming loans to total loans . . . . . . 0.25% 0.38% 0.70% 0.97% 0.95% Nonperforming assets to total loans plus foreclosed assets held for sale 0.87 0.56 0.93 1.25 1.63 Nonperforming assets to total assets . . . . . 0.50 0.29 0.57 0.75 0.91
Nonperforming assets increased to $3.1 million at December 31, 1993. This increase was due primarily to the nonaccrual loans and foreclosed assets transferred in the Blue Springs Bank acquisition. The ratio of nonperforming loans to total loans was 0.25%, 0.38% and 0.70% at December 31, 1993, 1992 and 1991, respectively. The ratio of Central Mortgage's allowance for loan losses to nonperforming loans was 528%, 328% and 183% at December 31, 1993, 1992 and 1991, respectively. The increase in the ratio for December 31, 1993 is due primarily to the addition of the Blue Springs Bank's allowance for loan losses and the transfer of Blue Springs Bank's nonperforming loans to foreclosed assets. - 63 - 69 Certain loans may require frequent management attention and are reviewed on a monthly or more frequent basis. Although payments on these loans are less than 90 days past due, or in many cases current, the borrowers presently have or have had a history of financial difficulties, and management has concerns as to the borrower's ability to comply with present loan repayment terms. As such, these loans may result in classification, at some future point in time, as nonperforming. At December 31, 1993, such loans (excluding all nonperforming loans described above) amounted to $12.3 million as compared to $3.7 million at December 31, 1992. The increase in potential nonperforming loans was due primarily to loans acquired in the Blue Springs Bank acquisition. Following the Blue Springs Bank acquisition, management reduced the level of potential nonperforming loans to 3.44% of total loans as of December 31, 1993, which management considers to be a reasonable level in comparison to other banks operating in its market area and given the size and composition of the loan portfolio. When, in the opinion of management, a reasonable doubt exists as to the collectability of interest, the accrual of interest income is stopped and interest accrued and unpaid during the current year is reversed through a charge to current year earnings. Subsequently, interest income is recognized only upon receipt. If interest on nonaccrual loans had been accrued, such income would have been approximately $28,000 for the year ended December 31, 1993. ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is based on factors that include the overall composition of the loan portfolio, types of loans, past loss experience, loan delinquencies, potential substandard and doubtful credits, and such other factors that, in management's judgment, deserve evaluation in estimating loan losses. The adequacy of the allowance for loan losses is monitored quarterly during the ongoing systematic review of the loan portfolio by the loan review staff of Central Mortgage. The results of these reviews are reported to each Bank's management and its board of directors. More specifically, Central Mortgage calculates the appropriate level of the allowance for loan losses on a quarterly basis using historical charge offs for each loan type and anticipated losses with respect to specific loans. While there can be no assurance that the allowance for loan losses will be adequate to cover all losses from all loans, management believes that the allowance for loan losses is adequate. Management uses available information to determine the provision for losses on loans. The ultimate collectability of a substantial portion of the loan portfolio and the need for future additions to the allowance will be based upon borrowers' performance and changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks' allowance for loan losses. Such agencies may require the Banks to recognize additions to the allowance based upon their judgments using information available to them at the time of their examinations. The following table summarizes, for the periods indicated, activity in the allowance for loan losses, including amounts of loans charged off, amounts of recoveries and additions to the allowance charged to operating expense, and the ratio of net charge offs to average loans outstanding: - 64 - 70 ALLOWANCE FOR LOAN LOSSES
Year Ended December 31, --------------------------------------------- 1993 1992 1991 1990 1989 ------- -------- ------- ------- -------- (dollars in thousands) Allowance at beginning of period . . . . $ 2,648 $ 2,282 $ 2,058 $ 1,872 $ 1,801 Loans charged off: Commercial, financial, agricultural and other. . . . . . . . . . . . . 1,563 438 549 371 197 Real estate: Construction . . . . . . . . . . . -- 4 31 -- -- Mortgage . . . . . . . . . . . . . 401 138 43 10 115 Consumer. . . . . . . . . . . . . . . 552 117 167 59 92 ------- -------- ------- ------- -------- Total. . . . . . . . . . . . . . . 2,516 697 790 440 404 ------- -------- ------- ------- -------- Recoveries: Commercial, financial, agricultural and other. . . . . . . . . . . . . 230 123 118 87 44 Real estate: Construction . . . . . . . . . . . -- -- 4 -- -- Mortgage . . . . . . . . . . . . . 117 17 15 2 11 Consumer. . . . . . . . . . . . . . . 29 10 7 14 6 ------- -------- ------- ------- -------- Total. . . . . . . . . . . . . . . 376 150 144 103 61 ------- -------- ------- ------- -------- Net loans charged off . . . . . . . . 2,140 547 646 337 343 Additions to allowance charged to operating expense . . . . . . . . . . 956 913 870 523 414 Allowance acquired from purchased institution . . . . . . . . . . . . . 3,229 -- -- -- -- ------- -------- ------- ------- -------- Allowance at end of period . . . . . . . $ 4,693 $ 2,648 $ 2,282 $ 2,058 $ 1,872 ======= ======== ======= ======= ======== Ratio of net loan charge offs during period to average loans outstanding . 0.80% 0.28% 0.38% 0.22% 0.24%
Net loan charge offs were $1.6 million greater for the year ended December 31, 1993, when compared to 1992. The increase in net loan charge offs was due to increased charge offs in commercial and consumer loans. The increase in commercial loan charge offs was related primarily to loans acquired in the Blue Springs Bank acquisition, which Central Mortgage believes were adequately reserved for at the acquisition date. The increase in mortgage loan charge offs was primarily due to loans acquired in the Blue Springs Bank acquisition, while the consumer loan charge- off increase was the result of the increased volume of consumer loans. The following table summarizes Central Mortgage's allocation of the allowance for loan losses to the various loan categories at the dates indicated: - 65 - 71 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31, -------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------------- ---------------- ---------------- ---------------- ---------------- PERCENT PERCENT PERCENT PERCENT PERCENT OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS IN EACH IN EACH IN EACH IN EACH IN EACH CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- (dollars in thousands) Commercial, financial and other . . . . . . $2,066 16.6% $1,138 17.9% $1,075 20.2% $1,037 20.1% $ 829 22.4% Real estate: Construction. . . . . 83 5.1 89 8.2 113 9.8 77 9.5 67 10.8 Mortgage. . . . . . . 1,743 60.5 1,026 53.3 820 49.2 726 48.8 771 50.2 Consumer. . . . . . . . 793 17.3 392 20.3 271 20.5 216 21.4 205 16.6 Lease Financing . . . . 8 0.5 3 0.3 3 0.3 2 0.2 -- -- ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- Total . . . . . . . . $4,693 100% $2,648 100% $2,282 100% $2,058 100% $1,872 100% ====== ==== ====== ==== ====== ==== ====== ==== ====== ====
INVESTMENT SECURITIES. The objectives of the investment portfolio are to provide Central Mortgage with a source of liquidity through maturities and earnings. The following tables present the composition and maturities of the investment portfolio by major category: INVESTMENT PORTFOLIO COMPOSITION
December 31, ------------------------------------- (dollars in thousands) 1993 1992 1991 ---------- ---------- ---------- U.S. Treasury obligations. . . . . . . . . . . . . . $ 65,838 $ 69,895 $ 41,693 U.S. Government agencies and corporations. . . . . . 51,421 26,262 12,115 Obligations of states and political subdivisions . . 44,265 23,171 14,705 Mortgage-backed securities . . . . . . . . . . . . . 22,702 23,768 518 ---------- ---------- ---------- Total investments . . . . . . . . . . . . . . . . $ 184,226 $ 143,096 $ 69,031 ========== ========== ==========
As of December 31, 1993, the maturity of securities in the investment portfolio was as follows: - 66 - 72 INVESTMENT PORTFOLIO - MATURITY AND YIELDS
OVER ONE OVER FIVE WEIGHTED ONE YEAR THROUGH THROUGH OVER AVERAGE OR LESS FIVE YEARS TEN YEARS TOTAL YIELD ------- ---------- --------- ----- --------- (dollars in thousands) U.S. Treasury securities . . . . . . . . . . . . $41,474 $24,364 $ -- $ -- 4.72% U.S. Government agencies and corporations. . . . 15,020 35,882 519 -- 4.76 Obligations of states and political subdivisions 5,910 22,211 15,689 455 7.16 Mortgage-backed securities 1,909 12,350 3,261 5,182 6.41 ------- ------- ------- ------ ---- Total investments . . . . . . . . . . . . . . $64,313 $94,807 $19,469 $5,637 5.54% ======= ======= ======= ====== ==== Weighted average yield . . . . . . . . . . . 4.99% 5.41% 7.82% 6.09% ====== ====== ====== ===== - ------------------- Mortgage-backed securities issued by U.S. Government agencies and corporations and privately-issued collateralized mortgage obligations have been included using historic prepayment rates. Rates on obligations of states and political subdivisions have been adjusted to tax-equivalent rates using the incremental statutory Federal income tax rate of 34%.
Investment securities increased by $41.1 million at December 31, 1993 as compared to December 31, 1992. The increase was due to $38.3 million of securities transferred in the Blue Springs Bank acquisition and investments made with deposits acquired from Mercantile Bank of West Central Missouri in 1993 (the "Butler Acquisition"). Central Mortgage continued the strategy of investing in non-taxable bonds, short term U.S. Governments and agencies, while maintaining a short average maturity. Total investment securities increased by $74.1 million at December 31, 1992 as compared to December 31, 1991. This increase was primarily due to the purchase of approximately $66.1 million of securities as the result of the acquisition of the Home Federal deposits from the Resolution Trust Corporation (the "RTC"). With the large increase in deposits, management chose to invest the majority of the proceeds in the investment portfolio. The investments were selected based on the liquidity needs of Citizens-Jackson Bank, the maturity of the deposits acquired and the income the investments would provide. Of the $66.1 million invested, approximately $35 million was deployed in U.S. Treasury obligations, approximately $15 million in mortgage-backed securities, approximately $13 million in U.S. government agency securities and approximately $3.1 million in tax-exempt securities. At December 31, 1993, 12.3% of Central Mortgage's investments were mortgage-backed securities. These securities have yields which are somewhat higher than U.S. Treasury or other U.S. Government agency securities, and provide liquidity through their monthly payments. Characteristically, mortgage-backed securities involve a risk of accelerated prepayment. Central Mortgage monitors its exposure to prepayment risk through the selection of the securities when they are purchased, and by periodically "stress testing" securities using hypothetical changes in prepayment rates. DEPOSITS. Central Mortgage has a relatively stable core deposit base from within its market area. Central Mortgage has no brokered deposits and it is Central Mortgage's policy not to solicit any such deposits. Total deposits increased by $185 million at December 31, 1993 as compared to December 31, 1992. The increase was due to $164 million of deposits transferred in the Blue Springs - 67 - 73 Bank acquisition and $14.1 million in the Butler Acquisition with the remaining increase at Citizens-Jackson Bank due to normal growth. During the year ended December 31, 1992 total deposits increased by $90.7 million as compared to December 31, 1991. The majority of the growth in deposits resulted from the Home Federal acquisition. The following table sets forth the distribution of Central Mortgage's deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposit: DEPOSITS
December 31, -------------------------------------------------------------------------- 1993 1992 1991 ---------------------- ---------------------- ---------------------- Percent Percent Percent of of of Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate ------ -------- ---- ------ -------- ---- ------ -------- ---- (dollars in thousands) Demand deposits. . . . . . . . . . . $86,769 16.1% -- $ 49,119 13.9% -- $ 36,868 14.1% -- Savings accounts . . . . . . . . . . 41,486 7.7 2.26% 19,967 5.7 3.24% 13,356 5.1 4.55% NOW and MMDA accounts. . . . . . . . 144,653 26.9 2.56 100,370 28.5 3.34 80,806 30.9 4.37 Time deposits less than $100,000 . . 224,708 41.8 4.48 158,936 45.1 5.29 95,713 36.6 6.82 Time deposits of $100,000 or more. . 40,135 7.5 3.77 23,911 6.8 4.50 34,844 13.3 6.59 -------- ----- -------- ----- -------- ----- Total deposits . . . . . . . . . . $537,751 100.0% $352,303 100.0% $261,587 100.0% ======== ===== ======== ===== ======== =====
The following table sets forth the amount and maturities of time deposits of $100,000 or more at December 31, 1993 and December 31, 1992: AMOUNT AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
Amount at December 31, -------------------------- 1993 1992 -------- -------- (dollars in thousands) Three months or less . . . . . . . . . . . . . . . . $18,230 $10,309 Over three months through six months . . . . . . . . 6,398 4,440 Over six months through twelve months. . . . . . . . 10,748 7,763 Over twelve months . . . . . . . . . . . . . . . . . 4,759 1,399 ------- ------- Total. . . . . . . . . . . . . . . . . . . . . . . $40,135 $23,911 ======= =======
CAPITAL RESOURCES. Financial institutions are required to maintain capital ratios in accordance with guidelines adopted in 1989 by the Federal Reserve Board. The guidelines are commonly known as "Risk-Based Guidelines" as they define the capital level requirements of a financial institution based upon the level of risk associated with holding various categories of assets. The Risk-Based Guidelines currently require minimum Tier I and Total Capital ratios of 4% and 8%, respectively. On December 31, 1993 Central Mortgage exceeded all capital requirements. The Federal Reserve Board also has implemented a leverage ratio, which is Tier 1 capital less purchased mortgage servicing rights to total assets, to be used as a supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve Board - 68 - 74 requires a minimum leverage ratio of 3%. However, for all but the most highly rated bank holding companies, and for bank holding companies seeking to expand, the Federal Reserve Board expects a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. As of December 31, 1993, Central Mortgage and each of the Banks exceeded the guidelines as established by the regulatory authorities. At December 31, 1993 and 1992, Central Mortgage's and the Banks' capital ratios were as follows: CAPITAL RATIOS
Risk-Based ------------------------------------------- Total Capital Tier 1 Leverage ------------------- ------------------- ------------------- December December December December December December 31, 1993 31, 1992 31, 1993 31, 1992 31, 1993 31, 1992 -------- -------- -------- -------- -------- -------- Central Mortgage . . . . . . 13.08% 17.83% 11.83% 16.58% 6.42% 8.23% Citizens-Jackson Bank. . . . 13.98 15.10 12.73 13.79 6.93 6.61 Barton Bank. . . . . . . . . 14.43 14.96 13.18 13.70 7.93 7.52 Nevada Bank. . . . . . . . . 17.72 14.88 16.47 13.63 7.73 7.77 Stover Bank. . . . . . . . . 17.26 16.71 16.01 15.45 7.73 7.38
In 1993, Central Mortgage made a $750,000 capital contribution to Nevada Bank to support its acquisition of the Butler Missouri Branch of Mercantile Bank of West Central Missouri and the related $14.1 million of deposits. Central Mortgage funded this capital contribution with available cash. In May, 1993, Central Mortgage arranged for a term loan from an unaffiliated lender in the amount of $10 million (the "Term Loan"). Central Mortgage has the option to fix the rate of interest on up to 60% of the Term Loan, but not less than 40% of the loan amount at a rate equal to 225 basis points over the yield of the three year Treasury Bond, with the remaining portion to accrue interest at the lender's fluctuating base rate less 1/4 of one percent with a minimum of 5% and a maximum of 11%. Principal and interest will be payable quarterly based on a ten year amortization schedule, with all unpaid principal and interest due and payable at the end of three years. Notes issued under the Term Loan will be secured by a pledge of all of the stock of Citizens-Jackson Bank. Covenants in the Term Loan require Central Mortgage and each of the Banks to maintain certain capital ratios, including a Tier 1 tangible capital ratio of 5.5% or more, and prohibit the payment of dividends by the Banks upon the occurrence of an event of default. The capital structure of Central Mortgage was expanded and strengthened in the third quarter of 1993 with the successful public offering and sale of 920,000 shares of Central Mortgage Common Stock. The net proceeds of $9.9 million were used to partially fund the acquisition of the Blue Springs Bank. LIQUIDITY. Liquidity is measured by a financial institution's ability to raise funds through deposits, borrowed funds, capital, or the sale of highly marketable assets such as residential mortgage loans. Additional sources of liquidity, including cash flow from both the repayment of loans and the securitization of assets, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets, and access to the money and capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. The ratio of temporary investments (those maturing within one year) to volatile liabilities (time deposits over $100,000) was 160.2% at December 31, 1993, compared to 190.3% at - 69 - 75 December 31, 1992. Core deposits, defined as demand deposits, NOW accounts, and total savings and certificates of deposit less than $100,000, were 92.5% and 93.2% of total deposits at December 31, 1993 and 1992, respectively. The following table summarizes short-term borrowings for the periods indicated: SHORT-TERM BORROWINGS
December 31, ------------------------------------- 1993 1992 1991 ---------- --------- --------- (dollars in thousands) Treasury tax and loan note options: End of period balance . . . . . . . . . . . . . $ 1,100 $ 1,100 $ 1,100 Average rate. . . . . . . . . . . . . . . . . . 3.02% 3.23% 5.76% Average balance . . . . . . . . . . . . . . . . $ 861 $ 1,010 $ 832 Maximum amount outstanding at any month-end . . 1,100 1,100 1,100 Securities sold under agreement to repurchase: End of period balance . . . . . . . . . . . . . $ 22,300 $ 20,850 $ 4,100 Average rate. . . . . . . . . . . . . . . . . . 3.76% 4.35% 5.05% Average balance . . . . . . . . . . . . . . . . $ 22,527 $ 8,978 $ 3,084 Maximum amount outstanding at any month-end . . 23,675 20,850 5,100 Federal funds purchased: End of period balance . . . . . . . . . . . . . -- -- -- Average rate. . . . . . . . . . . . . . . . . . 3.16% 4.83% 5.50% Average balance . . . . . . . . . . . . . . . . $ 484 $ 883 $ 302 Maximum amount outstanding at any month-end . . 3,000 7,000 700 All short-term borrowings: End of period balance . . . . . . . . . . . . . $ 23,400 $ 21,950 $ 5,200 Average rate. . . . . . . . . . . . . . . . . . 3.72% 4.29% 5.43% Maximum amount outstanding at any month-end . . $ 24,775 $ 21,950 $ 6,900
ASSET-LIABILITY MANAGEMENT. Central Mortgage actively manages its assets and liabilities through coordinating the levels of interest rate sensitive assets and liabilities to minimize changes in net interest income despite changes in market interest rates. Central Mortgage defines interest rate sensitive assets and liabilities as any instrument that can be repriced within 180 days, either because the instrument will mature during the period or because it carries a variable interest rate. Changes in net interest income occur when interest rates on loans and investments change in a different time period from that of changes in interest rates on liabilities, or when the mix and volume of interest-earning assets and interest-bearing liabilities change. The interest rate sensitivity gap represents the dollar amount of difference between rate sensitive assets and rate sensitive liabilities within a given time period ("GAP"). A GAP ratio is determined by dividing rate sensitive assets by rate sensitive liabilities. A ratio of 1.0 indicates a matched position, in which case the effect on net interest income due to interest rate movements would be minimized. Central Mortgage's strategy with respect to asset-liability management is to maximize net interest income while limiting Central Mortgage's exposure to risks associated with volatile interest rates. The Banks' Funds Management Committees are responsible for monitoring their respective Banks' GAP positions. As a general rule, Central Mortgage's policy is to maintain a GAP position as a percent of total assets within a range from + 20% to - - 20% in a 12 month time period. - 70 - 76 At December 31, 1993, Central Mortgage was liability sensitive (rate sensitive liabilities in excess of rate sensitive assets) for the next 12 months, based on contractual maturities and asset payment assumptions. This means that Central Mortgage's assets as of December 31, 1993 would reprice more slowly than its deposits as of such date. In a declining interest rate environment, the interest cost of Central Mortgage's deposits and other liabilities may be expected to fall faster than the interest received on its earning assets, thus increasing the net interest spread. In an increasing interest rate environment just the opposite may be expected to occur, in which the interest cost for deposits and other liabilities would increase faster than interest received on earning assets, therefore decreasing the net interest spread. The most significant change in Central Mortgage's interest rate sensitivity for 1993 in comparison to 1992 occurred in loans. Fixed rate loans with maturities over five years increased by $41 million compared to December 31, 1992, mainly due to fixed rate real estate loans acquired in the Blue Springs Bank acquisition. The following table sets forth Central Mortgage's interest rate sensitivity at December 31, 1993: INTEREST SENSITIVITY ANALYSIS
Over Three Three Through Over One Over Months Twelve Through Five or Less Months Five Years Years Total --------- ---------- ----------- ------ ----- (dollars in thousands) Interest-earning assets: Interest-bearing time deposits. . . . . . $ 100 $ 100 $ -- $ -- $ 200 Taxable investment securities . . . . . . 12,012 46,697 72,675 8,962 140,346 Tax-exempt investment securities. . . . . 1,716 3,889 22,131 16,144 43,880 Federal funds sold. . . . . . . . . . . . 15,575 -- -- -- 15,575 Loans . . . . . . . . . . . . . . . . . . 83,910 78,757 125,664 68,776 357,107 Mortgage. . . . . . . . . . . . . . . . . 11,379 -- -- -- 11,379 ---------- ---------- ---------- --------- ----------- Total interest rate sensitive assets. . $ 124,692 $ 129,443 $ 220,470 $ 93,882 $ 568,487 ========== ========== ========== ========= =========== Interest-bearing liabilities: Interest-bearing demand deposits. . . . . $ 144,653 $ -- $ -- $ -- $ 144,653 Savings deposits. . . . . . . . . . . . . 41,486 -- -- -- 41,486 Time deposits . . . . . . . . . . . . . . 62,769 117,617 84,066 391 264,843 Short-term debt . . . . . . . . . . . . . 23,400 -- -- -- 23,400 Long-term debt. . . . . . . . . . . . . . 2,769 375 4,375 -- 7,519 ---------- -------- ---------- --------- ---------- Total rate sensitive liabilities. . . . $ 275,077 $ 117,992 $ 88,441 $ 391 $ 481,901 ========== ========== ========== ========= ========== Interest Sensitivity GAP: Periodic. . . . . . . . . . . . . . . . . $ (150,385) $ 11,451 $ 132,029 $ 93,491 $ 86,586 Cumulative. . . . . . . . . . . . . . . . (150,385) (138,934) (6,905) 86,586 ========== ========== ========== ========= Cumulative GAP to total assets. . . . . . (24.15)% (22.31)% (1.11)% 13.91% Ratio of Interest-Sensitive Assets to Interest Sensitive Liabilities Periodic. . . . . . . . . . . . . . . . 45.33% 109.70% 249.28% n/a Cumulative. . . . . . . . . . . . . . . 45.33% 64.65% 98.57% 117.97%
EFFECTS OF INFLATION. The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative - 71 - 77 purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board has issued Statement No. 114 regarding accounting by creditors for impairment of a loan. This statement requires a discounting of expected future cash flows to measure impairment of certain loans or, as a practical expedient, measurements based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Prior to execution of the Merger Agreement, Central Mortgage expected to first apply this statement during the fiscal year ending December 31, 1995. Management has not estimated the impact, if any, the adoption of FASB 114 would have on Central Mortgage's financial statements. The Financial Accounting Standards Board has issued Statement No. 115 regarding investments in debt and equity securities. This statement creates three categories of securities based upon management's intent at the time of purchase. Securities meeting the criteria for the "held to maturity" category will be reported at amortized cost. All other securities, excluding those held in trading accounts, will be reported at fair value with unrealized gains and losses credited or charged to shareholders' equity. Unrealized gains and losses for securities held in trading accounts are reflected in the statement of income. Central Mortgage adopted this statement as of January 1, 1994. Management has estimated the adoption of FASB 115 will have an immaterial impact on Central Mortgage's 1994 financial statements. September 30, 1994 and 1993 RESULTS OF OPERATION (THIRD QUARTER COMPARISON) NET INCOME. Net income for the third quarter ended September 30, 1994 was $2.0 million or $.45 per share compared to $1.3 million or $.33 per share for the third quarter in 1993. For the nine months ended September 30, 1994, net income was $5.4 million or $1.24 per share compared to $3.6 million or $1.01 per common share for the nine months ended September 30, 1993. The improvements in net income for the quarter and nine months ended September 30, 1994 were primarily the result of increased net interest income and noninterest income generated by the greater volume of earning assets and deposit accounts acquired in the Blue Springs Bank acquisition in August, 1993 and from the FDIC as receiver of the former Superior National Bank ("Superior") in April, 1994. NET INTEREST INCOME. Net interest income increased by $1.3 million, or 25% for the third quarter of 1994 as compared to the third quarter of 1993. In addition, net interest income for the first nine months of 1994 increased by $5.1 million, or 37% compared to the first nine months of 1993. The improvement in net interest income was the result of an increased volume of average earning assets due primarily to the acquisition of the Blue Springs Bank and the assets of Superior by Citizens-Jackson Bank. Average earning assets were $581 million for the nine months ended September 30, 1994 compared to $417 million for the nine months ended September 30, 1993. Central Mortgage's net interest rate spread on a tax equivalent basis was 3.97% during the third quarter of 1994 compared to 3.93% for the second quarter of 1994, 4.07% for the year ended December 31, 1993 and 4.03% for the third quarter of 1993. Small quarterly fluctuations in the net interest rate spread have occurred over the past four quarters, and the most recent three month trend is towards a very slight improvement. NONINTEREST INCOME. Noninterest income increased by 34% to $2.0 million for the third quarter of 1994 as compared to $1.5 million for the third quarter of 1993. This increase was due partially - 72 - 78 to increased service charge revenues on deposit accounts due to the greater volume of accounts resulting from the Blue Springs Bank acquisition. In addition, there was a gain during the third quarter of 1994 of $268,000 on sales of investment securities available for sale compared to no gain one year earlier. Offsetting these increases was a loss on the sale of mortgage loans of $5,000 in the third quarter of 1994 compared to a gain of $85,000 in the third quarter of 1993. The loss was the result of increased volatility in interest rates. For the nine months ended September 30, 1994, noninterest income increased by 45% to $5.8 million as compared to $4.0 million for the nine months ended September 30, 1993. This increase was primarily due to increased service charge revenues on deposit accounts resulting from the Blue Springs Bank acquisition and gain on sales of investment securities available for sale. Future income from the sale of mortgage loans may be negatively impacted if, among other things, there is a continuation of volatility in long term interest rates. In addition, future gains on the sale of investment securities are dependent on the amount and type of securities available for sale, and whether or not future market conditions are favorable. NONINTEREST EXPENSE. Noninterest expense increased by $626,000 or 13% for the third quarter of 1994 as compared to the third quarter of 1993. For the nine months ended September 30, 1994, noninterest expense increased by $4.0 million or 33% as compared to the nine months ended September 30, 1993. The primary factor contributing to the quarterly and nine month increases was the increased ongoing operating expenses resulting from the acquisition of the Blue Springs Bank. Salaries and employee benefits increased by $272,000 during the third quarter of 1994 compared to the third quarter of 1993, and increased by $1.7 million for the nine months ended September 30, 1994 compared to the nine months ended September 30, 1993. These increases were due primarily to the addition of Blue Springs Bank employees and annual salary adjustments for officers and employees. Net occupancy expense increased by $144,000 during the third quarter of 1994 compared to the third quarter of 1993, and increased by $675,000 during the nine months ended September 30, 1994 compared to the nine months ended September 30, 1993, primarily due to costs associated with Citizens-Jackson Bank's continued integration and modernization of the former Blue Springs Bank locations and equipment. Other noninterest expense increased by $210,000 for the third quarter of 1994 compared to the third quarter of 1993, and increased by $1.6 million for the nine months ended September 30, 1994 compared to the nine months ended September 30, 1993. Included in this increase were higher advertising costs, FDIC insurance premiums, amortization of intangibles, cost of repossessed property, and communications and postage. MORTGAGE DIVISION. The Mortgage Division originated or purchased 235 loans during the third quarter of 1994 with principal balances of $12.7 million compared to 638 loans with principal balances of $38.7 million originated or purchased during the same quarter during 1993. The decrease in loan originations was primarily the result of a reduction in the number of loans refinanced caused by increasing long term interest rates in the market. The mortgage loan servicing balance as of September 30, 1994 was approximately $579 million, compared to $562 million serviced as of December 31, 1993. The increase was due in part to the Mortgage Division's purchase of a $45.4 million block of conventional loan servicing from an unaffiliated lender and partially offset by the normal amortization of loans. - 73 - 79 FINANCIAL CONDITION (THIRD QUARTER COMPARISON) TOTAL ASSETS. Total assets of Central Mortgage were $626 million at September 30, 1994 as compared to $623 million at December 31, 1993. The increase in total assets was due to the second quarter acquisition of certain deposits and assets of the Superior National Bank of Kansas City from the FDIC by Citizens- Jackson Bank. The net deposits acquired "after run off" were $8.5 million. In addition, net loans with a principal balance of $4.2 million were acquired. Partially offsetting these increases from the acquisition was a slight decline in deposits and total assets at other Banks. LOANS. Loans, net of unearned interest, were $381 million at September 30, 1994, a 7% increase as compared to $357 million at December 31, 1993. The increase in loans was due to internal loan growth and the purchase of $4.2 million of loans in the Superior transaction. Central Mortgage maintains a diversified loan portfolio with no international loans or loans classified as highly leveraged transactions. NONPERFORMING ASSETS. Nonperforming assets totaled $2.2 million at September 30, 1994, consisting of $348,000 of foreclosed assets held for sale and nonperforming loans of $1.9 million, compared to $3.1 million of nonperforming assets consisting of $2.2 million of foreclosed assets held for sale and $888,000 of nonperforming loans at December 31, 1993. The reduction in nonperforming assets was due to the disposition of other real estate owned and in substance foreclosures acquired in the Blue Springs Bank acquisition. Nonperforming assets to total assets declined to 0.35% at September 30, 1994, compared to 0.50% at December 31, 1993. The provision for loan losses of $919,000 and $374,000 for the nine months and quarter ended September 30, 1994, respectively, increased from $668,000 and $202,000 for the nine months and quarter ended September 30, 1993, respectively. The increase in the provision was due to additional reserves set aside for growth in the loan portfolio and loans charged off during the first nine months of 1994. Central Mortgage's allowance for loan losses increased by $1.7 million since December 31, 1993, for a total allowance of $6.4 million. The increase in the allowance was due primarily to recoveries from previously charged off loans and reserves acquired with the loans purchased from Superior. The allowance for loan losses was 1.68% of total loans at September 30, 1994, compared to 1.31% at December 31, 1993. INVESTMENT SECURITIES. Investment securities were $187 million at September 30, 1994 compared to $185 million at December 31, 1993. During the first quarter of 1994, Central Mortgage adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." As of September 30, 1994, Central Mortgage has elected to allocate approximately $38 million of its investment securities as "securities available for sale" and approximately $149 million of investment securities as "securities held to maturity." The net unrealized loss (net of tax) on the market value of the "available for sale securities" was $78,000 on September 30, 1994. DEPOSITS. Total deposits were unchanged at $538 million as of September 30, 1994, as compared to December 31, 1993. The decline of $25.2 million in noninterest bearing Demand Deposits and saving, NOW and Money Market deposits was offset by an increase of $25.1 million in Time Deposits. - 74 - 80 LIQUIDITY AND CAPITAL RESOURCES (THIRD QUARTER COMPARISON) Liquid assets of Central Mortgage at September 30, 1994 consisted of total cash and cash equivalents, investment securities maturing in one year or less and mortgages held for sale. These liquid assets totaled $100 million at September 30, 1994, or 19% of total deposits compared to $117 million at December 31, 1993, or 22% of total deposits. Shareholders' equity at September 30, 1994 was $52.5 million, which is an increase of $4.0 million compared to December 31, 1993. Central Mortgage currently exceeds all regulatory capital requirements as shown in the following table: CAPITAL RATIOS
Risk-Based ------------------------------------------------------------------------------- Total Capital Tier I ------------- ------ Regulatory September 30 Regulatory September 30 Minimum 1994 1993 Minimum 1994 1993 ------- ---- ---- ------- ---- ---- 8.00% 13.51% 12.37% 4.00% 12.25% 10.68% Leverage -------- Regulatory September 30 Minimum 1994 1993 ------- ---- ---- 3.00% 7.11% 6.35%
PROPERTIES All of the properties of the Banks and the Mortgage Division referred to in the descriptions under " - Business" are owned by the respective Banks or by Central Mortgage and are not subject to any mortgage or material encumbrance, except for the Mortgage Division's leased office at Joplin, Citizens-Jackson Bank's Blue Springs Main facility, Citizens-Jackson Bank's Lee's Summit facility and Central Mortgage's principal executive offices which, together with Citizens-Jackson Bank's downtown Kansas City office, occupy 11,435 square feet of leased space. Central Mortgage believes that its facilities are adequate for its operations. LEGAL PROCEEDINGS There were no material legal proceedings pending as of September 30, 1994. Legal proceedings which were pending consisted of matters normally incident to the business conducted by Central Mortgage and taken together do not appear material. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of ------------------ the number of shares beneficially owned and the percentage of ownership of Central Mortgage's outstanding Common Stock by (a) each director of Central Mortgage, (b) each person who is known by Central Mortgage to own beneficially more than 5% of such stock and (c) all directors and officers of Central Mortgage as a group: - 75 - 81
Shares Beneficially Owned ------------------------- Number Percentage ------ -------------- Adrian Harmon . . . . . . . . . . . . . . . . . . . . . 628,251 14.78% Lynn A. Harmon . . . . . . . . . . . . . . . . . . . . . 191,777 4.48 Tom D. Harmon . . . . . . . . . . . . . . . . . . . . . 177,042 4.14 Margaret K. Harmon . . . . . . . . . . . . . . . . . . . 300,400 7.07 Edward A. Mangone . . . . . . . . . . . . . . . . . . . 47,047 1.10 Michael R. Rankin . . . . . . . . . . . . . . . . . . . 176,992 4.13 Randolph K. Rolf . . . . . . . . . . . . . . . . . . . . . . 2,000 .05 Roger Novak . . . . . . . . . . . . . . . . . . . . 202,965 4.77 Richard O. Ballentine . . . . . . . . . . . . . . . . . . 187,674 4.41 Officers and Directors as a group (nine persons) . 1,426,574 32.62 - -------------------------- The percentage of ownership is calculated by dividing the number of shares of Central Mortgage Common Stock owned by the named shareholder, including the number of shares of Central Mortgage Common Stock issuable upon the exercise of stock options held by such person, as indicated in the footnotes below (the "Issuable Shares"), by the number of shares of Central Mortgage Common Stock outstanding at -------------- (4,251,177) plus the number of Issuable Shares attributed to such shareholder. Includes 300,400 shares held by Margaret Harmon, the wife of Adrian Harmon, for which Adrian Harmon holds a proxy to vote the shares. Includes 27,900 shares of Central Mortgage Common Stock subject to exercisable stock options and 57,112 shares of Central Mortgage Common Stock held by members of Lynn Harmon's immediate family. Includes 29,400 shares of Central Mortgage Common Stock subject to exercisable stock options and 29,130 shares of Central Mortgage Common Stock held by members of Tom Harmon's immediate family. Includes 36,000 shares of Central Mortgage Common Stock subject to stock options that either are currently exercisable or will be exercisable upon approval of the Merger Agreement by the stockholders of Central Mortgage and 2,000 shares of Central Mortgage Common Stock owned by Mr. Mangone and his wife in joint tenancy. Includes 29,400 shares of Central Mortgage Common Stock subject to exercisable stock options, 57,886 shares of Central Mortgage Common Stock held by members of Mr. Rankin's immediate family and 58,023 shares of Central Mortgage Common Stock owned by Mr. Rankin and his wife in joint tenancy. Includes 919 shares held by Mr. Novak's wife. Includes 187,174 shares of unallocated Central Mortgage Common Stock held by Mercantile Bank of Kansas, as Trustee of Central Mortgage's Employee Stock Ownership Plan (the "ESOP"), which shares were issued on ____________, 1994 upon the conversion of 14,506 shares (not taking into consideration any fractional share) of Central Mortgage Preferred Stock held by the Trustee into shares of Central Mortgage Common Stock. Roger A. Novak and Richard O. Ballentine are members of the Administrative Committee of the ESOP and in such capacity have the authority to direct the voting of unallocated shares on all issues. Participants have the right to instruct the Trustee as to the voting of all shares of Central Mortgage Common Stock held by the ESOP that are allocated to the participants' respective accounts. Includes 122,700 shares of Central Mortgage Common Stock subject to stock options held by officers and directors as a group that either are currently exercisable or will be exercisable upon approval of the Merger Agreement by the shareholders of Central Mortgage.
For purposes of the above table, a person is deemed to be a beneficial owner of shares of Central Mortgage Common Stock if the person has or shares the power to vote or to dispose of such shares. Unless otherwise indicated in the footnotes, each person has sole voting and investment power with respect to shares shown in the table as beneficially owned by such person and disclaims beneficial ownership in shares described in the footnotes as being "held by" other persons. All persons shown in the table have business addresses at Central Mortgage's principal executive offices. - 76 - 82 INFORMATION REGARDING MBI STOCK ------------------------------- DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock, no par value, and 100,000,000 shares of MBI Common Stock, $5.00 par value. At September 30, 1994, MBI had no issued and outstanding shares of MBI Preferred Stock and 43,234,757 shares of MBI Common Stock issued and outstanding. Under Missouri law, MBI's Board of Directors may generally approve the issuance of authorized shares of Preferred Stock and Common Stock without shareholder approval. MBI's Board of Directors is also authorized to fix the number of shares and determine the designation of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any series of MBI Preferred Stock. Except for the designation and reservation of Series A Junior Participating Preferred Stock pursuant to MBI's Preferred Share Purchase Rights Plan described below, MBI's Board of Directors has not acted to designate or issue any shares of MBI Preferred Stock. The existence of a substantial number of unissued and unreserved shares of MBI Common Stock and undesignated shares of MBI Preferred Stock may enable the Board of Directors to issue shares to such persons and in such manner as may be deemed to have an anti-takeover effect. DIVIDENDS. The holders of MBI Common Stock are entitled to share ratably in dividends when, as and if declared by the Board of Directors from funds legally available therefor, after full cumulative dividends have been paid or declared, and funds sufficient for the payment thereof set apart, on all series of MBI Preferred Stock ranking superior as to dividends to MBI Common Stock. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. The payment of dividends to MBI by subsidiary banks is subject to extensive regulation by various state and federal regulatory agencies. See "SUPERVISION AND REGULATION." VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each share held on matters presented for consideration by the shareholders, except that, in the election of directors, such shareholders have cumulative voting rights which entitle each such shareholder to the number of votes which equals the number of shares held by the shareholder multiplied by the number of directors to be elected. All such cumulative votes may be cast for one candidate for election as a director or may be distributed among two or more candidates. PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no preemptive right to acquire any additional unissued shares or treasury shares of MBI. LIQUIDATION RIGHTS. In the event of liquidation, dissolution or winding up of MBI, whether voluntary or involuntary, the holders of MBI Common Stock will be entitled to share ratably in any of its assets or funds that are available for distribution to its shareholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after preferences on any outstanding MBI Preferred Stock. - 77 - 83 ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will be, when issued, fully paid and nonassessable. Such shares do not have any redemption provisions. PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase right (a "Right") is attached to each share of MBI Common Stock. The Rights trade automatically with shares of MBI Common Stock, and become exercisable and will trade separately from the MBI Common Stock on the tenth day after public announcement that a person or group has acquired, or has the right to acquire, beneficial ownership of 20% or more of the outstanding shares of MBI Common Stock, or upon commencement or announcement of intent to make a tender offer for 20% or more of the outstanding shares of MBI Common Stock, in either case without prior written consent of the Board. When exercisable, each Right will entitle the holder to buy 1/100 of a share of MBI Series A Junior Participating Preferred Stock at an exercise price of $100 per Right. In the event a person or group acquires beneficial ownership of 20% or more of MBI Common Stock, holders of Rights (other than the acquiring person or group) may purchase MBI Common Stock having a market value of twice the then current exercise price of each Right. If MBI is acquired by any person or group after the Rights become exercisable, each Right will entitle its holder to purchase stock of the acquiring company having a market value of twice the current exercise price of each Right. The Rights are designed to protect the interests of MBI and its shareholders against coercive takeover tactics. The purpose of the Rights is to encourage potential acquirors to negotiate with MBI's Board of Directors prior to attempting a takeover and to give the Board leverage in negotiating on behalf of all shareholders the terms of any proposed takeover. The Rights may deter certain takeover proposals. The Rights, which can be redeemed by MBI's Board of Directors in certain circumstances, expire by their terms on June 3, 1998. CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of MBI is divided into three classes, and the directors are elected by classes to three-year terms, so that one of the three classes of the directors of MBI will be elected at each annual meeting of the shareholders. While this provision promotes stability and continuity of the Board of Directors, classification of the Board of Directors may also have the effect of decreasing the number of directors that could otherwise be elected at each annual meeting of shareholders by a person who obtains a controlling interest in the MBI Common Stock and thereby could impede a change in control of MBI. Because fewer directors will be elected at each annual meeting, such classification also will reduce the effectiveness of cumulative voting as a means of establishing or increasing minority representation on the Board of Directors. OTHER MATTERS. MBI's Articles of Incorporation and By-Laws also contain provisions which: (i) require the affirmative vote of holders of at least 75% of the voting power of all of the outstanding shares of MBI entitled to vote in the election of directors to remove a director or directors without cause; (ii) require the affirmative vote of the holders of at least 75% of the voting power of all shares of the outstanding capital stock of MBI to approve certain "business combinations" with "interested parties" unless at least two-thirds of the Board of Directors first approves such business combinations; and (iii) require an affirmative vote of at least 75% of the voting power of all shares of the outstanding capital stock of MBI for the amendment, alteration, change or repeal of any of the above provisions unless at least two-thirds of the Board of Directors first approves such an amendment, alteration, change or repeal. Such provisions may be deemed to have an anti-takeover effect. RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES Under Rule 145 of the Securities Act of 1933 (the "Securities Act"), certain persons who receive MBI Common Stock pursuant to the Merger and who are deemed to be "affiliates" of Central Mortgage will be limited in their right to resell the stock so received. The term "affiliate" is defined to include any person who, directly or indirectly, controls, or is controlled by, or is under common control - 78 - 84 with Central Mortgage at the time the Merger is submitted to a vote of the shareholders of Central Mortgage. Each affiliate of Central Mortgage (generally any director or executive officer or shareholder of Central Mortgage who beneficially owns a substantial number of outstanding shares of Central Mortgage Common Stock) who desires to resell the MBI Common Stock received in the Merger must sell such stock either pursuant to an effective Registration Statement or in accordance with an applicable exemption, such as the applicable provisions of Rule 145(d) under the Securities Act. Rule 145(d) provides that persons deemed to be affiliates may resell their stock received in the Merger pursuant to certain of the requirements of Rule 144 under the Securities Act if such stock is sold within the first two years after the receipt thereof. After two years if such person is not an affiliate of MBI and if MBI is current with respect to its required public filings, a former affiliate of Central Mortgage may freely resell the stock received in the Merger without limitation. After three years from the issuance of the stock, if such person is not an affiliate of MBI at the time of sale and for at least three months prior to such sale, such person may freely resell such stock, without limitation, regardless of the status of MBI's required public filings. The shares of MBI stock to be received by affiliates of Central Mortgage in the Merger will be legended as to the restrictions imposed upon resale of such stock. COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND CENTRAL MORTGAGE Both MBI and Central Mortgage are incorporated under the laws of the State of Missouri and the rights of the shareholders of each of MBI and Central Mortgage are governed by their respective Articles of Incorporation and By-Laws and the Missouri Act. The rights of Central Mortgage shareholders who receive shares of MBI Common Stock in the Merger will thereafter be governed by MBI's Restated Articles of Incorporation and By-Laws and by the Missouri Act. The material rights of such shareholders, and, where applicable, the differences between the rights of MBI shareholders and Central Mortgage shareholders, are summarized below. PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "- Preferred Share Purchase Rights Plan," MBI Common Stock has attached Rights, which may deter certain takeover proposals. Central Mortgage does not have a rights plan. SUPERMAJORITY PROVISIONS. MBI's Restated Articles of Incorporation and MBI's By-Laws contain provisions requiring a supermajority vote of the shareholders of MBI to approve certain proposals. Under both MBI's Restated Articles and By-Laws, removal by the shareholders of the entire Board of Directors or any individual director from office without cause requires the affirmative vote of not less than 75% of the total votes entitled to be voted at a meeting of shareholders called for the election of directors. Amendment by the shareholders of MBI's Restated Articles or By-Laws relating to (i) the number or qualification of directors; (ii) the classification of the Board of Directors; (iii) the filling of vacancies on the Board of Directors; or (iv) the removal of directors, requires the affirmative vote of not less than 75% of the total votes of MBI's then outstanding capital stock entitled to vote, voting together as a single class, unless such amendment has previously been expressly approved by at least 66 2/3% of the Board of Directors. The Restated Articles of MBI additionally provide that, in addition to any shareholder vote required under the Missouri Act, the affirmative vote of the holders of not less than 75% of the total votes to which all of the then outstanding shares of capital stock of MBI are entitled, voting together as a single class (the "Voting Stock"), shall be required for the approval of any Business Combination. A "Business Combination" is defined generally to include sales, exchanges, leases, transfers or other dispositions of assets, mergers or consolidations, issuances of securities, liquidations or dissolutions of MBI, reclassifications of securities or recapitalizations of MBI, involving MBI on the one hand, and an Interested Shareholder or an affiliate of an Interested Shareholder on the other hand. An "Interested - 79 - 85 Shareholder" is defined generally to include any person, firm, corporation or other entity which is the beneficial owner of 5% or more of the voting power of the outstanding Voting Stock. If, however, at least 66 2/3% of the Board of Directors of MBI approve the Business Combination, such Business Combination shall require only the vote of shareholders as provided by Missouri law or otherwise. The amendment of the provisions of MBI's Restated Articles relating to the approval of Business Combinations requires the affirmative vote of the holders of at least 75% of the Voting Stock unless such amendment has previously been approved by at least 66 2/3% of the Board of Directors. To the extent that a potential acquiror's strategy depends on the passage of proposals which require a supermajority vote of MBI's shareholders, such provisions requiring a supermajority vote may have the effect of discouraging takeover attempts that do not have Board approval by making passage of such proposals more difficult. Neither Central Mortgage's Articles of Incorporation nor Central Mortgage's By-Laws require a supermajority vote of shareholders with respect to any item. VOTING FOR DIRECTORS. MBI's By-Laws provide for cumulative voting in the election of directors. Cumulative voting entitles each shareholder to cast an aggregate number of votes equal to the number of voting shares held, multiplied by the number of directors to be elected. Each shareholder may cast all such votes for one nominee or distribute them among two or more nominees, thus permitting holders of less than a majority of the outstanding shares of voting stock to achieve board representation. Central Mortgage's Articles of Incorporation and By-Laws do not provide for cumulative voting. CLASSIFIED BOARD. As described under "- Classification of Board of Directors," the Board of Directors of MBI is divided into three classes of directors, with each class being elected to a staggered three-year term. By reducing the number of directors to be elected in any given year, the existence of a classified Board diminishes the benefits of the cumulative voting rights to minority shareholders. Central Mortgage also has a classified Board of Directors with three classes of directors. ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions applicable to Missouri corporations such as MBI and Central Mortgage which may be deemed to have an anti-takeover effect. Such provisions include Missouri's business combination statute and the control share acquisition statute. The Missouri business combination statute protects domestic corporations from hostile takeovers by prohibiting certain transactions once an acquiror has gained control. The statute restricts certain "Business Combinations" between a corporation and an "Interested Shareholder" or affiliates of the Interested Shareholder for a period of five years unless certain conditions are met. A "Business Combination" includes a merger or consolidation, certain sales, leases, exchanges, pledges and similar dispositions of corporate assets or stock and certain reclassifications and recapitalizations. An "Interested Shareholder" includes any person or entity which beneficially owns or controls 20% or more of the outstanding voting shares of the corporation. During the initial five-year restricted period, no Business Combination may occur unless such Business Combination or the transaction in which an Interested Shareholder becomes "interested" is approved by the board of directors of the corporation. Business Combinations may occur during such five-year period if: (i) prior to the stock acquisition by the Interested Shareholder, the board of directors approves the transaction in which the Interested Shareholder became such or approves the Business Combination in question; (ii) the holders of a majority of the outstanding voting stock, other than stock owned by the Interested Shareholder, approve the Business Combination; or (iii) the Business Combination satisfies certain detailed fairness and procedural requirements. - 80 - 86 The Missouri Act exempts from its provisions: (i) corporations not having a class of voting stock registered under Section 12 of the Exchange Act; (ii) corporations which adopt provisions in their articles of incorporation or bylaws expressly electing not to be covered by the statute; and (iii) certain circumstances in which a shareholder inadvertently becomes an Interested Shareholder. Neither MBI's Restated Articles of Incorporation and By-Laws nor Central Mortgage's Articles of Incorporation and By-Laws "opt out" of the Missouri business combination statute. The Missouri Act also contains a "Control Share Acquisition Statute" which provides that an "Acquiring Person" who after any acquisition of shares of a publicly traded corporation has the voting power, when added to all shares of the same corporation previously owned or controlled by the Acquiring Person, to exercise or direct the exercise of: (i) 20% but less than 33-1/3%, (ii) 33-1/3% or more but less than a majority or (iii) a majority, of the voting power of outstanding stock of such corporation, must obtain shareholder approval for the purchase of the "Control Shares." If approval is not given, the Acquiring Person's shares lose the right to vote. The statute prohibits an Acquiring Person from voting its shares unless certain disclosure requirements are met and the retention or restoration of voting rights is approved by both: (i) a majority of the outstanding voting stock, and (ii) a majority of the outstanding voting stock after exclusion of "Interested Shares." Interested Shares are defined as shares owned by the Acquiring Person, by directors who are also employees, and by officers of the corporation. Shareholders are given dissenters' rights with respect to the vote on Control Share Acquisitions and may demand payment of the fair value of their shares. A number of acquisitions of shares are deemed not to constitute Control Share Acquisitions, including good faith gifts, transfers pursuant to wills, purchases pursuant to an issuance by the corporation, mergers involving the corporation which satisfy the other requirements of the Missouri Act, transactions with a person who owned a majority of the voting power of the corporation within the prior year, or purchases from a person who has previously satisfied the provisions of the Control Share Acquisition Statute so long as the transaction does not result in the purchasing party having voting power after the purchase in a percentage range (such ranges are as set forth in the immediately preceding paragraph) beyond the range for which the selling party previously satisfied the provisions of the statute. Additionally, a corporation may exempt itself from application of the statute by inserting a provision in its articles of incorporation or bylaws expressly electing not to be covered by the statute. MBI's Restated Articles of Incorporation and By-Laws do not "opt out" of the Control Share Acquisition Statute. Central Mortgage's Articles of Incorporation do "opt out" of the Control Share Acquisition Statute. DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a shareholder of any corporation which is a party to a merger or consolidation, or which sells all or substantially all of its assets, has the right to dissent from such corporate action and to demand payment of the value of such shares. The dissenters' rights provisions of the Missouri Act are applicable to the shareholders of both MBI and Central Mortgage. SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of the Missouri Act, any shareholder may inspect the corporation's books and records for any reasonable and proper purpose. Such inspection may be made at all proper times, subject to regulations as may be prescribed by the By-Laws. SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act, the number of directors on the Board of Directors of MBI is set forth in MBI's By-Laws which provide that the number of directors may be fixed from time to time at not less than 12 nor more than 24 by an amendment of the By- Laws or by a resolution of the Board of Directors, in either case, adopted by the vote or consent of at least 66 2/3% of the number of directors then authorized under the By-Laws. Central Mortgage's By-Laws provide that the number of directors of the Board of Directors shall be fixed from time to time at - 81 - 87 not less than 5 nor more than 25 by not less than a majority of the then serving Board of Directors. The supermajority vote required for the amendment of MBI's By-Laws regarding a change in the number of directors may have the effect of making it more difficult to force an immediate change in the composition of a majority of the Board of Directors and may be deemed to have an anti-takeover effect. SUPERVISION AND REGULATION -------------------------- GENERAL As a bank holding company, MBI is subject to regulation under the BHCA and its examination and reporting requirements. Under the BHCA, a bank holding company may not directly or indirectly acquire the ownership or control of more than 5% of the voting shares or substantially all of the assets of any company, including a bank or savings and loan association, without the prior approval of the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking activities, subject to certain exceptions. MBI and its subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. The earnings of MBI's subsidiaries, and therefore the earnings of MBI, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board, the FDIC and the Comptroller of the Currency (the "Comptroller"). In addition, there are numerous governmental requirements and regulations that affect the activities of MBI and its subsidiaries. CERTAIN TRANSACTIONS WITH AFFILIATES There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be on non-preferential terms and secured by designated amounts of specified collateral and be limited, as to any one of the holding company or such nonbank subsidiaries, to 10% of the lending bank's capital stock and surplus, and as to the holding company and all such nonbank subsidiaries in the aggregate, to 20% of such capital stock and surplus. PAYMENT OF DIVIDENDS MBI is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of MBI's revenues is dividends from its national and state banking subsidiaries. Various federal and state statutory provisions limit the amount of dividends the affiliate banks can pay to MBI without regulatory approval. The approval of the appropriate bank regulator is required for any dividend by a national bank or state member bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits, as defined by regulatory agencies, for such year combined with its retained net profits for the preceding two years. In addition, a national bank or a state member bank may not pay a dividend in an amount greater than its net profits then on hand. The payment of dividends by any affiliate bank may also be affected by other factors, such as the maintenance of adequate capital for such affiliate bank. - 82 - 88 CAPITAL ADEQUACY The Federal Reserve Board has issued standards for measuring capital adequacy for bank holding companies. These standards are designed to provide risk-responsive capital guidelines and to incorporate a consistent framework for use by financial institutions operating in major international financial markets. The banking regulators have issued standards for banks that are similar to, but not identical with, the standards for bank holding companies. In general, the risk-related standards require banks and bank holding companies to maintain capital based on "risk adjusted" assets so that categories of assets with potentially higher credit risk will require more capital backing than categories with lower credit risk. In addition, banks and bank holding companies are required to maintain capital to support off- balance sheet activities such as loan commitments. The standards classify total capital for this risk-based measure into two tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of common shareholders' equity, certain non-cumulative and cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries; Tier 2 capital consists of the allowance for loan and lease losses (within certain limits), perpetual preferred stock not included in Tier 1, hybrid capital instruments, term subordinated debt, and intermediate- term preferred stock. By December 31, 1992, bank holding companies were required to meet a minimum ratio of 8% of qualifying total capital to risk- adjusted assets, and a minimum ratio of 4% of qualifying Tier 1 capital to risk-adjusted assets. Capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital in testing compliance with the total risk- based capital minimum standards. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 capital to adjusted average total assets (the "leverage ratio") of 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. Other bank holding companies generally are required to maintain a leverage ratio of at least 3% plus 100 to 200 basis points. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it may consider other indicia of capital strength in evaluating proposals for expansion or new activities. The federal bank regulatory agencies have issued various proposals to amend the risk-based capital guidelines for banks and bank holding companies. Under one proposal, banks would be required to give explicit consideration to interest rate risk as an element of capital adequacy by maintaining capital to compensate for such risk in an amount measured by the bank's exposure to interest rate risk in excess of a regulatory threshold. Another proposal would revise the treatment given to (i) low-level recourse arrangements to reduce the amount of capital required and (ii) certain direct credit substitutes provided by banking organizations to require that capital be maintained against the value of the assets enhanced or the loans protected. A proposal recently issued by the Federal Reserve Board and expected to be joined in by the other bank regulatory agencies increases the amount of capital required to be carried against certain long-term derivative contracts; in addition, the proposal recognizes the effect of certain bilateral netting arrangements in reducing potential future exposure under these contracts. MBI believes that these changes will not, if adopted, have a material effect on the company's compliance with capital adequacy requirements. - 83 - 89 FDIC INSURANCE ASSESSMENTS The subsidiary banks of MBI are subject to FDIC deposit insurance assessments. The FDIC has adopted a risk-based premium schedule which has increased the assessment rates for most FDIC insured depository institutions. Under the new schedule, the annual premiums initially range from $.23 to $.31 for every $100 of deposits. Each financial institution is assigned to one of three capital groups--well capitalized, adequately capitalized or undercapitalized--and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors and on the basis of other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. The legislation adopted in August, 1989 to provide for the resolution of insolvent savings associations also required the FDIC to establish separate deposit insurance funds -- the Bank Insurance Fund ("BIF") for banks and the Savings Association Insurance Fund ("SAIF") for savings associations. The law also requires the FDIC to set deposit insurance assessments at such levels as will cause BIF and SAIF to reach their "designated reserve ratios" of 1.25 percent of the deposits insured by them within a reasonable period of time. Thanks to low costs of resolving bank insolvencies in the last few years, BIF is expected to reach its designated reserve ratio within one or two years, at which time the FDIC will be required to lower deposit insurance assessment rates on banks to those substantially lower levels that will maintain the balance in BIF in the required relationship to insured bank deposits. However, the balance in SAIF is not expected to reach the designated reserve ratio for far longer, as the law provides that a significant portion of the costs of resolving past insolvencies of savings associations must be paid from this source. Accordingly, while the BIF and SAIF assessment rates are presently the same, it is likely that SAIF rates will be significantly higher than BIF rates in the future. Since MBI has acquired substantial amounts of SAIF-insured deposits during the years from 1989 to the present which cannot be converted from SAIF to BIF under present law, it may be required to pay insurance assessments on these acquired deposits at rates significantly higher than the rates charged by BIF. While the amount of additional deposit insurance assessments to be incurred cannot be calculated at this time because the differential likely to develop between SAIF and BIF is not known, MBI does not expect that such additional deposit insurance costs will have a significant, adverse effect on its earnings. SUPPORT OF SUBSIDIARY BANKS Under Federal Reserve Board policy, MBI is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each of the subsidiaries in circumstances where it might not choose to do so absent such a policy. In addition, any capital loans by MBI to any of its subsidiaries would also be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary. This support may be required at times when MBI may not find itself able to provide it. Consistent with this policy regarding bank holding companies serving as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. - 84 - 90 FIRREA AND FDICIA The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") contains a cross-guarantee provision which could result in insured depository institutions owned by MBI being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other insured depository institution owned by MBI. Under FIRREA, failure to meet the capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") made extensive changes to the federal banking laws. FDICIA instituted certain changes to the supervisory process, including provisions that mandate certain regulatory agency actions against undercapitalized institutions within specified time limits. FDICIA contains various other provisions that may affect the operations of banks and savings institutions. The prompt corrective action provision of FDICIA requires the federal banking regulators to assign each insured institution to one of five capital categories ("well capitalized," "adequately capitalized" or one of three "undercapitalized" categories) and to take progressively more restrictive actions based on the capital categorization, as specified below. Under FDICIA, capital requirements would include a leverage limit, a risk- based capital requirement and any other measure of capital deemed appropriate by the federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from taking any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any relevant capital measure. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") may be: (i) subject to increased monitoring by the appropriate federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of businesses. The capital restoration plan must include a guarantee by the institution's holding company (under which the holding company would be liable up to the lesser of 5% of the institution's total assets or the amount necessary to bring the institution into capital compliance as of the date it failed to comply with its capital restoration plan) that the institution will comply with the plan until it has been adequately capitalized on average for four consecutive quarters. The FDIC and the Federal Reserve Board adopted capital-related regulations under FDICIA. Under those regulations, a bank will be well capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier 1 capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier 1 capital to adjusted total assets of 5% or greater; and (iv) was not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. An association will be adequately capitalized if it was not "well capitalized" and: (i) had a risk- based capital ratio of 8% or greater; (ii) had a ratio of Tier 1 capital to risk-adjusted assets of 4% or greater; and (iii) had a ratio of Tier 1 capital to adjusted total assets of 4% or greater (except that certain associations rated "Composite 1" under the federal banking agencies' CAMEL rating system may be adequately capitalized if their ratios of core capital to adjusted total assets were 3% or greater). Under FDICIA, a bank or savings institution that is undercapitalized may not accept, renew or roll over deposits obtained through a deposit broker, may not solicit deposits by offering interest rates that are significantly higher than market rates and cannot provide pass-through insurance on certain collective deposits. Banks that are "adequately capitalized" but are not "well capitalized" will be required to obtain a waiver from the FDIC in order to accept, renew, or roll over brokered deposits, and may not - 85 - 91 pay interest on deposits that significantly exceeds market rates for deposits of similar maturity or provide pass-through insurance. FDICIA directs the FDIC to establish a risk-based assessment system for deposit insurance by January 1, 1994. On September 15, 1992, the Board of Directors of the FDIC approved a transitional system of risk-based deposit insurance pursuant to which the insurance assessments would vary depending upon the level of capital of the institution and the degree to which it is the subject of supervisory concern to the FDIC. Under the risk-based insurance premium schedule approved by the FDIC's Board of Directors, effective January 1, 1993, the assessment rate varies from .23% of eligible deposits for "healthy" well capitalized banks to .31% of eligible deposits for less than adequately capitalized banks that pose substantial supervisory concerns. FDICIA also makes extensive changes in existing rules regarding audits, examinations and accounting. It generally requires annual on-site, full scope examinations by each bank's primary federal regulator. It also imposes new responsibilities on management, the independent audit committee and outside accountants to develop or approve reports regarding the effectiveness of internal controls, legal compliance and off-balance sheet liabilities and assets. DEPOSITOR PREFERENCE STATUTE Legislation enacted in August 1993 provides a preference for deposits and certain claims for administrative expenses and employee compensation against an insured depository institution, such as Central Mortgage's and MBI's insured bank subsidiaries, in the liquidation or other resolution of such an institution by any receiver. Such obligations would be afforded priority over other general unsecured claims against such an institution, including federal funds and letters of credit, as well as any obligation to shareholders of such an institution in their capacity as such. THE INTERSTATE BANKING AND COMMUNITY DEVELOPMENT LEGISLATION In September, 1994 legislation was enacted that is expected to have a significant effect in restructuring the banking industry in the United States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 facilitates the interstate expansion and consolidation of banking organizations (i) by permitting bank holding companies that are adequately capitalized and managed, one year after enactment of the legislation, to acquire banks located in states outside their home states regardless of whether such acquisitions are authorized under the law of the host state, (ii) by permitting the interstate merger of banks after June 1, 1997, subject to the right of individual states to "opt in" or to "opt out" of this authority before that date, (iii) by permitting banks to establish new branches on an interstate basis provided that such action is specifically authorized by the law of the host state, (iv) by permitting foreign banks to establish, with approval of the regulators in the United States, branches outside their home states to the same extent that national or state banks located in the home state would be authorized to do so, and (v) by permitting, beginning September 29, 1995, banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for any bank or thrift affiliate, whether the affiliate is located in the same state or a different state. One effect of this legislation will be to permit MBI to acquire banks located in any state and to permit bank holding companies located in any state to acquire banks and bank holding companies in Missouri. Overall, this legislation is likely to have the effects of increasing competition and promoting geographic diversification in the banking industry. The Riegle Community Development and Regulatory Improvement Act of 1994, also enacted in September, 1994, is intended to (i) increase the flow of loans to businesses in distressed - 86 - 92 communities by providing incentives to lenders to provide credit within those communities, (ii) remove impediments to the securitization of small business loans, (iii) provide for a reduction in paperwork and to streamline bank regulation through, for example, the coordination of examinations in a bank holding company context, a reduction in the number of currency transaction reports required, improvements to the National Flood Insurance Program that include enabling lenders to force place flood insurance, and (iv) increase the level of consumer protection provided to customers in banking transactions. MBI believes that these provisions of the new law will not have a material effect on its operation. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS ----------------------------------------- KPMG Peat Marwick LLP served as MBI's independent accountants for the year ended December 31, 1993 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements, review and consultation regarding filings with the Securities and Exchange Commission and other regulatory authorities and consultation on financial accounting and reporting matters. Baird, Kurtz & Dobson served as Central Mortgage's independent accountants for the year ended December 31, 1993 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements, review and consultation regarding filings with the Securities and Exchange Commission and other regulatory authorities and consultation on financial accounting and reporting matters. Baird, Kurtz & Dobson intends to have a representative present at the Special Meeting to answer relevant questions regarding the Merger. LEGAL MATTERS ------------- Certain legal matters will be passed upon for MBI by Thompson & Mitchell, St. Louis, Missouri and for Central Mortgage by Blackwell Sanders Matheny Weary & Lombardi, Kansas City, Missouri. EXPERTS ------- The consolidated financial statements of Mercantile Bancorporation Inc. as of December 31, 1993, 1992 and 1991, and for each of the years in the three-year period ended December 31, 1993, incorporated by reference in MBI's Annual Report on Form 10-K, and the supplemental consolidated financial statements of Mercantile Bancorporation Inc. as of December 31, 1993, 1992 and 1991, and for each of the years in the three-year period ended December 31, 1993, contained in MBI's Current Report on Form 8-K dated June 17, 1994, have been incorporated by reference herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP dated January 13, 1994, except as to Note Q, which is as of February 10, 1994, contains an explanatory paragraph referring to the change in accounting for income taxes. The consolidated financial statements of Central Mortgage Bancshares, Inc. as of December 31, 1993 and 1992 and for each of the years in the three-year period ended December 31, 1993 have been included herein in reliance upon the report of Baird, Kurtz & Dobson, independent certified public accountants, whose report is included herein, and upon the authority of such firm as experts in accounting and auditing. - 87 - 93 OTHER MATTERS ------------- The Board of Directors of Central Mortgage, at the date hereof, is not aware of any business to be presented at the Special Meeting other than that referred to in the Notice of Special Meeting and discussed herein. If any other matter should properly come before the Special Meeting, the persons named as proxies will have discretionary authority to vote the shares represented by proxies in accordance with their discretion and judgment as to the best interests of Central Mortgage. SHAREHOLDER PROPOSALS --------------------- If the Merger is approved, the other conditions to the Merger are satisfied and the Merger is consummated, shareholders of Central Mortgage will become shareholders of MBI at the Effective Time. MBI shareholders may submit to MBI proposals for formal consideration at the 1995 annual meeting of MBI's shareholders and inclusion in MBI's proxy statement for such meeting. All such proposals must have been received in writing by the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by November 22, 1994 in order to be considered for inclusion in MBI's Proxy Statement and proxy for the 1995 annual meeting. Proposals to be considered for inclusion in MBI's Proxy Statement and proxy for the 1996 annual meeting must be received in writing by November 21, 1995. - 88 - 94 CONSOLIDATED FINANCIAL STATEMENTS INDEX -----
Page ---- INDEPENDENT ACCOUNTANTS' REPORT. . . . . . . . . . . . . . F-1 CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1994 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992. . . . . . . . F-2 to F-3 CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991. . . . . F-4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 . . . . . . . . . . . . . . . . . . . . . . F-5 to F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991. . . . . F-7 to F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . F-9 to F-35
- 89 - 95 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- Board of Directors Central Mortgage Bancshares, Inc. Kansas City, Missouri We have audited the accompanying consolidated balance sheets of CENTRAL MORTGAGE BANCSHARES, INC. as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 CENTRAL MORTGAGE BANCSHARES, INC. as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ Baird, Kurtz & Dobson Kansas City, Missouri February 4, 1994, except for Note 23 as to which the date is September 21, 1994 F-1 96 CENTRAL MORTGAGE BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1994 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, September 30, ---------------------- 1994 1993 1992 ------------- --------- -------- (Unaudited) ASSETS Cash and due from banks Interest bearing deposits $ 211 Non-interest bearing deposits and cash (Note 3) $ 28,502 $ 27,901 18,229 Federal funds sold 2,400 15,575 14,950 -------- -------- -------- Total Cash and Cash Equivalents 30,902 43,476 33,390 -------- -------- -------- Investments Investment securities held to maturity (fair value of $146,729 at September 30, 1994 and $186,335 and $145,262 at December 31, 1993 and 1992, respectively) (Note 4) 149,163 184,226 143,096 Investment securities available for sale (amortized cost of $38,155 at September 30, 1994) 38,028 Other investments 200 504 631 -------- -------- -------- Total Investments 187,391 184,730 143,727 -------- -------- -------- Mortgage loans held for sale 5,579 11,379 10,950 -------- -------- -------- Loans (Note 6) 381,783 359,028 216,997 Less: Unearned interest 1,010 1,921 2,101 Allowance for loan losses (Note 7) 6,396 4,693 2,648 -------- -------- -------- Net loans 374,377 352,414 212,248 -------- -------- -------- Foreclosed assets held for sale (Note 8) 348 2,225 406 Premises and equipment (Note 9) 11,686 11,632 6,905 Excess cost over fair value of net assets of subsidiary banks acquired, net of accumulated amortization (Note 5) 5,724 6,035 Interest receivable 4,797 4,673 3,556 Other assets 5,672 6,071 2,625 -------- -------- -------- 28,227 30,636 13,492 -------- -------- -------- TOTAL ASSETS $626,476 $622,635 $413,807 ======== ======== ======== See Notes to Consolidated Financial Statements
F-2 97
December 31, September 30, ---------------------- 1994 1993 1992 ------------- --------- -------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Demand deposits $ 80,347 $ 86,769 $ 49,119 Savings, NOW and money market deposits 167,302 186,139 120,337 Time deposits (Note 10) 289,974 264,843 182,847 -------- --------- --------- Total Deposits 537,623 537,751 352,303 Securities sold under agreement to repurchase 23,574 22,300 20,850 Employee Stock Ownership Plan note payable (Note 15) 1,819 1,819 2,271 Notes payable (Note 11) 3,400 5,700 50 Other borrowings (Note 11) 1,100 1,100 1,100 Other liabilities and accrued expenses 6,456 5,443 2,868 -------- --------- --------- Total Liabilities 573,972 574,113 379,442 -------- --------- --------- SHAREHOLDERS' EQUITY (Note 12) Series A preferred stock; par value $10 per share; authorized and issued 43,000 shares including shares in Treasury (1993 and 1992 - 427); (aggregate liquidation preference $4.3 million) 430 430 430 Common stock; par value $1 per share; authorized 6,000,000 shares; issued 3,734,675 and 2,814,675 shares, respectively, at December 31, 1993 and 1992, including shares in Treasury (1993 and 1992 - 32,826), after giving retroactive recognition to the 3-for-1 stock split effected in June 1992 3,735 3,735 2,815 Capital surplus 24,376 24,376 15,347 Net unrealized loss on securities available for sale (78) Retained earnings 26,036 21,976 18,220 Less: Cost of common and preferred stock in Treasury (176) (176) (176) Less: Employee Stock Ownership Plan obligation (Note 15) (1,819) (1,819) (2,271) -------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 52,504 48,522 34,365 -------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $626,476 $622,635 $413,807 ======== ========= ========= See Notes to Consolidated Financial Statements
F-3 98 CENTRAL MORTGAGE BANCHSARES, INC. CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended September 30, Years Ended December 31, ------------------- ---------------------------------- 1994 1993 1993 1992 1991 ------- ------- ------- ------- ------- (UNAUDITED) INTEREST INCOME Interest and fees on loans $25,188 $17,266 $25,638 $20,862 $20,085 ------- ------- ------- ------- ------- Interest on investments: Taxable 5,227 4,944 6,751 5,988 4,149 Tax-exempt 1,696 1,239 1,742 1,102 872 ------- ------- ------- ------- ------- Total Interest on Investments 6,923 6,183 8,493 7,090 5,021 ------- ------- ------- ------- ------- Other interest income 372 290 321 625 600 ------- ------- ------- ------- ------- Total Interest Income 32,483 23,739 34,452 28,577 25,706 ------- ------- ------- ------- ------- INTEREST EXPENSE Interest on deposits (Note 10) 12,489 9,177 13,056 12,802 12,653 Interest on short-term borrowings 748 678 888 417 229 Interest on notes payable 333 96 250 397 378 ------- ------- ------- ------- ------- Total Interest Expense 13,570 9,951 14,194 13,616 13,260 ------- ------- ------- ------- ------- Net Interest Income 18,913 13,788 20,258 14,961 12,446 Provision for loan losses (Note 7) 919 668 956 913 870 ------- ------- ------- ------- ------- Net Interest Income after Provision for Loan Losses 17,994 13,120 19,302 14,048 11,576 ------- ------- ------- ------- ------- NON-INTEREST INCOME Service charges on deposit accounts 2,318 1,485 2,254 1,559 1,458 Loan servicing income 1,522 1,469 2,034 1,869 1,725 Gain on sale of loans 169 247 456 325 103 Gain on sale of investment securities available for sale 450 Other 1,315 787 1,125 1,039 966 ------- ------- ------- ------- ------- Total Non-Interest Income 5,774 3,988 5,869 4,792 4,252 ------- ------- ------- ------- ------- NON-INTEREST EXPENSE Salaries and employee benefits 8,185 6,442 9,161 7,617 6,494 Net occupancy and equipment expense 2,029 1,354 2,162 1,630 1,549 Other (Note 20) 5,899 4,335 6,804 4,607 3,890 ------- ------- ------- ------- ------- Total Non-Interest Expense 16,113 12,131 18,127 13,854 11,933 ------- ------- ------- ------- ------- INCOME BEFORE MINORITY INTEREST 7,655 4,977 7,044 4,986 3,895 MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARIES 1 6 ------- ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 7,655 4,977 7,043 4,986 3,889 INCOME TAXES (Note 13) 2,266 1,364 1,913 1,245 924 ------- ------- ------- ------- ------- NET INCOME 5,389 3,613 5,130 3,741 2,965 CASH DIVIDENDS ON PREFERRED STOCK, Net 143 128 170 283 377 ------- ------- ------- ------- ------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 5,246 $ 3,485 $ 4,960 $ 3,458 $ 2,588 ======= ======= ======= ======= ======= EARNINGS PER COMMON SHARE (Note 1) Primary $1.38 $1.15 $1.54 $1.79 $1.57 ===== ===== ===== ===== ===== Fully diluted $1.24 $1.01 $1.36 $1.51 $1.35 ===== ===== ===== ===== ===== See Notes to Consolidated Financial Statements
F-4 99 CENTRAL MORTGAGE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Series A Common Series A Preferred Stock Stock Common Stock --------------- ------ ------------ BALANCE, DECEMBER 31, 1990 $ 4,300 $1,684 $ 16 Net income Reduction in par value of common and preferred stock (3,870) (15) Purchase of 6,000 shares of common stock for the treasury Conversion of 427 shares of preferred stock into 1,836 shares of common stock from the treasury Sale of 1,800 treasury shares under key employee stock option plans Dividends on Series A preferred stock, $8.79 per share Dividends on common stock, $.16 per share Reduction of Employee Stock Ownership Plan obligation ------- ------ ---- BALANCE, DECEMBER 31, 1991 430 1,684 1 Net income Sale of 1,131,006 shares under public offering of common stock 1,131 Purchase of 2,700,000 shares of Series A common stock for the treasury Sale of 1,500 treasury shares under key employee stock option plans Retirement of 2,700,000 shares of Series A common stock from the treasury (1) Dividends on shares of Series A preferred stock, $6.65 per share Dividends on common stock, $.23 per share Reduction of Employee Stock Ownership Plan obligation ------- ------ ---- BALANCE, DECEMBER 31, 1992 430 2,815 0 Net income Sale of 920,000 shares under public offering of common stock 920 Dividends on common stock, $.37 per share Dividends on shares of Series A preferred stock, $6.07 per share Income tax benefit of preferred stock dividends Reduction of Employee Stock Ownership Plan obligation ------- ------ ---- BALANCE, DECEMBER 31, 1993 430 3,735 0 Net income Dividends on shares of Series A preferred stock, $5.10 per share Dividends on common stock, $.32 per share Income tax benefit of preferred stock dividends SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" adopted January 1, 1994 Net fair value adjustment for available-for-sale securities ------- ------ ---- BALANCE, SEPTEMBER 30, 1994 (Unaudited) $ 430 $3,735 $ 0 ======= ====== ==== See Notes to Consolidated Financial Statements
F-5 100
Unrealized Gain (Loss) on Employee Total Capital Securities Retained Treasury Stock Ownership Shareholders' Surplus Available for Sale Earnings Stock Plan Obligation Equity - ------- ------------------ -------- -------- --------------- ------------- $ 2,536 $12,918 $(184) $(3,026) $18,244 2,965 2,965 3,885 0 (38) (38) (23) 29 6 9 9 (377) (377) (263) (263) 339 339 - ------- ------- ----- ------- ------- 6,398 15,243 (184) (2,687) 20,885 3,741 3,741 8,970 10,101 (23) (23) 1 8 9 (22) 23 0 (283) (283) (481) (481) 416 416 - ------- ------- ----- ------- ------- 15,347 18,220 (176) (2,271) 34,365 5,130 5,130 9,029 9,949 (1,204) (1,204) (258) (258) 88 88 452 452 - ------- ------- ----- ------- ------- 24,376 21,976 (176) (1,819) 48,522 5,389 5,389 (217) (217) (1,186) (1,186) 74 74 $ 404 404 (482) (482) - ------- ----- ------- ----- ------- ------- $24,376 $ (78) $26,036 $(176) $(1,819) $52,504 ======= ===== ======= ===== ======= =======
F-6 101 CENTRAL MORTGAGE BANCSHARES,INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended Years Ended September 30, December 31, -------------------- -------------------------------- 1994 1993 1993 1992 1991 -------- -------- -------- --------- -------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,389 $ 3,613 $ 5,130 $ 3,741 $ 2,965 Items not requiring (providing) cash: Gain on sale of loans (169) (247) (456) (325) (103) Gain on sale of investment securities available for sale (450) Depreciation 845 511 921 619 585 Provision for loan losses and foreclosed assets held for sale 1,027 743 1,176 913 870 Amortization and accretion, net 1,586 940 1,340 859 259 Deferred income taxes (88) (113) 65 (47) (72) Changes in: Mortgage loans held for sale 5,969 (3,977) (429) (3,333) 2,688 Interest receivable (124) 209 55 (597) 55 Interest payable 313 191 (23) 68 (126) Other, net 1,310 (833) 1,645 (177) 230 -------- -------- -------- --------- -------- Net cash provided by operating activities 15,608 1,037 9,424 1,721 7,351 -------- -------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (23,334) (22,826) (37,334) (38,506) (15,480) Purchase of premises and equipment, net (899) (659) (1,458) (1,150) (779) Proceeds from the sale of foreclosed assets 1,970 2,106 3,725 930 821 Proceeds from the maturity of investment securities held to maturity 32,139 47,096 70,705 48,314 31,176 Proceeds from the sale of investment securities held to maturity 3,029 1,665 Purchase of investment securities held to maturity (54,698) (50,043) (74,144) (126,341) (33,487) Proceeds from the maturity of investment securities available for sale 24,936 Proceeds from the sale of investment securities available for sale 475 Purchase of investment securities available for sale (5,853) Purchase of mortgage servicing rights (148) (250) (299) (113) (61) Increase in ownership of subsidiary (10) (8) (24) Net cash provided by purchase acquisition 2,992 2,992 -------- -------- -------- --------- -------- Net cash used in investing activities (25,422) (21,584) (35,821) (113,861) (16,145) -------- ------- -------- --------- -------- See Notes to Consolidated Financial Statements
F-7 102 CENTRAL MORTGAGE BANCSHARES,INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended Years Ended September 30, December 31, -------------------- -------------------------------- 1994 1993 1993 1992 1991 -------- -------- -------- --------- -------- (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand, savings, NOW and money market deposits (Note 5) $(25,259) $ (5,242) $ 493 $ 38,426 $ 21,210 Net increase (decrease) in time deposits (Note 5) 24,928 9,627 20,853 52,290 (2,167) Increase in federal funds purchased and securities sold under agreements to repurchase 1,274 1,950 1,450 16,750 900 Notes payable proceeds 5,000 6,275 5,023 Notes payable repayments (2,300) (50) (1,075) (5,679) (230) Proceeds from public offering of common stock 10,039 9,949 10,101 Retirement of Class "A" shares (23) Dividends paid (1,403) (1,028) (1,462) (764) (640) Purchase of treasury stock, net 9 (23) -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities (2,760) 20,296 36,483 116,133 19,050 -------- --------- -------- --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,574) (251) 10,086 3,993 10,256 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,476 33,390 33,390 29,397 19,141 -------- --------- -------- --------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,902 $ 33,139 $ 43,476 $ 33,390 $ 29,397 ======== ========= ======== ========= ======== See Notes to Consolidated Financial Statements
F-8 103 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS - -------- Central Mortgage Bancshares, Inc. (the "Company") provides a full range of banking services to individual and corporate customers through four subsidiary banks (the "Banks") in west-central and southwestern Missouri, consisting of Citizens-Jackson County Bank, Barton County State Bank, Citizens State Bank of Nevada and Farmers Bank of Stover. The Company's Mortgage Division also operates a mortgage banking business headquartered in Springfield, Missouri. The Company is subject to competition from other financial institutions. The Company is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. PRINCIPLES OF CONSOLIDATION - --------------------------- The consolidated financial statements include the accounts of Central Mortgage Bancshares, Inc. and its subsidiaries, which are substantially wholly-owned. BASIS OF FINANCIAL STATEMENT PRESENTATION - ----------------------------------------- The financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of repossessed property. These estimates are based upon management's periodic analysis of net realizable value or fair value and consider both current and anticipated future economic, operating and sales conditions. However, unanticipated changes in these factors could result in material adjustments to the allowance for loan losses and the valuation of repossessed property. Management believes that the allowance for losses on loans is adequate and repossessed property is properly valued and, in that regard, management obtains independent appraisals for significant properties. While management uses available information to recognize losses on loans and repossessed property, future losses may be accruable based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the subsidiary banks' allowances for losses on loans and valuation of repossessed property. Such agencies may require the banks to recognize additional losses based on their judgments of information available to them at the time of their examination. F-9 104 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS - ---------------- The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 1993 and 1992, cash equivalents consisted of federal funds sold and repurchase agreements. INVESTMENTS - ----------- Investments are stated at cost, adjusted for amortization of premiums and accretion of discounts, and include certificates of deposit with original maturities of greater than three months. The specific adjusted cost of securities is used to compute gains or losses on sales or redemptions of securities. All investments are intended to be held to maturity. In considering whether securities can be held until maturity, management considers whether there are conditions, such as regulatory requirements, which would impair its ability to hold such securities until maturity. At present, management is not aware of any such conditions. Management reviews the securities individually to determine whether there are other than temporary declines in net realizable values and write-downs are recorded, if necessary. MORTGAGE LOANS HELD FOR SALE - ---------------------------- Mortgage loans held for sale are carried at the lower of cost or market. Write-downs to market value are recognized as a charge to earnings at the time the decline in value occurs. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the face amount of the loans sold, net of discounts collected or paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage loans are recognized as revenue or expense when the loans are sold or when it becomes evident that the commitment will not be used. LOAN SERVICING INCOME - --------------------- Loan servicing income represents fees earned for servicing real estate mortgage loans owned by various investors. The fees are generally calculated on the outstanding principal balances of the loans serviced and are recorded as income when earned. LOANS - ----- Interest on loans is accrued and credited to operations based upon the principal amount outstanding. The accrual of interest income is discontinued when, in the opinion of management, it is not reasonable to expect that such interest will be paid. Subsequently, interest income is recognized only upon receipt. F-10 105 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR LOAN LOSSES - ------------------------- The provision for loan losses charged to expense is based on recent loan loss experience, a review of loan portfolios, current economic conditions and other pertinent factors which form a basis for management's determination as to the adequacy of the allowance for loan losses. FORECLOSED ASSETS HELD FOR SALE - ------------------------------- Assets acquired by foreclosure or in settlement of debt and held for sale are valued at fair value as of the date of foreclosure and a related valuation allowance is provided for estimated costs to sell the assets. Fair value at the time of foreclosure or settlement of debt is based on a current appraisal of the property. Management evaluates the value of foreclosed assets held for sale periodically and increases the valuation allowance for any subsequent declines in estimated fair value. Changes in the valuation allowance are charged or credited to other expense. Assets acquired by foreclosure also include loans upon which the foreclosure process is imminent or has been initiated but not completed and considered in-substance foreclosed. Such assets are carried at fair value and a related valuation allowance is provided for estimated costs to sell the assets. Gains or losses from the sale of foreclosed assets held for sale are recognized at the time of final sale and are credited or charged to current income. Net gains (losses) from the sale of foreclosed assets held for sale are included in other income and amounted to $(15,736), $31,327 and $(6,695) in 1993, 1992 and 1991, respectively. PREMISES AND EQUIPMENT - ---------------------- Premises and equipment are stated at cost less accumulated depreciation. Depreciation is mainly computed using the straight-line method over the estimated useful lives of the assets. PURCHASED MORTGAGE SERVICING - ---------------------------- Purchased mortgage servicing represents the cost of acquiring the rights to service mortgage loans. The cost is capitalized and amortized in proportion to, and over the period of, estimated future net revenue to be realized from the purchased servicing. These costs are included in other assets and amounted to $730,000 and $555,000 at December 31, 1993 and 1992, respectively, net of related accumulated amortization of $520,000 and $395,000, respectively. Amortization of purchased mortgage servicing rights for the years ended December 31, 1993, 1992 and 1991 was $154,000, $133,000 and $135,000, respectively. F-11 106 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PURCHASED MORTGAGE SERVICING (CONTINUED) - ---------------------------------------- The Company's carrying values of purchased mortgage servicing and the amortization thereon are periodically evaluated in relation to estimated future servicing revenues and costs, and such carrying values are adjusted for indicated impairments based on management's estimate of remaining cash flows, using a pool-by-pool method. EXCESS COSTS OF PURCHASED SUBSIDIARIES AND BRANCH DEPOSITS - ---------------------------------------------------------- Unamortized costs of purchased subsidiaries, in excess of the estimated fair value of underlying net tangible assets acquired, aggregated $6,035,000 (originally $6,162,000) at December 31, 1993, and are being amortized over a 15-year period using the straight-line method. Unamortized costs allocated to the future earnings potential of acquired deposits were $2,610,000 (originally $2,700,000) at December 31, 1993, and are being amortized over 10 years using the straight-line method. Amortization expense was $217,000 for 1993. Unamortized costs of purchased branch deposits (included in other assets) amounted to $250,000 and $297,000 at December 31, 1993 and 1992, respectively, and relate to the 1992 acquisition of deposits from the Resolution Trust Corporation (the "RTC") discussed in Note 5. These costs are allocated to the future earnings potential of the acquired deposits and are being amortized over seven years using the straight-line method. Amortization expense was $47,000 and $31,000 for the years ended December 31, 1993 and 1992, respectively. INCOME TAXES - ------------ The Company and its subsidiary banks file a consolidated federal income tax return. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that all, or some portion, of such deferred tax asset will not be realized. EARNINGS PER SHARE - ------------------ Primary earnings per share is based on net income less preferred stock dividends divided by the weighted average shares of common stock and common stock equivalents outstanding during each year after giving recognition to the Company's 3-for-1 stock split effected in June 1992. Common stock equivalents in 1991 include the dilutive effect of the assumed conversion of the Series A common stock. Common stock equivalents in the form of stock options are not considered in the computation when the effect thereof is anti-dilutive. The weighted average of the outstanding common stock and common stock equivalents as of December 31, 1993, 1992 and 1991 was 3,220,672, 1,931,099 and 1,647,534, respectively. F-12 107 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE (CONTINUED) - ------------------------------ Fully diluted earnings per common share are based on net income divided by weighted average common shares outstanding assuming conversion of preferred shares which are convertible into 549,330 common shares at December 31, 1993 and 1992, and 552,996 common shares at December 31, 1991 after giving retroactive recognition to the Company's 3-for-1 stock split effected in June 1992. IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS - ------------------------------------------ The Financial Accounting Standards Board has issued Statement No. 114 regarding accounting by creditors for impairment of a loan. This statement requires discounting expected future cash flows to measure impairment of certain loans or, as a practical expedient, impairment measurements based on the loan's observable market price or the fair value of collateral if the loan is collateral dependent. The Company expects to first apply this statement during the year ending December 31, 1995. Management has not estimated the impact, if any, of adopting FASB 114 on the Company's financial statements. The Financial Accounting Standards Board has issued Statement No. 115 regarding investments in debt and equity securities. This statement creates three categories of securities based upon management's intent. Securities meeting the criteria for the "held to maturity" category will be reported at amortized cost. All other securities, excluding those held in trading accounts, will be reported at fair value with unrealized gains and losses credited or charged to shareholders' equity. Unrealized gains and losses for securities held in trading accounts will continue to be reflected in income. The Company expects to first apply this statement during the year ending December 31, 1994. Management has determined that the impact of adopting FASB 115 will not be material to the Company's financial statements. RECLASSIFICATION - ---------------- Certain reclassifications have been made to the 1992 and 1991 financial statements to conform to the 1993 financial statement presentation. These reclassifications had no effect on net earnings. INTERIM FINANCIAL INFORMATION - ----------------------------- The consolidated financial statements as of September 30, 1994, and for the nine months ended September 30, 1994 and 1993, are unaudited but, in the opinion of management, reflect all adjustments consisting of only normal recurring items necessary for fair presentation. Interim results are not necessarily indicative of annual results. F-13 108 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 2: OFF-BALANCE-SHEET AND CREDIT RISK The Banks make agricultural, commercial, real estate and consumer loans in west-central and southwestern Missouri. Commitments to extend credit (for other than mortgage loans held for delivery against commitments) are agreements to lend to a customer as long as there is no violation of any condition established in the lending contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's credit-worthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, agricultural real estate, commercial real estate and residential real estate. Mortgage loans in process represent amounts which the Company plans to fund within a normal period of 60 to 90 days and which are intended for sale to investors in the secondary market. Forward commitments to sell mortgage loans are obligations to deliver loans at a specified price on or before a specified future date. The Company acquires such commitments to reduce its interest-rate risk on mortgage loans in process and mortgage loans held for sale. Total mortgage loans in process amounted to $16,923,000 and $16,985,000 at December 31, 1993 and 1992, respectively; and mortgage loans held for sale amounted to $11,379,000 and $10,950,000, respectively. Related forward commitments to sell mortgage loans during this same time frame amounted to approximately $24,008,000 and $24,421,000 also at December 31, 1993 and 1992, respectively. At December 31, 1993 and 1992, the Company had outstanding commitments to extend credit amounting to approximately $2,296,000 and $3,073,000, respectively. Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Total outstanding letters of credit amounted to approximately $930,000 and $627,000 at December 31, 1993 and 1992, respectively. F-14 109 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 2: OFF-BALANCE-SHEET AND CREDIT RISK (CONTINUED) Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer's credit-worthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include livestock, growing and stored crops, accounts receivable, inventory, property, plant and equipment, agricultural real estate, commercial real estate and residential real estate. The same credit policies are used in granting lines of credit as those for on-balance-sheet instruments. At December 31, 1993 and 1992, unused lines-of-credit available to borrowers aggregated approximately $14,244,000 and $12,573,000, respectively. Additionally, the Company periodically has excess funds which are loaned to other banks as federal funds sold. At December 31, 1993 and 1992, federal funds sold totalling $15,575,000 and $14,250,000, respectively, were with numerous banks, with the largest balance at any one institution being $3,000,000 and $5,175,000, respectively. NOTE 3: CASH RESERVE REQUIREMENTS The Banks are required to maintain certain daily reserve balances on hand in accordance with regulatory requirements. Their reserve balance maintained in accordance with such requirements at December 31, 1993 and 1992 was approximately $4,980,000 and $2,908,000, respectively. NOTE 4: INVESTMENT IN DEBT SECURITIES The amortized cost and approximate fair values of investment securities at December 31, 1993 and 1992 are summarized as follows:
December 31, 1993 December 31, 1992 -------------------------------------------- ------------------------------------------------ Amortized Unrealized Unrealized Approximate Amortized Unrealized Unrealized Approximate Cost Gains Losses Fair Value Cost Gains Losses Fair Value --------- ---------- ---------- ----------- --------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS) U.S. Treasury obligations $ 65,838 $ 376 $ (11) $ 66,203 $ 69,895 $ 846 $ (47) $ 70,694 Obligations of U.S. Government agencies 51,421 282 (125) 51,578 26,262 256 (34) 26,484 Obligations of state and political subdivisions 44,265 1,452 (106) 45,611 23,171 907 (22) 24,056 Mortgage-backed securities 22,702 319 (78) 22,943 23,768 327 (67) 24,028 -------- ------ ----- -------- -------- ------ ----- -------- $184,226 $2,429 $(320) $186,335 $143,096 $2,336 $(170) $145,262 ======== ====== ===== ======== ======== ====== ===== ========
F-15 110 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 4: INVESTMENT IN DEBT SECURITIES (CONTINUED) Maturities of investment securities at December 31, 1993 are as follows:
Amortized Approximate Cost Fair Value --------- ----------- (DOLLARS IN THOUSANDS) In one year or less $ 62,404 $ 62,804 After one through five years 82,457 83,107 After five through ten years 16,208 17,023 After ten years 455 458 Mortgage-backed securities, not due at a single maturity date 22,702 22,943 -------- -------- $184,226 $186,335 ======== ========
There were no sales of debt securities during 1993. Proceeds from sales of debt securities were $3,029,000 and $1,665,000 for the years ended December 31, 1992 and 1991, respectively. Resultant gross gains of $47,000 were realized on 1992 sales, and gross gains of $4,000 and gross losses of $7,000 were realized on 1991 sales. Investments with carrying values and approximate fair values of $119,351,000 and $120,710,000, respectively, at December 31, 1993 and $87,009,000 and $87,835,000, respectively, at December 31, 1992 were pledged to secure public deposits as required by law and for other purposes. Securities sold under agreements to repurchase at December 31, 1993 and 1992 are summarized as follows:
1993 1992 ------ ------- (DOLLARS IN THOUSANDS) U.S. Government securities with an estimated fair value of $22,389,000 in 1993 and $21,404,000 in 1992 $22,300 $20,850 ======= =======
The Banks enter into sales of securities under agreements to repurchase. The amounts deposited under these agreements represent short-term borrowings and are reflected as a liability in the balance sheet. The securities underlying the agreements are book-entry securities. During the period, securities held in safekeeping were pledged to the depositors under a written custodial agreement that explicitly recognizes the depositors' interest in the securities. At December 31, 1993, no material amount of agreements to repurchase securities sold was outstanding with any individual dealer. Securities sold under agreements to repurchase averaged $22,527,000 and $8,978,000 during 1993 and 1992, and the maximum amounts outstanding at any month end during 1993 and 1992 were $23,675,000 and $20,850,000, respectively. F-16 111 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 5: ACQUISITIONS In March 1992, Citizens-Jackson County Bank entered into an agreement with the RTC wherein the Company acquired approximately $80.2 million (after "run off") of core deposits of the former Home Federal Savings and Loan Association at three locations in eastern Jackson County, Missouri, for a premium of $329,000. That Bank also acquired the real estate and other fixed assets of the three offices for $580,000. In February 1993, Citizens State Bank of Nevada contracted to acquire $14.1 million of deposits and the property and equipment of the Butler, Missouri office of Mercantile Bank of West Central Missouri in exchange for an assumption of the deposit liabilities and the payment of a $50,000 premium. Citizens State Bank of Nevada opened that office in June 1993. On August 31, 1993, the Company acquired Blue Springs Bank, a $175 million bank located in Blue Springs, Missouri, for $19.3 million in cash. The acquisition was financed primarily through $9.9 million in proceeds from a public offering of the Company's stock and $5 million in additional borrowings. The transaction was accounted for as a purchase by recording the assets and liabilities of the acquiree at their estimated fair values at the acquisition date. Goodwill totalled $6.2 million and is being amortized over 15 years using the straight-line method. A core deposit intangible of $2.7 million was recorded and is being amortized over ten years. The consolidated operations of the Company include the operations of the acquiree, which was merged into another subsidiary, from the date of acquisition. Unaudited pro forma consolidated operations assuming the purchase was made at the beginning of each period are shown below:
Year Ended Year Ended December 31, 1993 December 31, 1992 ----------------- ----------------- (DOLLARS IN THOUSANDS) Total income $49,815 $50,434 ======= ======= Net income (loss) $ 4,416 $ (446) ======= ======= Net income (loss) available to common shareholders $ 4,246 $ (729) ======= ======= Earnings per common share: Primary $1.12 $(.26) ===== ===== Fully diluted $1.02 $(.13) ===== =====
The pro forma results are not necessarily indicative of what would have occurred had the acquisition been on those dates, nor are they necessarily indicative of future operations. Pro forma data reflect adjusted amortization and depreciation from revaluing the acquiree's assets and liabilities, additional interest expense related to the financing of the purchase and adjustments to income tax expense reflecting the tax effect of the purchase accounting entries. F-17 112 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 6: LOANS A summary of loans at year end is as follows:
1993 1992 --------- --------- (DOLLARS IN THOUSANDS) Commercial $ 46,327 $ 26,278 Agricultural 13,086 12,274 Real estate Mortgage--residential (1-4 families) 132,058 62,163 Mortgage--commercial and multi-family 75,192 43,329 Construction 18,397 17,614 Agricultural real estate 9,873 9,055 Consumer 62,195 45,698 Other 1,900 586 -------- -------- $359,028 $216,997 ======== ======== Nonperforming loans are summarized as follows: 1993 1992 ---- ---- (DOLLARS IN THOUSANDS) Nonaccrual loans $238 $104 Loans 90 days or more past due 569 485 Restructured loans 81 218 ---- ---- $888 $807 ==== ====
If interest on non-accrual loans had been accrued, accrued interest and the related income would have increased by approximately $28,000 and $5,000 at December 31, 1993 and 1992, respectively. Certain loans may require frequent management attention and are reviewed on a monthly or more frequent basis. Although payments on these loans are less than 90 days past due, or in many cases current, the borrowers presently have or have had a history of financial difficulties, and management has concerns as to the borrowers' ability to comply with present loan repayment terms. As such, these loans may result in classification at some future point in time as nonperforming. At December 31, 1993, such loans (excluding all nonperforming loans described above) amounted to $12.3 million as compared to $3.7 million at December 31, 1992. F-18 113 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 6: LOANS (CONTINUED) Certain directors, officers and principal holders of equity securities of the Company and its subsidiary banks were customers of and had transactions with the subsidiary banks in the ordinary course of business. In the opinion of management, all loans included in such transactions were made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties. The activity of aggregate loans exceeding $60,000 to such directors, officers, principal shareholders and their related interests during 1993 is as follows:
(DOLLARS IN THOUSANDS) Balance at beginning of year $ 2,976 New loans 1,974 Repayments (1,684) ------- Balance at end of year $ 3,266 =======
NOTE 7: ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses for the years ended December 31, 1993, 1992 and 1991 is as follows:
1993 1992 1991 ------- ------ ------ (DOLLARS IN THOUSANDS) Balance at beginning of year $ 2,648 $2,282 $2,058 Allowance acquired from purchased subsidiary 3,229 Provision charged to expense 956 913 870 Loans charged off (2,516) (697) (790) Recoveries on loans previously charged off 376 150 144 ------- ------ ------ Balance at end of year $ 4,693 $2,648 $2,282 ======= ====== ======
F-19 114 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 8: FORECLOSED ASSETS HELD FOR SALE At December 31, 1993 and 1992, foreclosed assets held for sale included $1,113,000 and $215,000 in loans which were considered in-substance foreclosed. Transactions in the allowance for losses on foreclosed assets were as follows:
1993 1992 ---- ---- (DOLLARS IN THOUSANDS) Balance, beginning of year $ 25 $ Allowance acquired from purchased institution 628 Provision charged to expense 220 25 Charge-offs, net of recoveries (760) ----- --- Balance, end of year $ 113 $25 ===== ===
NOTE 9: PREMISES AND EQUIPMENT A summary of premises and equipment at year end is as follows:
1993 1992 ------ ------- (DOLLARS IN THOUSANDS) Land and buildings $10,724 $ 8,500 Equipment 9,133 5,813 ------- ------- 19,857 14,313 Accumulated depreciation (8,225) (7,408) ------- ------- $11,632 $ 6,905 ======= =======
NOTE 10: TIME DEPOSITS Time deposits included approximately $40,135,000 and $23,911,000 of certificates of deposit of $100,000 or more at December 31, 1993 and 1992, respectively. Interest expense on certificates of deposit of $100,000 or more was approximately $1,391,000, $1,264,000 and $2,542,000 for the years ended December 31, 1993, 1992 and 1991, respectively. F-20 115 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 11: NOTES PAYABLE AND OTHER BORROWINGS
1993 1992 ------ ---- (DOLLARS IN THOUSANDS) Note payable, bank $4,875 Revolving credit agreement, bank 375 Note payable, bank $50 Capital notes payable 450 ------ --- $5,700 $50 ====== === Due September 30, 1996; payable $500,000 annually plus quarterly interest at 6.61%; secured by all of the common stock of a subsidiary bank. Provides for borrowing up to $5,000,000 and is secured by all of the common stock of a subsidiary bank. Principal is due September 30, 1994 with variable interest payable quarterly at prime less one-quarter percent. Due January 20, 1998; with interest at varying rates; secured by substantially all of the common stock of certain subsidiary banks; paid off in 1993. Due March 15, 1994; interest payable quarterly at 8.5%; unsecured and subordinated to all other outstanding debt of the Company. A portion of the outstanding note balances may be included as capital under certain regulatory capital guidelines.
Aggregate annual maturities of long-term debt at December 31, 1993 are as follows:
(DOLLARS IN THOUSANDS) 1994 $1,325 1995 500 1996 3,875 ------ $5,700 ======
Other borrowings at December 31, 1993 and 1992 represent treasury, tax and loan deposits owed to the Federal Reserve under an open-end, interest-bearing note. F-21 116 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 12: SHAREHOLDERS' EQUITY In June 1992, the Company effected a 3-for-1 stock split. All shares and per share amounts presented in these financial statements have been restated to give effect to the stock split, retroactively. The amount of dividends that the Company and its subsidiary banks may pay is subject to various regulatory agency limitations. At December 31, 1993, approximately $10,000,000 was available from subsidiary banks' retained earnings, without regulatory approval, for distribution as dividends to the Company. The subsidiary banks' internal capital policies provide for greater restrictions than regulatory capital guidelines and, under internal policies, approximately $2,500,000 was available for distribution as dividends to the Company. All Series A common stock was retired during 1992. Series A preferred stock is non-voting (except on major issues), cumulative and convertible. Dividends are payable quarterly and are at a rate of 2.50% above the most recent per annum auction average discount rate for the monthly auction of one-year U.S. Treasury bills during a defined time period prior to the dividend period subject to a maximum of 11%. Each share of Series A preferred stock is convertible into a number of shares of the Company's $1 par value common stock equal to 100 divided by 7.75. The Series A preferred stock may be redeemed by the Company after December 31, 1991 at redemption prices ranging from $100 to $103 per share. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series A preferred stock are entitled to receive $100 per share plus accumulated and unpaid dividends. During 1991, the par value of Series A preferred stock was changed from $100 per share to $10 per share. At December 31, 1993 and 1992, capital surplus of $3,870,000 related to Series A preferred stock. The subsidiary banks are subject to risk-based capital guidelines issued by various regulatory agencies. These standards required a minimum level of total capital equal to 8% of risk-adjusted assets by December 31, 1992. Each of the subsidiary banks met these capital standards at December 31, 1993 and 1992. NOTE 13: INCOME TAXES The provision for income taxes includes these components:
1993 1992 1991 ------ ------ ---- (DOLLARS IN THOUSANDS) Taxes currently payable $1,848 $1,292 $996 Deferred income taxes (benefit) 65 (47) (72) ------ ------ ---- $1,913 $1,245 $924 ====== ====== ====
F-22 117 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 13: INCOME TAXES (CONTINUED) A reconciliation of income tax expense at the statutory rate (34%) to income tax expense at the Company's effective rate is shown below:
1993 1992 1991 ------ ------ ------ (DOLLARS IN THOUSANDS) Computed at the statutory rate $2,395 $1,695 $1,314 Tax exempt interest (587) (418) (341) Dividends paid to ESOP (96) (128) State income taxes-net of federal tax benefits 113 75 115 Non-deductible amortization 43 Other, net (51) (11) (36) ------ ------ ------ Actual tax provision $1,913 $1,245 $ 924 ====== ====== ======
Management adopted Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("FASB 109"), during the year ended December 31, 1993. The adoption of FASB 109 had no material impact on reported earnings or shareholders' equity. Significant components of the Company's deferred tax assets and liabilities at December 31, 1993 are as follows:
(DOLLARS IN THOUSANDS) Deferred tax assets: Allowance for loan losses $ 1,039 Valuation adjustment for foreclosed assets held for sale 190 Differences in accounting for loan fee income 92 Differences resulting from purchase accounting: Time deposits 107 Other 135 ------- 1,563 Valuation allowances 0 ------- Total deferred tax assets 1,563 ------- Deferred tax liabilities: Differences between tax and financial depreciation methods (495) Differences resulting from purchase accounting: Investment in debt securities (117) Loans (729) Premises and equipment (573) Core deposit intangible (1,018) Other (17) ------- Total deferred tax liabilities (2,949) ------- Deferred tax liabilities - net $(1,386) =======
F-23 118 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 13: INCOME TAXES (CONTINUED) For the years ended December 31, 1992 and 1991, significant components of the Company's deferred tax expense were as follows:
1992 1991 --------- -------- (DOLLARS IN THOUSANDS) Provision for loan losses $(118,000) $(90,000) Differences in tax and financial depreciation methods 24,000 60,000 Valuation adjustment for foreclosed assets held for sale 26,000 (37,000) Differences in tax and financial amortization methods 27,000 Other timing differences (6,000) (5,000) --------- -------- Total deferred income tax (benefit) $ (47,000) $(72,000) ========= ========
NOTE 14: PENSION PLAN The Company has a defined contribution pension plan covering substantially all employees over 21 years of age who have completed one year of employment. The Company's contributions to the plan are determined annually by the Board of Directors. Contributions to the plan were approximately $54,000, $48,000 and $34,000 for 1993, 1992 and 1991, respectively. F-24 119 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 15: EMPLOYEE STOCK PLANS STOCK OPTION PLANS - ------------------ Under the Company's stock option plans, 348,000 shares of $1 par common stock were reserved for issuance upon exercise of options granted or to be granted to key employees. The plans provide that the option price will be no less than fair market value of the stock at the date of the grant. Outstanding options are exercisable in five equal annual installments commencing one year after the date of grant and expire ten years after the date of grant. Activity in the plan for each year as adjusted retroactively for the 3-for-1 stock split was:
1993 1992 1991 ---------------- ----------------- ------------- Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Options outstanding, beginning of year 122,700 $5.83 124,200 $5.83 126,000 $5.83 12,000 6.33 12,000 6.33 12,000 6.33 12,000 6.83 12,000 6.83 12,000 6.83 Options granted Options exercised (1,500) 5.83 (1,800) 5.83 Options outstanding, end of year 122,700 5.83 122,700 5.83 124,200 5.83 12,000 6.33 12,000 6.33 12,000 6.33 12,000 6.83 12,000 6.83 12,000 6.83 ------- ------- ------- 146,700 146,700 148,200 ======= ======= =======
Options exercisable at December 31, 1993, 1992 and 1991 were 139,500, 109,500 and 81,000, respectively. F-25 120 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 15: EMPLOYEE STOCK PLANS (CONTINUED) EMPLOYEE STOCK OWNERSHIP PLAN - ----------------------------- The Company has an employee stock ownership plan ("ESOP") to invest in the Company's common or preferred stock for the benefit of eligible employees. The Company makes annual contributions to the plan, payable either in cash or the Company's common stock, as determined by the Board of Directors. Contributions to the ESOP were approximately $333,000, $312,000 and $285,000 in 1993, 1992 and 1991, respectively. The ESOP had total debt outstanding of $1,819,000 and $2,271,000 at December 31, 1993 and 1992, respectively, which was secured by 26,935 shares of Series A preferred stock held by the ESOP and guaranteed by the Company. Aggregate annual maturities of the ESOP note payable at December 31, 1993 were as follows:
(DOLLARS IN THOUSANDS) 1994 $ 427 1995 461 1996 499 1997 432 ------ $1,819 ======
The note payable bears interest at varying rates. For financial reporting purposes, the outstanding ESOP obligation has been reflected as a liability with shareholders' equity reduced by an equal amount. Interest incurred on the ESOP obligation was $123,000, $166,000 and $247,000 for 1993, 1992 and 1991, respectively. Dividends on preferred shares held by the ESOP and used for debt service were $258,000, $283,000 and $377,000, respectively. F-26 121 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND CASH EQUIVALENTS - ------------------------- For these short-term instruments, the carrying amount approximates fair value. INVESTMENTS - ----------- For securities held as investments, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. MORTGAGE LOANS HELD FOR SALE - ---------------------------- For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. LOANS - ----- The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value. DEPOSITS - -------- The fair value of demand deposits, savings accounts, NOW accounts and certain money market deposits is the amount payable on demand at the reporting date (i.e., their carrying amount). The fair value of fixed- maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS - ------------------------------------------------------------------ For these short-term instruments, the carrying amount is a reasonable estimate of fair value. NOTES PAYABLE - ------------- Rates currently available to the Banks for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. F-27 122 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) COMMITMENTS TO EXTEND CREDIT, LETTERS OF CREDIT AND LINES OF CREDIT - ------------------------------------------------------------------- The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit-worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit and lines of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The following table presents estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
1993 1992 --------------------- ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- (DOLLARS IN THOUSANDS) FINANCIAL ASSETS: Cash and cash equivalents $ 43,476 $ 43,476 $ 33,390 $ 33,390 Investments 184,730 186,839 143,727 145,893 Mortgage loans held for sale 11,379 11,379 10,950 10,950 Interest receivable 4,673 4,673 3,556 3,556 Loans 357,107 214,896 Less: Allowance for loan losses 4,693 2,648 -------- -------- 352,414 355,618 212,248 214,046 FINANCIAL LIABILITIES: Deposits 537,751 541,002 352,303 354,421 Federal funds purchased and securities sold under agreement to repurchase 22,300 22,300 20,850 20,850 Notes payable 7,519 7,521 2,321 2,321 Other borrowings 1,100 1,100 1,100 1,100 Interest payable 2,479 2,479 1,818 1,818 UNRECOGNIZED FINANCIAL INSTRUMENTS (NET OF CONTRACT AMOUNT): Commitments to extend credit 0 0 0 0 Letters of credit 0 0 0 0 Lines of credit 0 0 0 0
F-28 123 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 17: LOAN SERVICING At December 31, 1993, the Company was servicing 13,607 loans for 34 investors with unpaid principal balances aggregating $561,842,000. Related trust funds totalling $12,056,000 on deposit in special bank accounts and with various mortgagees are not included as assets in the consolidated balance sheets. The Company has issued mortgage-backed securities guaranteed by GNMA under the provisions of the National Housing Act. At December 31, 1993, the principal amount of these securities outstanding was approximately $309,189,000, which also represents the approximate principal amount of the related mortgages that serve as collateral for the securities that are being serviced under this program. These mortgages are included in the $561,842,000 of total mortgages serviced referred to in the previous paragraph. In keeping with the economic substance of these transactions, the issuance of the mortgage-backed securities and simultaneous placement of the related mortgages in trust have been accounted for as a sale of the mortgages; accordingly, neither the mortgages receivable nor the securities payable appear on the Company's consolidated balance sheets. Included in the loans underlying GNMA guaranteed mortgage-backed securities are FHA insured loans, FmHA guaranteed loans and approximately $121,222,000 of mortgages subject to VA guarantees. VA guarantees range from 25% to 60% of the loan amount and, in the event of default, the Company is subject to a contingent recourse liability to the investor in the mortgage-backed securities for any loss not covered by FHA insurance, FmHA or VA guarantees and the proceeds from liquidation of the mortgage collateral. The Company has established allowances of $75,700 and $78,300 as of December 31, 1993 and 1992, respectively, to provide for such recourse liability and any related foreclosure expenses. NOTE 18: CONTINGENCIES In the ordinary course of business, there are various legal proceedings pending against the Company and its subsidiaries. Management, after consultation with legal counsel, is of the opinion that the ultimate resolution of these proceedings will not have a material adverse effect on the consolidated financial position of the Company. F-29 124 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 19: ADDITIONAL CASH FLOW INFORMATION NONCASH INVESTING ACTIVITY - --------------------------
1993 1992 1991 ------ ---- ---- (DOLLARS IN THOUSANDS) Repossessed property acquired in settlement of debt $1,732 $921 $777
The Company purchased all of the capital stock of Blue Springs Bank for $19.3 million. In conjunction with the acquisition, liabilities were assumed as follows:
(DOLLARS IN THOUSANDS) Fair value of assets acquired $187,678 Cash paid for the capital stock (19,328) -------- Liabilities assumed $168,350 ========
ADDITIONAL CASH FLOW INFORMATION - --------------------------------
1993 1992 1991 --------- -------- -------- (DOLLARS IN THOUSANDS) Interest paid $ 14,217 $ 13,549 $ 13,384 Income taxes paid 1,398 1,236 1,094 Mortgage loans held for sale: Originations (127,778) (83,589) (51,871) Purchases (19,984) (20,146) (16,348) Sales 147,333 100,402 70,907 --------- -------- -------- Net change $ (429) $ (3,333) $ 2,688 ========= ======== ========
F-30 125 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 20: OTHER EXPENSES Other expenses consisted of the following:
1993 1992 1991 ------ ------ ------ (DOLLARS IN THOUSANDS) FDIC and state assessments $1,015 $ 778 $ 538 Data processing 528 467 411 Supplies 507 444 331 Professional fees 409 439 248 Postage and freight 540 369 317 Advertising 485 322 229 Other expenses 3,320 1,788 1,816 ------ ------ ------ Total $6,804 $4,607 $3,890 ====== ====== ======
F-31 126 NOTE 21: MORTGAGE BANKING DIVISION The following summarizes financial information for the Mortgage Banking Division:
1993 1992 1991 ------ ------ ------ (DOLLARS IN THOUSANDS) Revenues $4,178 $3,821 $2,839 ====== ====== ====== Income Before Income Taxes $ 921 $ 821 $ 367 ====== ====== ====== Depreciation and Amortization $ 100 $ 97 $ 83 ====== ====== ====== Capital Expenditures $ 67 $ 115 $ 289 ====== ====== ====== Identifiable Assets at End of Period $2,864 $3,673 $2,712 ====== ====== ======
F-31 127 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) Following is condensed financial information of the Company as of December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and 1991: CONDENSED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 ASSETS
1993 1992 ------- -------- (DOLLARS IN THOUSANDS) Cash and cash equivalents $ 193 $ 5,410 Receivable from subsidiaries 251 Investment in subsidiaries 52,873 28,875 Premises and equipment 725 798 Other assets 2,180 1,689 ------- ------- Total Assets $55,971 $37,023 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Employee Stock Ownership Plan obligation $ 1,819 $ 2,271 Notes payable 5,250 50 Other liabilities 380 337 ------- ------- Total Liabilities 7,449 2,658 Shareholders' Equity 48,522 34,365 ------- ------- Total Liabilities and Shareholders' Equity $55,971 $37,023 ======= =======
F-32 128 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED) CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------ ------ ------ (DOLLARS IN THOUSANDS) INCOME: Dividends received from subsidiaries $2,103 $1,218 $1,991 Loan servicing income 2,184 2,015 1,834 Interest and fees on loans 1,363 1,140 651 Management fees 328 348 336 Other 717 532 348 ------ ------ ------ 6,695 5,253 5,160 ------ ------ ------ EXPENSE: Salaries and employee benefits 2,991 2,728 2,163 Net occupancy and equipment expense 367 313 292 Other 1,446 1,351 1,032 ------ ------ ------ 4,804 4,392 3,487 ------ ------ ------ Income before income taxes 1,891 861 1,673 Income tax (expense) benefit (52) 214 233 Excess of equity in net income of subsidiaries over dividends received 3,291 2,666 1,059 ------ ------ ------ NET INCOME $5,130 $3,741 $2,965 ====== ====== ======
F-33 129 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 -------- ------- ------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,130 $ 3,741 $ 2,965 Items not requiring (providing) cash: Excess of equity in net income of subsidiaries over dividends received (3,291) (2,666) (1,059) Depreciation and amortization 125 125 105 Gain on sale of assets (103) Loss on retirement of premises and equipment 26 23 Change in other, net (38) 6 (20) -------- ------- ------- Net cash provided by operating activities 1,952 1,206 1,911 -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of premises and equipment, net (78) (106) (369) Capital contributed to subsidiary (1,450) (5,100) Purchase acquisition (19,328) Purchase of subsidiary's common stock (24) -------- ------- ------- Net cash used in investing activities (20,856) (5,230) (369) -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on common stock (1,204) (481) (263) Dividends paid on preferred stock (258) (283) (377) Proceeds from notes payable 6,275 5,023 Repayments of notes payable (1,075) (5,679) (230) Proceeds from public offering of common stock 9,949 10,101 Retirement of Class "A" shares (23) Purchase of treasury stock, net 9 (23) -------- ------- ------- Net cash provided by (used in) financing activities 13,687 8,667 (893) -------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,217) 4,643 649 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,410 767 118 -------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 193 $ 5,410 $ 767 ======== ======= =======
F-34 130 CENTRAL MORTGAGE BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 NOTE 23: AGREEMENT AND PLAN OF REORGANIZATION On September 21, 1994, a merger agreement with the $12 billion Mercantile Bancorporation Inc. ("MBI") of St. Louis, Missouri was announced. The Company's shareholders will receive .597 shares of MBI common stock for each share of the Company's common stock as consideration for the merger. In connection with the transaction, the Company granted MBI an option to acquire a number of shares of the Company's common stock equal to 19.9% the Company's outstanding common stock, exercisable under certain conditions. MBI and the Company expect to complete the merger in the first half of 1995, subject to satisfaction of certain conditions including the approval of the Company's shareholders and certain regulatory agencies. F-35 131 ANNEX A ------- LETTERHEAD OF STIFEL, NICOLAUS & COMPANY, INCORPORATED September 21, 1994 Board of Directors Central Mortgage Bancshares, Inc. 4435 Main Street Kansas City, MO 64111 Members of the Board: We understand that Central Mortgage Bancshares, Inc. ("Central") is contemplating entering into an Agreement and Plan of Merger (the "Agreement") with Mercantile Bancorporation Inc. ("MBI") and Ameribanc, Inc., a wholly owned subsidiary of MBI. As is set forth in the Agreement each outstanding share of common stock of Central will be converted into and exchanged for .5970 shares of common stock of MBI (the "Merger Consideration"). In connection therewith, you have requested our opinion as to the fairness of the Merger Consideration, from a financial point of view, to the shareholders of Central. Stifel, Nicolaus & Company, Incorporated is an investment banking and securities firm with membership on all principal U.S. securities exchanges. As part of our investment banking services, we are regularly engaged in the independent valuation of securities in connection with negotiated underwritings, private placements, merger and acquisition transactions and recapitalizations. During the course of our engagement, we reviewed and analyzed material bearing upon the financial and operating condition of Central and MBI and material prepared in connection with the proposed transaction, including among other things, the following: the Agreement; certain publicly available information concerning Central and MBI, including financial statements and Consolidated Reports of Condition and Income for each of the five years ended December 31, 1993, and for the quarter ended June 30, 1994, for such institutions; the nature and terms of recent sale and merger transactions involving banks and holding companies for such institutions that we consider relevant; historical and current market data for Central and MBI common stock; and financial and other information provided to us by management of Central and MBI. In addition, we have conducted meetings with members of the senior management of Central and MBI. We evaluated the pro forma ownership of MBI common stock by Central shareholders, relative to the pro forma contribution of Central's assets, liabilities, equity and earnings to the pro forma combined entity. We also took into account our experience in other transactions, as well as our knowledge of the banking industry and our general experience in securities valuations. In rendering this opinion, we have assumed, without independent verification, the accuracy and completeness of the financial and other information and representations provided to us by Central and MBI. With respect to the financial forecasts of Central provided to us by Central's management, we assumed for purposes of our opinion that they were reasonably prepared on bases reflecting the best available estimates and judgments of Central's management at the time of preparation as to the future financial performance of Central and that, in preparing such forecasts, Central's management took into account all factors that were reasonably required to be taken into account by management in order to prepare such forecasts. We also assumed that there were no material changes in Central's or MBI's assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to us. We relied on advice of counsel to Central as to all legal matters contained or contemplated therein. In addition, we did not make or obtain an independent evaluation, appraisal or physical inspection of the assets, individual properties or liabilities of Central or MBI, nor were we furnished with any such appraisal. Further, our opinion is based on economic, monetary, market and A-1 132 other conditions existing as of the date hereof. No opinion is expressed as to the prices at which any securities of Central or MBI, including their common stock, might trade in the future. Based on the foregoing and our experience as investment bankers, we are of the opinion that, as of the date hereof, the Merger Consideration to be received by the shareholders of Central, as described in the Agreement, is fair to the shareholders of Central from a financial point of view. Sincerely, STIFEL, NICOLAUS AND COMPANY, INCORPORATED A-2 133 ANNEX B ------- Following is the text of the statutory appraisal right as set forth at Section 351.455 of The General and Business Corporation Law of Missouri: 351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN.--1. If a shareholder of a corporation which is a party to a merger or consolidation shall file with such corporation, prior to or at the meeting of shareholders at which the plan of merger or consolidation is submitted to a vote, a written objection to such plan of merger or consolidation, and shall not vote in favor thereof, and such shareholder, within twenty days after the merger or consolidation is effected, shall make written demand on the surviving or new corporation for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the merger or consolidation, the surviving or new corporation shall pay to such shareholder, upon surrender of his certificate or certificates representing said shares, the fair value thereof. Such demand shall state the number and class of the shares owned by such dissenting shareholder. Any shareholder failing to make demand within the twenty day period shall be conclusively presumed to have consented to the merger or consolidation and shall be bound by the terms thereof. 2. If within thirty days after the date on which such merger or consolidation was effected the value of such shares is agreed upon between the dissenting shareholder and the surviving or new corporation, payment therefor shall be made within ninety days after the date on which such merger or consolidation was effected, upon the surrender of his certificate or certificates representing said shares. Upon payment of the agreed value the dissenting shareholder shall cease to have any interest in such shares or in the corporation. 3. If within such period of thirty days the shareholder and the surviving or new corporation do not so agree, then the dissenting shareholder may, within sixty days after the expiration of the thirty day period, file a petition in any court of competent jurisdiction within the county in which the registered office of the surviving or new corporation is situated, asking for a finding and determination of the fair value of such shares, and shall be entitled to judgment against the surviving or new corporation for the amount of such fair value as of the day prior to the date on which such vote was taken approving such merger or consolidation, together with interest thereon to the date of such judgment. The judgment shall be payable only upon and simultaneously with the surrender to the surviving or new corporation of the certificate or certificates representing said shares. Upon the payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares, or in the surviving or new corporation. Such shares may be held and disposed of by the surviving or new corporation as it may see fit. Unless the dissenting shareholder shall file such petition within the time herein limited, such shareholder and all persons claiming under him shall be conclusively presumed to have approved and ratified the merger or consolidation, and shall be bound by the terms thereof. 4. The right of a dissenting shareholder to be paid the fair value of his shares as herein provided shall cease if and when the corporation shall abandon the merger or consolidation. B-1 134 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ------------------------------------------ Item 20. Indemnification of Officers and Directors - --------------------------------------------------- Sections 351.355(1) and (2) of The General and Business Corporation Law of the State of Missouri provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of an action or suit by or in the right of the corporation, the corporation may not indemnify such persons against judgments and fines and no person shall be indemnified as to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the court in which the action or suit was brought determines upon application that such person is fairly and reasonably entitled to indemnity for proper expenses. Section 351.355(3) provides that, to the extent that a director, officer, employee or agent of the corporation has been successful in the defense of any such action, suit or proceeding or any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred in connection with such action, suit or proceeding. Section 351.355(7) provides that a corporation may provide additional indemnification to any person indemnifiable under subsection (1) or (2), provided such additional indemnification is authorized by the corporation's articles of incorporation or an amendment thereto or by a shareholder-approved bylaw or agreement, and provided further that no person shall thereby be indemnified against conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct or which involved an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934. Article 12 of the Restated Articles of Incorporation of the Registrant provides that the Registrant shall extend to its directors and executive officers the indemnification specified in subsections (1) and (2) and the additional indemnification authorized in subsection (7) and that it may extend to other officers, employees and agents such indemnification and additional indemnification. Pursuant to directors' and officers' liability insurance policies, with total annual limits of $30,000,000, the Registrant's directors and officers are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of the Registrant, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of the Registrant. II-1 135 Item 21. Exhibits and Financial Statement Schedules - ---------------------------------------------------- A. Exhibits. See Exhibit Index. --------- B. Financial Statement Schedules. Not Applicable. ------------------------------ Item 22. Undertakings - ---------------------- (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (4) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 (Section 230.415 of this chapter), will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. II-2 136 (6) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. (7) The undersigned Registrant hereby undertakes: (a) To file during any period in which offers and sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof), which individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 137 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on November ___, 1994. MERCANTILE BANCORPORATION INC. By /s/ Thomas H. Jacobsen ___________________________________ Thomas H. Jacobsen Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Thomas H. Jacobsen _______________________________________ Chairman of the Board, November ___, 1994 Thomas H. Jacobsen President, Chief Executive Principal Executive Officer Officer and Director /s/ W. Randolph Adams _______________________________________ Executive Vice President and November ___, 1994 W. Randolph Adams Chief Financial Officer Principal Financial Officer /s/ Michael T. Normile _______________________________________ Vice President and November ___, 1994 Michael T. Normile Treasurer Principal Accounting Officer - --------------------------------------- Director November ___, 1994 Richard P. Conerly - --------------------------------------- Director November ___, 1994 Harry M. Cornell, Jr. - --------------------------------------- Director November ___, 1994 Earl K. Dille - --------------------------------------- Director November ___, 1994 J. Cliff Eason II-4 138 Signature Title Date --------- ----- ---- - --------------------------------------- Director November ___, 1994 Bernard A. Edison - --------------------------------------- Director November ___, 1994 William A. Hall - --------------------------------------- Director November ___, 1994 Thomas A. Hays - --------------------------------------- Director November ___, 1994 William G. Heckman - --------------------------------------- Director November ___, 1994 James B. Malloy - --------------------------------------- Director November ___, 1994 Charles H. Price II - --------------------------------------- Director November ___, 1994 Harvey Saligman - --------------------------------------- Director November ___, 1994 Craig D. Schnuck - --------------------------------------- Director November ___, 1994 Robert W. Staley - --------------------------------------- Director November ___, 1994 Robert L. Stark - --------------------------------------- Director November ___, 1994 Patrick T. Stokes - --------------------------------------- Director November ___, 1994 Francis A. Stroble - --------------------------------------- Director November ___, 1994 Joseph G. Werner II-5 139 Signature Title Date --------- ----- ---- - --------------------------------------- Director November ___, 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 24.1. II-6 140
EXHIBIT INDEX Exhibit Number Description Page ------- ----------- ---- 2.1 Amended and Restated Agreement and Plan of Merger dated as of November 1, 1994 by and among MBI, ABNK and Central Mortgage. 2.2 Investment Agreement dated as of September 21, 1994 by and between MBI and Central Mortgage. 2.3 Option dated September 21, 1994 granted to MBI by Central Mortgage. 2.4 Form of Voting Agreement dated as of September 21, 1994 by and between MBI and certain directors of Central Mortgage. 3.1 MBI's Restated Articles of Incorporation, as amended and currently in effect (filed as Exhibit 3(i) to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). 3.2 MBI's By-Laws, as amended and currently in effect (filed as Exhibit 3(ii) to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference). 4.1 Form of Indenture Regarding Subordinated Securities between MBI and The First National Bank of Chicago, Trustee (filed as Exhibit 4-1 to MBI's Report on Form 8-K dated September 24, 1992 and incorporated herein by reference). 4.2 Rights Agreement dated as of May 23, 1988 between MBI 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 Right Certificate) (filed on May 24, 1988 as Exhibits 1 and 2 to MBI's Registration Statement on Form 8-A, and incorporated herein by reference). 4.3 Form of Indenture between Ameribanc, Inc. and First Trust Company, Inc., Trustee (filed as Exhibit 4.4 to MBI's Registration No. 33-63196 and incorporated herein by reference). 4.4 First Supplemental Indenture by and among Mercantile Bancorporation Inc., Mercantile Acquisition Corporation I and First Trust National Association (filed as Exhibit 4.5 to MBI's Registration No. 33-63196 and incorporated herein by reference). 5.1 Opinion of Thompson & Mitchell as to the legality of the securities being registered. 8.1 Opinion of Thompson & Mitchell regarding certain tax matters in the Merger. 10.1 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan (filed on April 28, II-7 141 EXHIBIT INDEX Exhibit Number Description Page ------- ----------- ---- 1994 as Appendix B to the Definitive Proxy Materials of Registrant and incorporated herein by reference). 10.2 The Mercantile Bancorporation Inc. 1994 Executive Incentive Compensation plan (filed on April 28, 1994 as Appendix C to the Definitive Proxy Materials of Registrant and incorporated herein by reference). 10.3 The Mercantile Bancorporation Inc. 1994 Voluntary Deferred Compensation Plan (filed on April 28, 1994 as Appendix D to the Definitive Proxy Materials of Registrant and incorporated herein by reference). 10.4 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors (filed on April 28, 1994 as Appendix E to the Definitive Proxy Materials of Registrant and incorporated herein by reference). 23.1 Consent of KPMG Peat Marwick LLP with regard to use of its report on MBI's financial statements. 23.2 Consent of Baird, Kurtz & Dobson with regard to the use of its report on Central Mortgage's financial statements. 23.3 Consent of Thompson & Mitchell (included in Exhibit 5.1). 23.4 Consent of Stifel, Nicolaus & Company, Incorporated. 24.1 Power of Attorney. 99.1 Form of Proxy for the Special Meeting of Shareholders of Central Mortgage to be held on -----------------, 1995.
II-8 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 1 ================================================================================ AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AMONG MERCANTILE BANCORPORATION INC., A MISSOURI CORPORATION AND AMERIBANC, INC., A MISSOURI CORPORATION AND CENTRAL MORTGAGE BANCSHARES, INC. A MISSOURI CORPORATION ------------------------------------------------- SEPTEMBER 21, 1994 AS AMENDED NOVEMBER 1, 1994 ================================================================================ 2 TABLE OF CONTENTS -----------------
Page ---- Recitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I THE MERGER 1.01 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.03 Method of Effecting Merger and Effective Time . . . . . . . . . . . . . 2 1.04 Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . . 2 1.05 Board of Directors and Officers . . . . . . . . . . . . . . . . . . . . 2 1.06 Additional Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.07 Conversion of Securities. . . . . . . . . . . . . . . . . . . . . . . . 3 1.08 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.09 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.10 No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.11 Closing of Stock Transfer Books . . . . . . . . . . . . . . . . . . . . 5 1.12 Anti-Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF CENTRAL MORTGAGE 2.01 Organization and Authority. . . . . . . . . . . . . . . . . . . . . . . 6 2.02 Corporate Authorization; Records. . . . . . . . . . . . . . . . . . . . 6 2.03 Second Tier Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 7 2.04 Capitalization of Central Mortgage. . . . . . . . . . . . . . . . . . . 7 2.05 Capitalization of Central Mortgage Subsidiaries . . . . . . . . . . . . 8 2.06 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.07 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.08 Title to and Condition of Assets. . . . . . . . . . . . . . . . . . . . 9 2.09 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.11 Absence of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.12 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 13 2.13 Allowance for Loan and Lease Losses; Non-Performing Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.15 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 14 2.16 Litigation and Other Proceedings. . . . . . . . . . . . . . . . . . . . 14 2.17 Governmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . 15 2.18 Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.19 Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . . . 16 2.20 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 16 2.21 Conduct of Central Mortgage and the Central Mortgage Subsidiaries to Date. . . . . . . . . . . . . . . . . . . . . . . . . . 17 3 2.22 Registration Statement, etc . . . . . . . . . . . . . . . . . . . . . . 18 2.23 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE MERCANTILE ENTITIES 3.01 Organization and Authority. . . . . . . . . . . . . . . . . . . . . . . 19 3.02 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.03 Capitalization of Mercantile. . . . . . . . . . . . . . . . . . . . . . 20 3.04 Mercantile Financial Statements . . . . . . . . . . . . . . . . . . . . 21 3.05 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.06 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 21 3.07 Registration Statement, Proxy Statement etc . . . . . . . . . . . . . . 22 3.08 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.09 Legal Proceedings or Other Adverse Facts. . . . . . . . . . . . . . . . 22 3.10 Commitments and Contracts . . . . . . . . . . . . . . . . . . . . . . . 23 3.11 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01 Conduct of Businesses Prior to the Effective Time . . . . . . . . . . . 23 4.02 Forbearances of Central Mortgage. . . . . . . . . . . . . . . . . . . . 23 4.03 Forbearances of the Mercantile Entities . . . . . . . . . . . . . . . . 25 ARTICLE V ADDITIONAL AGREEMENTS 5.01 Access and Information; Due Diligence . . . . . . . . . . . . . . . . . 26 5.02 Registration Statement; Regulatory Matters. . . . . . . . . . . . . . . 27 5.03 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.04 Current Information . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.05 Agreements of Affiliates. . . . . . . . . . . . . . . . . . . . . . . . 28 5.06 Tax Opinion Certificates. . . . . . . . . . . . . . . . . . . . . . . . 28 5.07 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.08 Miscellaneous Agreements and Consents . . . . . . . . . . . . . . . . . 29 5.09 Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.11 Employee Benefit Plans; Employee Stock Options. . . . . . . . . . . . . 29 5.12 Best Efforts to Insure Pooling. . . . . . . . . . . . . . . . . . . . . 30 5.13 Payment of Change of Control Benefits . . . . . . . . . . . . . . . . . 30 5.14 Cenco Stock Purchase/Redemption . . . . . . . . . . . . . . . . . . . . 30 ii 4 ARTICLE VI CONDITIONS 6.01 Conditions to Each Party's Obligation To Effect the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.02 Conditions to Obligations of Central Mortgage . . . . . . . . . . . . . 31 6.03 Conditions to Obligations of the Mercantile Entities. . . . . . . . . . 32 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 7.01 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 7.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.03 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.04 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VIII GENERAL PROVISIONS 8.01 Non-Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.02 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.03 No Assignment; Successors and Assigns . . . . . . . . . . . . . . . . . 35 8.04 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.05 No Implied Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.06 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.07 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.08 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.09 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
iii 5 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ---------------------------- This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered into as of November 1, 1994 by and among Mercantile Bancorporation Inc., a Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri corporation ("Ameribanc" and, collectively, with Mercantile, the "Mercantile Entities"), and Central Mortgage Bancshares, Inc. a Missouri corporation ("Central Mortgage"), amends and restates the Agreement and Plan of Merger dated as of September 21, 1994 by and among Mercantile, Ameribanc and Central Mortgage (the "Initial Agreement") and supercedes such Initial Agreement in its entirety: A. Central Mortgage is the beneficial and record owner of one hundred percent (100%) of the issued and outstanding shares of the capital stock of each of Barton County State Bank ("Barton Bank"), Citizens-Jackson County Bank ("Citizens-Jackson Bank"), Citizens State Bank of Nevada ("Nevada Bank") and Farmers Bank of Stover ("Farmers Bank"), all of which are banking corporations organized under the laws of the State of Missouri, and beneficial and record owner of approximately seventy-seven and four-tenths percent (77.4%) of the issued and outstanding shares of the capital stock of Cenco Insurance Company, Inc., a non-banking corporation organized under the laws of the State of Arizona ("Cenco") (individually, a "Central Mortgage Subsidiary" and, collectively, the "Central Mortgage Subsidiaries"); and B. Mercantile is the beneficial and record owner of one hundred percent (100%) of the issued and outstanding shares of the capital stock of Ameribanc; and C. The Executive Committee of the Board of Directors of Mercantile and the respective Boards of Directors of Ameribanc and Central Mortgage previously approved the merger of Central Mortgage and Ameribanc pursuant to the terms of the Initial Agreement and now desire to amend, restate and supercede the Initial Agreement in its entirety with this Agreement; and D. The Mercantile Entities and Central Mortgage desire to provide in this Agreement for certain undertakings, conditions, representations, warranties and covenants, as amended, in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I --------- THE MERGER 1.01 The Merger. Subject to the terms and ---------- conditions of this Agreement, Central Mortgage shall be merged with and into Ameribanc (the "Merger") in accordance with Chapter 351 of the Missouri Revised Statutes (the "Missouri Statute"), and the separate corporate existence of Central Mortgage shall cease. Ameribanc shall be the surviving 1 6 corporation (sometimes hereinafter referred to as the "Surviving Corporation") and the name of the Surviving Corporation shall be Ameribanc, Inc. 1.02 Closing. The closing (the "Closing") of the ------- Merger, unless the parties hereto shall otherwise mutually agree, shall take place at the offices of Mercantile in St. Louis, Missouri, at 10:00 am, local time, subject to the terms and conditions (including but not limited to the conditions set forth in Article VI) of this Agreement, on the first Business Day (as hereinafter defined) (the "Closing Date") of the month immediately succeeding the month in which the last of the following events occurs: (a) the receipt of the requisite approval of the Agreement and the Merger by the shareholders of Central Mortgage as set forth in Section 2.02 of this Agreement, (b) the thirtieth day after the approval of the Merger by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and (c) the approval by the Missouri Division of Finance (the "Division of Finance") and any other bank regulatory agency that may be necessary or appropriate. For purposes of this Agreement, "Business Day" shall mean any day that the Office of Secretary of State of the State of Missouri is open for the receipt of official corporate filings. 1.03 Method of Effecting Merger and Effective Time. --------------------------------------------- On the Closing Date, the parties hereto will cause the Merger to be consummated by delivering to the Secretary of State of the State of Missouri, for filing, Articles of Merger in such form as required by, and executed and acknowledged in accordance with, the relevant provisions of the Missouri Statute. The Merger shall be effective (the "Effective Time") upon the issuance of the certificate of merger by the Secretary of State of the State of Missouri. 1.04 Articles of Incorporation and By-Laws. The ------------------------------------- Articles of Incorporation and By-Laws of Ameribanc in effect immediately prior to the Effective Time shall be the Articles of Incorporation and By-Laws of the Surviving Corporation, in each case until amended in accordance with their respective provisions and applicable law. 1.05 Board of Directors and Officers. ------------------------------- (a) At the Effective Time, the Board of Directors of the Surviving Corporation shall consist of those persons serving as directors of Ameribanc immediately prior to the Effective Time and the terms of those directors after the Effective Time shall be the same as their respective terms immediately prior to the Effective Time. (b) The officers of Ameribanc shall be the officers of the Surviving Corporation until their respective successors are duly elected and qualified. 1.06 Additional Actions. If, at any time after the ------------------ Effective Time, the Surviving Corporation shall consider or be advised that any further deeds, assignments, or assurances in law or any other acts are necessary or desirable to (a) vest, perfect, or confirm, of record or otherwise, in the Surviving Corporation its right, title, or interest in, to, or under any of the rights, properties, or assets of Central Mortgage and the Central Mortgage Subsidiaries, or (b) otherwise carry out the purposes of this Agreement, Central Mortgage and its officers and directors shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments, or assurances in law and to do all acts necessary or proper to vest, perfect, or confirm title to and possession of such rights, properties, or assets in the Surviving Corporation and otherwise to carry out the 2 7 purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Central Mortgage or otherwise to take any and all such action. 1.07 Conversion of Securities. ------------------------ At the Effective Time, by virtue of the Merger and without any action on the part of the Mercantile Entities, Central Mortgage or any Central Mortgage shareholder, each share of common stock, $1.00 par value, of Central Mortgage ("Central Mortgage Common Stock") issued and outstanding at the Effective Time (other than any shares held by Central Mortgage, Mercantile or any of their respective wholly-owned subsidiaries (in each case other than in a fiduciary capacity or as a result of debts previously contracted), which shall be cancelled, and other than any Dissenting Shares), shall cease to be outstanding and shall be converted into and become the right to receive .5970 of the shares of common stock, $5.00 par value, of Mercantile and the associated "Rights" under the "Rights Agreement", as those terms are defined in Section 3.03 hereof ("Mercantile Stock") (the "Exchange Ratio"). 1.08 Exchange Procedures. ------------------- (a) Prior to the Closing Date, Mercantile shall appoint Society National Bank, or such other bank or trust company selected by Mercantile and reasonably acceptable to Central Mortgage, as the exchange agent (the "Exchange Agent") to effect the exchange of certificates evidencing shares of Central Mortgage Stock for shares of Mercantile Common Stock to be received in the Merger. At the Effective Time, Mercantile shall have granted the Exchange Agent the requisite power and authority to effect for and on behalf of Mercantile the issuance of the number of shares of Mercantile Common Stock issuable in the Merger. (b) Within five (5) Business Days after the Effective Time, the Exchange Agent shall mail to each holder of record of Central Mortgage Stock as of the Closing Date a notice of consummation of the Merger and a form of letter of transmittal, which shall be in a form reasonably acceptable to Central Mortgage, pursuant to which each such shareholder shall transmit the certificate or certificates formerly representing shares of the Central Mortgage Common Stock, or, in lieu thereof, such evidence of lost, stolen or mutilated certificate or certificates and such surety bond as the Exchange Agent may reasonably require in accordance with customary exchange practices. Central Mortgage shareholders who satisfy such requirements for lost, stolen or mutilated certificates shall for purposes of the exchange procedures set forth herein be deemed to have submitted certificates for Central Mortgage Stock. As soon as practicable after surrender of such certificate to the Exchange Agent with a properly completed letter of transmittal, the Exchange Agent will promptly mail by first-class mail to such shareholder a certificate or certificates representing the number of full shares of Mercantile Stock into which the shares of Central Mortgage Common Stock evidenced by the certificate surrendered shall have been converted pursuant to this Agreement. (c) The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. Each outstanding certificate that, prior to the Effective Time, represented Central Mortgage Common Stock shall, except as otherwise provided in this Agreement, until duly surrendered to the Exchange Agent, 3 8 be deemed to evidence ownership of the number of shares of Mercantile Common Stock into which such Central Mortgage Common Stock shall have been converted in the Merger. After the Effective Time, there shall be no further transfer on the records of Central Mortgage of certificates representing shares of capital stock of Central Mortgage, and if such certificates are presented to Central Mortgage for transfer, they shall be cancelled against delivery of the consideration provided therefor in this Agreement. If the record date for any dividend or other distribution in respect of Mercantile Stock, including any redemption by Mercantile of the Rights associated therewith, shall occur on or after the Closing Date, the holders of Central Mortgage Common Stock shall be entitled to such dividend or other distribution, but no dividends declared on or other distributions in respect of Mercantile Stock will be remitted to any person entitled to receive Mercantile Stock under this Agreement until such person surrenders the certificate or certificates representing Central Mortgage Common Stock, at which time such dividends or other distributions shall be remitted to such person, without interest and less any amounts in respect of taxes that may have been imposed thereon and which are required to be withheld by Mercantile. Neither the Exchange Agent, Mercantile nor Central Mortgage shall be liable to any holder of Central Mortgage Common Stock for any consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to shares of Mercantile Stock held by it from time to time hereunder. (d) No transfer taxes shall be payable by any shareholder of Central Mortgage in respect of the issuance of certificates for Mercantile Stock and no expenses shall be imposed on any shareholder of Central Mortgage in connection with the conversion of shares of Central Mortgage Stock into shares of Mercantile Stock and the delivery of such shares to the former holder of Central Mortgage Stock entitled thereto, except that (i) if any certificate for shares of Mercantile Stock is to be issued in a name other than that in which a certificate or certificates for shares of Central Mortgage Common Stock surrendered shall have been registered, it shall be a condition to such issuance that the person requesting such issuance shall pay to Mercantile any transfer taxes payable by reason thereof or of any prior transfer of such surrendered certificate or certificates or establish to the reasonable satisfaction of Mercantile that such taxes have been paid or are not payable, and (ii) nothing herein shall relieve a shareholder of Central Mortgage of any expenses associated with surrendering such holder's certificates evidencing Central Mortgage Common Stock to the Exchange Agent. 1.09 Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares held by any holder who becomes entitled to payment of the fair value of such shares under Section 351.455 of the Missouri Statute. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of such law and Mercantile shall cause the Surviving Corporation to pay such consideration with funds provided by Mercantile. (b) Each party hereto shall give the other prompt notice of any written demands for the payment of the fair value of any shares, withdrawals of such demands, and any other instruments, served pursuant to the Missouri Statute received by such party and Central Mortgage shall give Mercantile the opportunity to participate in all negotiations and proceedings with respect to such demands. Central Mortgage shall not voluntarily make any payment with respect to any demands for payment of fair value and shall not, except with the 4 9 prior written consent of Mercantile, which consent shall not be unreasonably withheld, settle or offer to settle any such demands. 1.10 No Fractional Shares. Notwithstanding any -------------------- other provision of this Agreement, neither certificates nor scrip for fractional shares of Mercantile Common Stock shall be issued in the Merger. Each holder of shares of Central Mortgage Common Stock who otherwise would have been entitled to a fraction of a share of Mercantile Common Stock shall receive (by check from the Exchange Agent, mailed to the shareholder with the certificate(s) for Mercantile Common Stock which such holder is to receive pursuant to the Merger) in lieu thereof, and at the time such holder receives the shares of Mercantile Common Stock to which the holder is entitled, cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the closing stock price of Mercantile Common Stock on the New York Stock Exchange (the "NYSE") Composite Tape as reported in The Wall Street Journal on the Closing Date of the Merger. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share. 1.11 Closing of Stock Transfer Books. The stock ------------------------------- transfer books of Central Mortgage shall be closed at the close of business on the Business Day immediately preceding the Closing Date. In the event of a transfer of ownership of Central Mortgage Common Stock which is not registered in the transfer records of Central Mortgage, the consideration to be distributed pursuant to this Agreement may be delivered to a transferee, if the certificate representing such shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. Mercantile and the Exchange Agent shall be entitled to rely upon the stock transfer books of Central Mortgage to establish the identity of those persons entitled to receive the consideration specified in this Agreement for their shares of Central Mortgage Common Stock, which books shall be conclusive with respect to the ownership of such shares. In the event of a dispute with respect to the ownership of any such shares, Mercantile and the Exchange Agent shall be entitled to deposit any consideration represented thereby in escrow with an independent party and thereafter be relieved with respect to any claims to such consideration. 1.12 Anti-Dilution. If between the date of this ------------- Agreement and the Effective Time a share of Mercantile Common Stock shall be changed into a different number of shares of Mercantile Common Stock or a different class of shares by reason of reclassification, recapitalization, split-up, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the number of shares of Mercantile Common Stock into which a share of Central Mortgage Common Stock shall be converted pursuant to Section 1.07 of this Agreement will be appropriately and proportionately adjusted so that each shareholder of Central Mortgage shall be entitled to receive such number of shares of Mercantile Common Stock or other securities as such shareholder would have received pursuant to such reclassification, recapitalization, split-up, exchange of shares or readjustment or as a result of such stock dividend had the record date therefor been immediately following the Effective Time. 5 10 ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES OF CENTRAL MORTGAGE As an inducement to the Mercantile Entities to enter into and perform their respective obligations under this Agreement, and notwithstanding any examinations, inspections, audits and other investigations made by the Mercantile Entities, Central Mortgage hereby represents and warrants to the Mercantile Entities as follows: 2.01 Organization and Authority. Central Mortgage -------------------------- is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Central Mortgage is registered as a bank holding company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Except for the Central Mortgage Subsidiaries, Central Mortgage has no direct or indirect subsidiaries. Each of Barton Bank, Citizens-Jackson Bank, Nevada Bank and Farmers Bank (collectively, the "Banks") is a commercial bank duly organized, validly existing and in good standing under the laws of the State of Missouri. The deposits of the Banks are insured by the Federal Deposit Insurance Corporation (the "FDIC") under the Federal Deposit Insurance Act of 1950, as amended (the "FDI Act"). Cenco is a corporation duly organized, validly existing and in good standing under the law of the State of Arizona. Each Central Mortgage Subsidiary is qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has the corporate power and authority to own and operate its properties and to carry out its business as and where the same is now being conducted, except where the failure to so qualify would not have a material adverse effect on the financial condition, results of operations, business, assets, prospects or operations of Central Mortgage and the Central Mortgage Subsidiaries, taken as a whole. (Such an effect, as applied to either Central Mortgage or Mercantile, as the context requires, is hereinafter referred to as a "Material Adverse Effect"). 2.02 Corporate Authorization; Records. Central -------------------------------- Mortgage has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement and the Merger by the shareholders of Central Mortgage and such approvals of governmental agencies and other governing boards having regulatory authority over Central Mortgage and each Central Mortgage Subsidiary as may be required by applicable law, rule or regulation, to carry out its obligations hereunder. The only shareholder vote of Central Mortgage required to approve this Agreement and the Merger is the affirmative vote of the holders of at least two-thirds of the outstanding shares of Central Mortgage Common Stock. The execution, delivery and performance of this Agreement by Central Mortgage and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Central Mortgage. Subject to the approvals, as aforesaid, this Agreement is the valid and binding obligation of Central Mortgage, enforceable against Central Mortgage in accordance with its terms. 6 11 Except as set forth on Schedule 2.02, neither the ------------- execution, delivery and performance by Central Mortgage of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by Central Mortgage with any of the provisions hereof will (a) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the material properties or assets of Central Mortgage or any Central Mortgage Subsidiary under any of the terms, conditions or provisions of (i) the Articles of Incorporation or the Articles of Association, as the case may be, or By-laws of each, or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Central Mortgage or any Central Mortgage Subsidiary is a party or by which it may be bound, or to which Central Mortgage or any Central Mortgage Subsidiary or any of the material properties or assets of Central Mortgage or any Central Mortgage Subsidiary may be subject, or (b) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Central Mortgage or any Central Mortgage Subsidiary or any of their respective material properties or assets. Other than in connection or in compliance with the provisions of the Missouri Statute, the Securities Act of 1933 and the rules and regulations thereunder (the "Securities Act"), the Securities Exchange Act of 1934 and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the BHC Act, or any required approvals of the Federal Reserve Board and the Division of Finance or other governmental agencies or governing boards having regulatory authority over Central Mortgage or any Central Mortgage Subsidiary, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Central Mortgage of the transactions contemplated by this Agreement. The minute books and stock records of Central Mortgage and each of the Central Mortgage Subsidiaries are complete and correct in all material respects and accurately reflect in all material respects all meetings, consents and other actions of the organizers, incorporators, shareholders, Board of Directors and committees of the Board of Directors occurring since the organization of each. 2.03 Second Tier Subsidiaries. Each Central ------------------------ Mortgage Subsidiary has no subsidiaries and does not control, or have any equity ownership interest in, any other corporation, partnership, joint venture or other business association, other than any interest pledged to such Central Mortgage Subsidiary in the ordinary course of its business as security for the obligations of third parties to such Central Mortgage Subsidiary or held by such Central Mortgage Subsidiary either as a consequence of its exercise of rights and remedies in respect of any interest pledged as security in respect of such obligations or in a fiduciary capacity. 2.04 Capitalization of Central Mortgage. The ---------------------------------- authorized stock of Central Mortgage consists of (i) 43,000 shares of Series A preferred stock, $10.00 par value, of which, as of August 31, 1994, 42,573 shares were issued and outstanding, and (ii) 6,000,000 shares of common stock, $1.00 par value, of which as of August 31, 1994, 3,701,849 shares were issued and outstanding. Since August 31, 1994, no shares of Central Mortgage Stock or other Equity Securities (as defined below) of Central Mortgage have been 7 12 issued. There are no other shares of capital stock or other equity securities of Central Mortgage outstanding and no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock of Central Mortgage, or contracts, commitments, understandings or arrangements by which Central Mortgage is or may be become bound to issue additional shares of its capital stock or options, warrants or rights to purchase or acquire any additional shares of its capital stock (all of which are sometimes referred to as "Equity Securities"), except for: (a) stock options for an aggregate of 146,700 shares of Central Mortgage Common Stock granted under the CMBI Incentive Compensation Plan for Key Employees and the CMBI Incentive Plan of 1990 at the dates, for the exercise prices, and to the recipients set forth in Schedule 2.04 attached hereto ------------- ("Employee Options"); (b) the option dated September 21, 1994 granted by Central Mortgage to Mercantile for up to 736,667 shares of Central Mortgage Common Stock pursuant to an Investment Agreement dated September 21, 1994 between Central Mortgage and Mercantile (the "Investment Agreement"); and (c) the rights of holders of Series A preferred stock, $10.00 par value, of Central Mortgage ("Central Mortgage Preferred Stock") to convert such stock into Central Mortgage Common Stock (none of which shall be outstanding as of the record date of the special meeting of Central Mortgage shareholders referred to in Section 5.03 of this Agreement). All of the issued and outstanding shares of Central Mortgage Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Central Mortgage. 2.05 Capitalization of Central Mortgage ---------------------------------- Subsidiaries. Except as set forth on Schedule 2.05, - ------------ ------------- Central Mortgage has and will have as of the Effective Time good and marketable title to all of the then issued and outstanding shares of the capital stock of each of the Banks and, as to Cenco, to that number and percentage of the issued and outstanding shares of the capital stock of Cenco held beneficially and of record by Central Mortgage as of the date hereof, in each case free and clear of any liens, claims, charges, encumbrances and assessments of any kind or nature whatsoever. Except as set forth on Schedule 2.05 and except ------------- for issued and outstanding shares of capital stock of Cenco held by persons other than Central Mortgage, there are no other shares of capital stock or other equity securities of any Central Mortgage Subsidiary outstanding and no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock of any Central Mortgage Subsidiary, or contracts, commitments, understandings or arrangements by which any Central Mortgage Subsidiary is or may become bound to issue additional Equity Securities of any Central Mortgage Subsidiary. All of the issued and outstanding shares of each Central Mortgage Subsidiary's Common Stock are validly issued, fully paid and nonassessable. 2.06 Financial Statements. -------------------- (a) Attached hereto as Schedule 2.06(a) are ---------------- copies of the following documents: (i) Annual Report on Form 10-K for the year ended December 31, 1993; and (ii) Quarterly Report on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994. 8 13 (b) The financial statements contained in the documents referenced in Schedule 2.06(a) are referred to ---------------- collectively as the "Central Mortgage Financial Statements." The Central Mortgage Financial Statements have been prepared in accordance with the books and records of Central Mortgage in accordance with generally accepted accounting principles consistently applied, and present fairly the consolidated financial positions of Central Mortgage and the Central Mortgage Subsidiaries, at the dates thereof and the consolidated results of operations and cash flows of Central Mortgage and the Central Mortgage Subsidiaries for the periods stated therein. (c) Central Mortgage and the Central Mortgage Subsidiaries have each prepared, kept and maintained through the date hereof true, correct and complete financial and other books and records of their affairs which fairly reflect their respective financial conditions, results of operations, businesses, assets, prospects and operations. 2.07 Reports. Since January 1, 1991, Central ------- Mortgage and the Central Mortgage Subsidiaries have each filed all material reports, registrations and statements, together with any required material amendments thereto, that were required to be filed with (i) the Securities and Exchange Commission (the "SEC"), including but not limited to, reports on Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements; (ii) the Federal Reserve Board, including, but not limited to, reports on Form FR Y-6 and Form FR Y-9; (iii) the FDIC and (iv) any applicable state securities or banking authorities. All such reports and statements filed with any such regulatory body or authority are collectively referred to herein as the "Central Mortgage Reports." As of their respective dates, the Central Mortgage Reports substantially complied with all the rules and regulations promulgated by the applicable federal and/or state authorities, as the case may be, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.08 Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Central Mortgage Financial Statements or set forth on Schedule -------- 2.08(a) and excepting all real property (which is the subject - ------- of Section 2.09), each of Central Mortgage and the Central Mortgage Subsidiaries has, and at the Closing Date will have, good and marketable title to its respective properties and assets, including, without limitation, those reflected in the Central Mortgage Financial Statements, free and clear of any liens, charges, pledges, encumbrances, defects, claims or rights of third parties, except for liens for taxes, assessments or other governmental charges not yet delinquent, and except for such liens, charges, pledges, encumbrances, defects, claims and rights which in the aggregate do not have a Material Adverse Effect. (b) No assets reflected on the Central Mortgage Financial Statements in respect of Central Mortgage and the Central Mortgage Subsidiaries have been sold, leased, transferred, assigned or otherwise disposed of since June 30, 1994, except in the ordinary course of business or as set forth in Schedule 2.08(b) under the heading "Dispositions." ---------------- (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Central Mortgage and the Central Mortgage Subsidiaries, including any of such items leased by Central Mortgage or any Central Mortgage Subsidiary as a lessee and all facilities and improvements comprising part of any owned or leased real property, taken as a whole, with no single such item being deemed of importance, 9 14 are fit for the purposes for which they were intended, are, in all material respects, in good order and repair, free of defects and in good operating condition, subject only to normal wear and tear. The operation by Central Mortgage and the Central Mortgage Subsidiaries of such assets is in compliance in all material respects with all applicable laws, ordinances and rules and regulations of any governmental authorities having jurisdiction. 2.09 Real Property. Except as set forth in ------------- Schedule 2.09: - ------------- (a) The legal description of each parcel of real property owned by Central Mortgage and the Central Mortgage Subsidiaries (other than real property acquired in foreclosures or in lieu of foreclosure in the course of collection of its loans and being held by Central Mortgage or any Central Mortgage Subsidiary for disposition as required by law) is set forth in Schedule 2.09(a) attached hereto under the heading "Owned - ---------------- Real Property" (such real property being herein referred to as the "Owned Real Property"). The legal description of each parcel of real property leased by Central Mortgage or a Central Mortgage Subsidiary as lessee is also set forth in Schedule 2.09(a) ---------------- under the heading "Leased Real Property" (such real property being herein referred to as the "Leased Real Property"). Collectively, the Owned Real Property and the Leased Real Property are herein referred to as the "Real Property." (b) There is no pending dispute involving Central Mortgage or any Central Mortgage Subsidiary as to the title of or the right to use any of its respective Real Properties. (c) Neither Central Mortgage nor any Central Mortgage Subsidiary has any interest in any other real property except interests as a mortgagee, and except for real property acquired in foreclosures or in lieu of foreclosure and being held for disposition as required by law. (d) To the best knowledge of Central Mortgage, none of the buildings, structures or other improvements located on the Real Property encroaches upon or over any adjoining parcel or real estate or any easement or right-of-way or "setback" line, and all such buildings, structures and improvements are located and constructed in substantial conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Real Property is the subject of any official complaint or notice given to Central Mortgage or any Central Mortgage Subsidiary by any governmental authority of any material violation of any applicable zoning ordinance or building code, and there is no action under any zoning ordinance, building code, or use or occupancy restriction, and no condemnation action or proceeding pending, or, to the best knowledge of Central Mortgage, threatened, with respect to any such building, structure or improvement. The Real Property is in generally good condition, reasonable wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected in the Central Mortgage Financial Statements or with respect to such easements, liens, defects or encumbrances as do not individually or in the aggregate materially and adversely affect the use or value of the parcel of Real Property, each of Central Mortgage and the Central Mortgage Subsidiaries has, and at the Closing Date will have, good and marketable title to its respective Real Properties, free 10 15 and clear of any liens, charges, pledges, encumbrances, defects, claims or rights of third parties. 2.10 Contracts. --------- (a) Schedule 2.10(a) contains a complete and ---------------- accurate listing of all contracts entered into with respect to deposits of $500,000 or more, by account or other identifying number, and all loan agreements and commitments, notes, security agreements, repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements, and other documents relating to or involving extensions of credit or other commitments to which Central Mortgage or any Central Mortgage Subsidiary is a party or by which it is bound, to extend credit with respect to any one entity or related group of entities in excess of $250,000, by account or other identifying number, and the names and relationships of such related group. (b) Except for the contracts and agreements required to be listed on Schedule 2.10(a) and except as set ---------------- forth in Schedule 2.10(b) or any other Schedule hereto, ---------------- neither Central Mortgage nor any Central Mortgage Subsidiary is a party to or bound by any: (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) franchise or license agreement; (iii) written employment, severance or termination pay, agency, consulting or similar agreement, contract, arrangement, understanding or commitment in respect of personal services; (iv) loans or other obligations payable to or owing to any officer, director or employee thereof, except (A) salaries, wages and directors' fees incurred and accrued in the ordinary course of business and/or (B) obligations due in respect of any depository accounts maintained by any of the foregoing at such entity in the ordinary course of business; (v) loans or debts payable by or owing by any executive officer or director of Central Mortgage or any Central Mortgage Subsidiary or any other person or entity deemed an "executive officer" or a "related interest" of any of the foregoing, as such terms are defined in Regulation O of the Federal Reserve Board; or (vi) other agreement, contract, arrangement, understanding or commitment involving an obligation of Central Mortgage or any Central Mortgage Subsidiary of more than $50,000 extending beyond six (6) months from the date hereof that cannot be cancelled without cost or penalty upon notice of thirty (30) days or less, other than contracts entered into in respect of deposits, loan agreements and commitments, notes, security agreements, repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements and other documents relating to transactions entered into by Central Mortgage or by any Central Mortgage Subsidiary in the ordinary course of business and not 11 16 involving extensions of credit with respect to any one entity or related group of entities in excess of $250,000. (c) Central Mortgage and the Central Mortgage Subsidiaries each carry property, casualty, liability, products liability and other insurance coverages as set forth in Schedule 2.10(c) under the heading "Insurance." - ---------------- (d) True, correct and complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Schedule 2.10(a), Schedule 2.10(b) ---------------- ---------------- or Schedule 2.10(c) shall be furnished or made available to the ---------------- Mercantile Entities. (e) Each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedule 2.10(a), ---------------- Schedule 2.10(b) and Schedule 2.10(c) is a valid, binding and enforceable - ---------------- ---------------- obligation of Central Mortgage or the Central Mortgage Subsidiary which is a party thereto, and, to the best knowledge of Central Mortgage, the other parties sought to be bound thereby, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in effect relating to the enforcement of creditors' rights generally, and except that equitable principles may limit the right to obtain specific performance or other equitable remedies with respect to such other parties. (f) Schedule 2.10(f) under the heading ---------------- "Loans" contains a true, correct and complete listing, as of the date of this Agreement, by account or other identifying number, of: (i) all loans in excess of $100,000, of either Central Mortgage or any Central Mortgage Subsidiary which have been accelerated during the past twelve months; (ii) all loan commitments or lines of credit of either Central Mortgage or any Central Mortgage Subsidiary in excess of $100,000 which have been terminated by such entity during the past twelve months by reason of default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower; (iii) all loans, lines of credit and loan commitments in excess of $100,000 as to which either Central Mortgage or any Central Mortgage Subsidiary has given written notice to the borrower or customer of such entity's intent to terminate during the past twelve months; (iv) with respect to all loans, all notification letters and other written communications from either Central Mortgage or any Central Mortgage Subsidiary to any of its borrowers, customers or other parties since June 30, 1994 wherein such entity has requested or demanded that actions be taken to correct existing defaults or facts or circumstances which may become defaults; (v) each borrower, customer or other party which has notified either Central Mortgage or any Central Mortgage Subsidiary during the past twelve months of, or asserted against Central Mortgage or any Central 12 17 Mortgage Subsidiary, in writing, any "lender liability" or similar claim, and, to the best of Central Mortgage's knowledge, each borrower, customer or other party which has given either Central Mortgage or any Central Mortgage Subsidiary any oral notification of, or asserted against such entity, any such claim and (vi) all loans (1) that are contractually past due 90 days or more in the payment of principal and/or interest; (2) that are on non-accrual status; (3) where a reasonable doubt exists in the mind of the President of either Central Mortgage or any Central Mortgage Subsidiary as to the timely future collectibility of future principal and interest, whether or not interest is still accruing or the loan is less than 90 days past due; (4) the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the loan was originally created due to concerns regarding the borrower's ability to pay in accordance with such initial terms or (5) where a specific reserve allocation exists in connection therewith. 2.11 Absence of Defaults. Except as set forth in ------------------- Schedule 2.11 attached hereto, there are no pending disputes - ------------- between Central Mortgage or any Central Mortgage Subsidiary and the other parties to any material agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise, and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute a default by Central Mortgage or any Central Mortgage Subsidiary under any such agreement, commitment, arrangement, lease, insurance policy or instrument, except, in all cases, where such default would not have a Material Adverse Effect and, to the best knowledge of Central Mortgage, all such agreements, commitments, arrangements, leases, insurance policies and other instruments are in full force and effect and will not be terminable by the other party solely as a result of the consummation of the Merger. 2.12 Absence of Undisclosed Liabilities. Except ---------------------------------- as disclosed in Schedule 2.12 or in any other Schedule ------------- attached hereto, neither Central Mortgage nor any Central Mortgage Subsidiary, as of the date hereof, has any debts, liabilities or obligations equal to or exceeding $10,000, individually, or $25,000, in the aggregate, whether accrued, absolute, contingent or otherwise and whether due or to become due, except (a) debts, liabilities or obligations reflected in the Central Mortgage Financial Statements, and (b) debts, liabilities or obligations incurred since June 30, 1994, in the ordinary and usual course of its business, none of which are for breaches of contract, breaches of warranty, torts, infringements or lawsuits. 2.13 Allowance for Loan and Lease Losses; Non- ----------------------------------------- Performing Assets. - ----------------- (a) Except as set forth in Schedule 2.13 ------------- attached hereto: (i) all of the accounts, notes and other receivables which are reflected in the Central Mortgage Financial Statements as of June 30, 1994 were acquired in the ordinary course of business and, to the best knowledge of Central Mortgage, are collectible in full in the ordinary course of business, 13 18 except for possible loan and lease losses which are adequately provided for in the allowance for loan and lease losses in such Central Mortgage Financial Statements, and (ii) the collection experience of Central Mortgage and each Central Mortgage Subsidiary since June 30, 1994 to the date hereof has not materially deteriorated from the credit and collection experience of such entity in the six months ended June 30, 1994 and the year ended December 31, 1993. (b) Schedule 2.13(b) attached hereto sets ---------------- forth as of the date of this Agreement all assets classified as real estate acquired through foreclosure, including in-substance foreclosed real estate ("Non-Performing Assets"). (c) The aggregate amount of all loans described by Section 2.10(f)(vi) and all Non-Performing Assets does not exceed one percent (1%) of (i) the gross amounts of all loans and leases on the books of Central Mortgage and the Central Mortgage Subsidiaries, plus (ii) the aggregate book value of all Non- Performing Assets. 2.14 Taxes. Each of Central Mortgage and the ----- Central Mortgage Subsidiaries has timely filed or will timely file all tax returns required to be filed at or prior to the Closing Date. Each of Central Mortgage and the Central Mortgage Subsidiaries has paid, or has set up adequate reserves in the Central Mortgage Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such returns and, to the extent required by generally accepted accounting principles consistently applied, has set up adequate reserves in the Central Mortgage Financial Statements for the payment of all taxes anticipated to be payable in respect of the period subsequent to the last of said periods. Neither Central Mortgage nor any Central Mortgage Subsidiary will have any liability for any such taxes in excess of the amounts so paid or reserves so established and no deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against Central Mortgage or any Central Mortgage Subsidiary which would not be covered by existing reserves. Neither Central Mortgage nor any Central Mortgage Subsidiary is delinquent in the payment of any tax, assessment or governmental charge, nor has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. The federal, state and foreign income tax returns of Central Mortgage and the Central Mortgage Subsidiaries have not been audited by the Internal Revenue Service (the "IRS") or the state or foreign taxing authority since prior to January l, 1986. 2.15 Material Adverse Change. Except as ----------------------- otherwise disclosed in any of the Schedules referenced herein, since June 30, 1994, there has been no material adverse change in the financial condition, results of operations, business, assets, prospects or operations of Central Mortgage and the Central Mortgage Subsidiaries, taken as a whole, other than changes in banking laws or regulations, or interpretations thereof, or other conditions that affect the banking industry generally, or changes in the general level of interest rates. 2.16 Litigation and Other Proceedings. Except as -------------------------------- set forth in Schedule 2.16, there are no actions, suits, or ------------- proceedings pending or, to the best knowledge of Central Mortgage, threatened against Central Mortgage or any Central Mortgage Subsidiary or any of their respective employees, except for matters which, in the aggregate, will not have, or cannot reasonably be expected to have, a Material Adverse Effect. 14 19 2.17 Governmental Compliance. Except as set ----------------------- forth in Schedule 2.17: ------------- (a) To the best knowledge of Central Mortgage, Central Mortgage and the Central Mortgage Subsidiaries are in compliance with all laws, ordinances, rules, regulations and orders, licenses and permits that are applicable to each; (b) To the best knowledge of Central Mortgage, Central Mortgage and the Central Mortgage Subsidiaries hold all permits, business licenses, certificates, franchises and other similar items, which, if not held, would adversely affect the financial condition, results of operations business, prospects or operations and/or ownership rights as to the assets and properties of any of the foregoing; (c) There is no legal action or governmental proceeding or investigation pending or, to the best knowledge of Central Mortgage, threatened against Central Mortgage or any Central Mortgage Subsidiary that could prevent or adversely affect, or that seeks to prohibit the consummation of, the transactions contemplated hereby, nor is Central Mortgage or any Central Mortgage Subsidiary subject to any order of a court or governmental authority having any such effect; (d) Neither Central Mortgage nor any Central Mortgage Subsidiary is subject to any cease and desist order, memorandum of understanding or any written agreement issued by, or entered into with, any federal or state governmental or regulatory agency, authority, entity or official having jurisdiction over the banking or other related activities of Central Mortgage or any Central Mortgage Subsidiary, including, without limitation, the Federal Reserve Board, the Division of Finance and/or the FDIC; and (e) To the best knowledge of Central Mortgage, neither Central Mortgage nor any Central Mortgage Subsidiary is subject to or reasonably likely to incur a material liability as a result of its ownership, operation, or use of any property (whether directly or, to the best knowledge of Central Mortgage, as a consequence of such property being part of its investment portfolio, including, without limitation, properties under foreclosure, property held by any Central Mortgage Subsidiary in its capacity as a trustee, and property in which any venture capital or similar unit of Central Mortgage or any Central Mortgage Subsidiary has an interest, but excluding property held by Central Mortgage or any Central Mortgage Subsidiary as collateral for the security of any loan due it) (the "Property") (i) that is contaminated by or contains any hazardous waste, toxic substance or related materials, including without limitation, asbestos, PCBs, pesticides, herbicides, and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (ii) on which any Toxic Substance has been stored, disposed of, placed or used in the construction thereof. No claim, action, suit or proceeding is pending against Central Mortgage or any Central Mortgage Subsidiary relating to any Property before any court or other governmental authority or arbitration tribunal relating to hazardous substances, pollution or the environment, and there is no outstanding judgment, order, writ, injunction, decree or award against or affecting Central Mortgage or any Central Mortgage Subsidiary with respect to the same. Except for statutory or regulatory restrictions of general application, no federal, state, municipal or other governmental authority has placed any restriction on the business of Central Mortgage or any Central Mortgage Subsidiary which, individually or in the aggregate, reasonably could be expected to have a Material Adverse Effect. 15 20 2.18 Labor. Except as set forth on Schedule 2.18: ----- ------------- (a) no work stoppage involving Central Mortgage or any Central Mortgage Subsidiary is pending or, to the best knowledge of Central Mortgage, threatened; (b) neither Central Mortgage nor any Central Mortgage Subsidiary is involved in, or, to the best knowledge of Central Mortgage, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which could adversely affect the business of Central Mortgage or any Central Mortgage Subsidiary; and (c) no employee of Central Mortgage or any Central Mortgage Subsidiary is represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to any such employee. 2.19 Interests of Certain Persons. Except as set ---------------------------- forth on Schedules 2.10(b) or 2.19, to the best ----------------- ---- knowledge of Central Mortgage, no officer or director of Central Mortgage or any Central Mortgage Subsidiary has any interest in any contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Central Mortgage or any Central Mortgage Subsidiary. 2.20 Employee Benefit Plans. Schedule 2.20 ---------------------- ------------- lists all pension, retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, covering the present or former directors, officers or other employees of Central Mortgage or any Central Mortgage Subsidiary (collectively, "Employee Plans or Policies"). To the best knowledge of Central Mortgage, except as set forth in Schedule 2.20, all Employee Plans or Policies ------------- currently comply and have at all relevant times complied in all respects with all applicable laws, requirements and orders under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the "Code"), and state law. With respect to each Employee Plan or Policy which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"), except as set forth in Schedule 2.20: ------------- (a) no Pension Plan is a "multiemployer plan" within the meaning of Section 3(37) of ERISA; (b) each Pension Plan intended by management to be "qualified" is so "qualified" within the meaning of Section 401(a) of the Code, and each related trust, if any, is exempt from taxation under Section 501(a) of the Code; (c) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule 2.20), ------------- exceed the value of the assets of the Pension Plans allocable to such vested or accrued benefits; (d) no Pension Plan or any trust created thereunder, nor, to the best knowledge of Central Mortgage, any trustee, fiduciary or administrator thereof, has engaged in a "prohibited transaction," as such term is defined in Section 4975 of the Code, which could subject such plan or trust, or, to the best knowledge of Central Mortgage, any trustee, 16 21 fiduciary or administrator thereof, or any party dealing with any such plan or trust, to the tax or penalty on prohibited transactions imposed by said Section 4975; (e) no Pension Plan which is subject to Title IV of ERISA or any trust created thereunder has been terminated, nor have there been any "reportable events" with respect to any such Pension Plan, as that term is defined in Section 4043 of ERISA; and (f) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA (whether or not waived), since the effective date of ERISA. With respect to each Employee Plan or Policy which provides for health care, neither Central Mortgage nor any Central Mortgage Subsidiary nor any of Central Mortgage's other affiliates has or will have any obligation or liability to pay any post-retirement health care costs, except as required by applicable law. 2.21 Conduct of Central Mortgage and the Central ------------------------------------------- Mortgage Subsidiaries to Date. Except for entering into this - ----------------------------- Agreement and matters related thereto and as disclosed in Schedule 2.21 from and after June 30, 1994: - ------------- (a) Central Mortgage and the Central Mortgage Subsidiaries have carried on their respective businesses in the ordinary and usual course consistent with their past practices; (b) neither Central Mortgage nor any Central Mortgage Subsidiary has issued or sold any of its capital stock or any corporate debt securities which would be classified as long-term debt on its balance sheet; (c) Central Mortgage has not granted any option for the purchase of its capital stock, effected any stock split, or otherwise changed its capitalization; (d) Central Mortgage has not declared, set aside, or paid any dividend or other distribution in respect of its capital stock (other than as contemplated by Section 4.02(a) of this Agreement), or, directly or indirectly, redeemed or otherwise acquired any of its capital stock; (e) neither Central Mortgage nor any Central Mortgage Subsidiary has incurred any obligation or liability (absolute or contingent), except normal trade or business obligations or liabilities incurred in the ordinary course of business, or mortgaged, pledged, or subjected to lien, claim, security interest, charge, encumbrance, or restriction any of its assets or properties; (f) neither Central Mortgage nor any Central Mortgage Subsidiary has discharged or satisfied any material lien, mortgage, pledge, claim, security interest, charge, encumbrance, or restriction or paid any material obligation or liability (absolute or contingent), other than in the ordinary course of business; (g) neither Central Mortgage nor any Central Mortgage Subsidiary has sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; 17 22 (h) neither Central Mortgage nor any Central Mortgage Subsidiary has: (i) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except merit, promotion or cost-of-living increases in accordance with existing policy; (ii) entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract; (iii) entered into, terminated, or substantially modified any Employee Plan or Policy in respect of any of its present or former directors, officers, or other employees; or (iv) agreed to do any of the foregoing: (i) neither Central Mortgage nor any Central Mortgage Subsidiary has suffered any damage, destruction or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition or taking of property by any government or any agency of any government, flood, windstorm, embargo, riot, act of God or the enemy or other similar or dissimilar casualty or event or otherwise, and whether or not covered by insurance (other than damages, destructions and losses which in the aggregate do not have a Material Adverse Effect); and (j) neither Central Mortgage nor any Central Mortgage Subsidiary has entered into any material transaction, contract, or commitment outside the ordinary course of its business. 2.22 Registration Statement, etc. None of the --------------------------- information regarding Central Mortgage and/or any Central Mortgage Subsidiary supplied or to be supplied by Central Mortgage for inclusion or included in (a) a registration statement on Form S-4 to be filed with the SEC by Mercantile for the purpose of registering the shares of Mercantile Stock to be exchanged for Central Mortgage Common Stock pursuant to the provisions of this Agreement (the "Registration Statement"), (b) the proxy statement to be mailed to shareholders of Central Mortgage in connection with the meeting to be called to consider the approval of this Agreement and the Merger (the "Proxy Statement") and (c) any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with the SEC or any regulatory authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the special meeting of Central Mortgage's shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Central Mortgage is responsible for filing with any regulatory authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 2.23 Brokers and Finders. Neither Central ------------------- Mortgage nor any Central Mortgage Subsidiary nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Central Mortgage and/or any Central Mortgage Subsidiary in connection with this Agreement or the transactions contemplated hereby, except that Stifel, Nicolaus & Company, Incorporated has been retained by Central Mortgage to render financial advisory services and 18 23 an opinion with regard to the fairness of the Merger to the Central Mortgage shareholders from a financial point of view. ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF THE MERCANTILE ENTITIES As an inducement to Central Mortgage to enter into and perform its obligations under this Agreement, and notwithstanding any examinations, inspections, audits or other investigations made by Central Mortgage, the Mercantile Entities hereby represent and warrant to Central Mortgage as follows: 3.01 Organization and Authority. Mercantile and -------------------------- each of its subsidiaries (individually, a "Mercantile Subsidiary" and, collectively, the "Mercantile Subsidiaries") is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of organization, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted except, in the case of the Mercantile Subsidiaries, where the failure to be so qualified would not have a Material Adverse Effect. Mercantile is registered as a bank holding company with the Federal Reserve Board under the BHC Act. Ameribanc is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. True and complete copies of the Articles of Incorporation and Bylaws of Mercantile, as in effect on the date of this Agreement, have been provided to Central Mortgage. 3.02 Authorization. Mercantile and Ameribanc ------------- each have the corporate power and authority to enter into this Agreement and to carry out their respective obligations hereunder. The execution, delivery and performance of this Agreement by Mercantile and Ameribanc and the consummation of the transactions contemplated hereby have been duly authorized by the Executive Committee of the Board of Directors of Mercantile and the Board of Directors of Ameribanc and no other approval of the respective Boards or shareholders or any committees thereof is required. Subject to such approvals of governmental agencies and other governing boards having regulatory authority over Mercantile and Ameribanc as may be required by statute or regulation, this Agreement is a valid and binding obligation of Mercantile and Ameribanc, enforceable against each in accordance with its terms. Neither the execution, delivery and performance by Mercantile or Ameribanc of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by Mercantile or Ameribanc with any of the provisions hereof, will (a) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of Mercantile or Ameribanc under any of the terms, conditions or provisions of (i) their respective Articles of Incorporation or By-laws 19 24 or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Mercantile or Ameribanc is a party or by which it may be bound, or to which Mercantile or Ameribanc or any of its properties or assets may be subject, or (b) subject to compliance with the statutes and regulations referred to in the next paragraph, to the best knowledge of Mercantile, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Mercantile or Ameribanc or any of their subsidiaries or any of its or their respective material properties or assets. Other than in connection with or in compliance with the provisions of the Missouri Statute, the Securities Act, the Exchange Act, the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the BHC Act, or any required approvals of the Federal Reserve Board or the Division of Finance, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Mercantile and Ameribanc of the transactions contemplated by this Agreement. 3.03 Capitalization of Mercantile. The ---------------------------- authorized capital stock of Mercantile consists of (a) 100,000,000 shares of Mercantile Common Stock, of which, as of June 30, 1994, 43,146,531 shares were issued and outstanding and (b) 5,000,000 shares of preferred stock, no par value, issuable in series, none of which were issued and outstanding. A series of 1,000,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock and are reserved for issuance upon exercise of Mercantile's preferred share purchase rights (the "Rights") issued pursuant to a Rights Agreement, dated May 23, 1988 (the "Rights Agreement"), between Mercantile and Mercantile Bank of St. Louis National Association, as Rights Agent. As of June 30, 1994, Mercantile had reserved (i) 4,608,735 shares of Mercantile Common Stock for issuance under various employee stock option and incentive plans ("Mercantile Employee Stock Options"), (ii) 970,000 shares of Mercantile Common Stock for issuance upon the acquisition of Wedge Bank pursuant to the Agreement and Plan of Reorganization dated as of July 6, 1994 between Mercantile, Mercantile Bancorporation of Illinois Inc., Wedge Bank and The Wedge Holding Company, (iii) 1,731,142 shares of Mercantile Common Stock for issuance upon the acquisition of UNSL Financial Corp. ("UNSL") pursuant to the Agreement and Plan of Reorganization dated July 12, 1994 between Mercantile, Ameribanc and UNSL and (iv) 388,135 shares of Mercantile Common Stock for issuance upon conversion of Mercantile's 8% Subordinated Capital Convertible Notes due 1995. From June 30, 1994 through the date of this Agreement, no shares of Mercantile Common Stock or other Equity Securities of Mercantile have been issued excluding any such shares which may have been issued pursuant to stock-based employee benefit or incentive plans and programs. Mercantile continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by Mercantile of another bank, bank holding company or other company (or the assets and/or liabilities thereof) for consideration that may include Equity Securities of Mercantile. In addition, prior to the Effective Time, Mercantile may, depending on market conditions and other factors, otherwise determine to issue Equity Securities for financing purposes. Except in connection with any such acquisition transactions and except as set forth in this Section 3.03 and except pursuant to the Rights Agreement, there are no other Equity Securities of Mercantile outstanding or to be issued and no other outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock of Mercantile, 20 25 or contracts, commitments, understandings or arrangements by which Mercantile is or may become bound to issue additional shares of its Equity Securities. All of the issued and outstanding shares of Mercantile Common Stock are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Mercantile. At the Effective Time, the Mercantile Common Stock issued pursuant to this Agreement will be duly authorized, validly issued and in compliance with all applicable federal and state securities laws, fully paid and nonassessable and not subject to or in violation of any preemptive rights. 3.04 Mercantile Financial Statements. The ------------------------------- supplemental audited consolidated balance sheets of Mercantile and the Mercantile Subsidiaries as of December 31, 1993, 1992 and 1991 and related supplemental audited consolidated statements of income, changes in shareholders' equity and cash flows for the three years ended December 31, 1993, together with the notes thereto, certified by KPMG Peat Marwick LLP and included in Mercantile's current report on Form 8-K dated June 17, 1994 as filed with the SEC, and the related unaudited consolidated balance sheets of Mercantile and the Mercantile Subsidiaries as of June 30, 1994 and 1993 and related unaudited consolidated statements of income, cash flows and shareholders' equity for the six months ended June 30, 1994 and 1993 included in Mercantile's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, both as filed with the SEC (collectively, the "Mercantile Financial Statements"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, and present fairly the consolidated financial position of Mercantile and the Mercantile Subsidiaries at the dates and the consolidated results of operations and cash flows of Mercantile and the Mercantile Subsidiaries for the periods stated therein and are derived from the books and records of Mercantile and the Mercantile Subsidiaries, which are complete and accurate in all material respects and have been maintained in accordance with good business practices. Neither Mercantile nor any of the Mercantile Subsidiaries has any material contingent liabilities that are not described in the Mercantile Financial Statements. 3.05 Reports. Since January 1, 1991, Mercantile ------- and each of the Mercantile Subsidiaries have filed all reports, registrations and statements, together with any required amendments thereto, that they were required to file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the Federal Reserve Board, including, but not limited to, reports on Form FR Y-6 and Form FR Y-9, (iii) the FDIC, (iv) the Office of the Comptroller of the Currency (the "OCC"), and (v) any applicable state securities or banking authorities. All such reports and statements filed with any such regulatory body or authority are collectively referred to herein as the "Mercantile Reports." As of their respective dates, the Mercantile Reports substantially complied with all the rules and regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the OCC and any applicable federal and/or state authorities, as the case may be, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06 Material Adverse Change. Since June 30, ----------------------- 1994, there has been no material adverse change in the financial condition, results of operations, business, assets, prospects or operations of Mercantile and the Mercantile Subsidiaries taken as a whole, other than changes in banking laws or regulations, or interpretations thereof, or other conditions that affect the banking industry generally, or changes in the general level of interest rates. 21 26 3.07 Registration Statement, Proxy Statement etc. ------------------------------------------- None of the information regarding Mercantile and/or any Mercantile Subsidiary supplied or to be supplied by Mercantile for inclusion or included in (a) the Registration Statement, (b) the Proxy Statement, or (c) any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with the SEC or any regulatory authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the special meeting of shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Mercantile and the Mercantile Subsidiaries are responsible for filing with the SEC and any regulatory authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.08 Brokers and Finders. Neither Mercantile, ------------------- Ameribanc nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Mercantile or Ameribanc in connection with this Agreement or the transactions contemplated hereby and thereby. 3.09 Legal Proceedings or Other Adverse Facts. ---------------------------------------- Neither Mercantile nor any Mercantile Subsidiary is a party to any pending or, to the best knowledge of Mercantile, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect, or which purports or seeks to enjoin or restrain the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, there are no actions, suits or proceedings pending, or, to the best knowledge of Mercantile, threatened against Mercantile or any Mercantile Subsidiary or any of their respective officers or directors involving claims under the Community Reinvestment Act of 1977, as amended, or the fair lending laws. No claim, action, suit, or proceeding is pending against Mercantile or any Mercantile Subsidiary relating to property of Mercantile before any court or regulatory authority or arbitration tribunal relating to hazardous substances, pollution, or the environment, and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Mercantile or any Mercantile Subsidiary with respect to the same. Except as previously disclosed to Central Mortgage, since December 31, 1991, neither Mercantile nor any Mercantile Subsidiary has received any notification or communication which has not been resolved from any regulatory authority (i) asserting that Mercantile or any Mercantile Subsidiary is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a Material Adverse Effect; (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the condition of Mercantile and the Mercantile Subsidiaries, taken as a whole, including without limitation such company's status as an insured depositary institution under the Federal Deposit Insurance Act or (iii) requiring or threatening to require Mercantile or any of the Mercantile Subsidiaries, or indicating that Mercantile or any of the Mercantile Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any 22 27 manner the operations of Mercantile or any of the Mercantile Subsidiaries, including without limitation any restriction on the payment of dividends, and no such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. 3.10 Commitments and Contracts. Neither ------------------------- Mercantile nor any of the Mercantile Subsidiaries is in violation of its charter documents or bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such default would not have a Material Adverse Effect. 3.11 Compliance with Laws. Each of Mercantile -------------------- and the Mercantile Subsidiaries has complied with all laws, regulations, and orders (including without limitation zoning ordinances, building codes, ERISA, and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations and including without limitation in the case of any Mercantile Subsidiary that is a bank, banking organization, banking corporation or trust company, all statutes, rules and regulations pertaining to the conduct of a banking, deposit-taking or lending or related business or to the exercise of trust powers) and governing instruments applicable to them and to the conduct of their business, except where such failure to comply would not have a Material Adverse Effect and neither Mercantile nor any Mercantile Subsidiary is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any regulatory authority or court, whether federal, state, municipal or local and whether at law or in equity, except where such default would not have a Material Adverse Effect. Neither Mercantile nor any Mercantile Subsidiary is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any property of Mercantile (whether directly or, to the best knowledge of Mercantile, as a consequence of such property being part of the investment portfolio of Mercantile or any Mercantile Subsidiary) (a) that is contaminated by or contains any toxic substance or (b) on which any toxic substance has been stored, disposed of, placed, or used in the construction thereof; and which, in each case, reasonably could be expected to have a Material Adverse Effect. Except for statutory or regulatory restrictions of general application, no regulatory authority has placed any restriction on the business of Mercantile or any Mercantile Subsidiary which reasonably could be expected to have a Material Adverse Effect. ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01 Conduct of Businesses Prior to the Effective -------------------------------------------- Time. During the period from the date of this Agreement to the - ---- Effective Time, Central Mortgage and the Central Mortgage Subsidiaries shall conduct their businesses according to the ordinary and usual course consistent with past and current practices and shall use their best efforts to maintain and preserve their business organization, employees and advantageous business relationships and retain the services of their officers and key employees. 4.02 Forbearances of Central Mortgage. During -------------------------------- the period from the date of this Agreement to the Closing Date, Central Mortgage shall not, and shall cause each Central 23 28 Mortgage Subsidiary (as to the matters set forth in subsections (b), (c), (e), (f), (g), (h), (i), and (j) below) not to, without the prior written consent of the Mercantile Entities, which consent shall not be unreasonably withheld: (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from any Central Mortgage Subsidiary to Central Mortgage), except that Central Mortgage may declare and pay regular quarterly cash dividends in amounts not to exceed (i) the amount determined pursuant to Section 7.3 of the Articles of Incorporation of Central Mortgage on the Central Mortgage Preferred Stock and (ii) $0.12 per share on the Central Mortgage Common Stock; provided, however, that any such ----------------- quarterly dividend shall only be payable for a fiscal quarter for which a Central Mortgage shareholder is not entitled to receive a quarterly dividend on the shares of Mercantile Stock to be issued in the Merger; (b) enter into or amend any employment, severance or similar agreements or arrangements with any director or officer or employee, or materially modify any of the Central Mortgage Employee Plans or Policies or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract, and except for such increases of which Central Mortgage notifies Mercantile in writing and which Mercantile does not disapprove within ten days of the receipt of such notice; (c) propose or adopt any amendments to the Articles of Incorporation or the Articles of Association of Central Mortgage or any Central Mortgage Subsidiary, as the case may be, or their respective by-laws; (d) issue any shares of capital stock, except with respect to the issuance of Central Mortgage Common Stock upon the exercise or conversion of Employee Options or Central Mortgage Preferred Stock, outstanding on the date hereof, or effect any stock split or otherwise change its capitalization as it existed as of the date hereof; (e) grant, confer or award any options, warrants, conversion rights or other rights not existing on the date hereof to acquire any shares of its capital stock; (f) purchase or redeem any shares of its capital stock, except, in the case of Central Mortgage, the redemption of any or all shares of Central Mortgage Preferred Stock, and in the case of Cenco, the purchase or redemption of shares of Cenco capital stock held of record or beneficially by persons other than Central Mortgage, pursuant to preexisting contractual arrangements; (g) enter into or increase any loan or credit commitment (including standby letters of credit but excluding commitments in respect of the packaging of mortgages for sale in the ordinary course of business) to, or invest or agree to invest in any person or entity (i) in an amount in excess of $750,000, without first consulting with Mercantile, and, in the case of persons or entities to which it has outstanding aggregate credit commitments and loans exceeding $750,000, subject to subparagraph (ii) below, increase or agree to increase the loan or credit commitment to, or invest or agree to invest in, such person or entity by more than twenty-five percent (25%) of the amount of such loan, credit commitment or investment, without first consulting with Mercantile and (ii) in an amount in 24 29 excess of $1,000,000 without first obtaining the prior written consent of Mercantile, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, nothing in this paragraph shall prohibit either Central Mortgage or any Central Mortgage Subsidiary from honoring any contractual and legally binding obligation in existence on the date of this Agreement; (h) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or take or omit to take any other action which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act; (i) take any action (i) that would (1) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Mercantile or Central Mortgage to obtain any necessary approvals of any regulatory authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (2) prevent or impede the transactions contemplated hereby from qualifying for pooling-of-interests accounting treatment or as a reorganization within the meaning of Section 368 of the Code, or (ii) that is not in the ordinary course of business consistent with past practice unless otherwise expressly permitted by this Agreement; or (j) directly or indirectly, including through its officers, directors, employees or other representatives: (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than the Mercantile Entities) relating to the disposition of any significant portion of the business or assets of Central Mortgage or any Central Mortgage Subsidiary, or the acquisition of the capital stock (or rights or options exercisable for, or securities convertible or exchangeable into, capital stock) of Central Mortgage or any Central Mortgage Subsidiary, or the merger of Central Mortgage or any Central Mortgage Subsidiary (other than the merger of Barton Bank and Nevada Bank) with any person (other than the Mercantile Entities) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction") or (ii) provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction. Central Mortgage shall promptly notify Mercantile orally of all the relevant details relating to all inquiries, indications of interest and proposals which it or any Central Mortgage Subsidiary may receive with respect to any Acquisition Transaction. 4.03 Forbearances of the Mercantile Entities. --------------------------------------- During the period from the date of this Agreement to the Closing Date, the Mercantile Entities shall not, without the prior consent of Central Mortgage, agree in writing or otherwise to engage in any activity, enter into any transaction or take or omit to take any other action (a) that would (i) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Mercantile or Central Mortgage to obtain any necessary approvals of any regulatory authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (ii) prevent or impede the transactions contemplated hereby from qualifying for pooling-of-interests accounting treatment or as a reorganization within the meaning of Section 368 of the Code; or 25 30 (b) which would make any of the representations and warranties of Article III of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action. ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01 Access and Information; Due Diligence. ------------------------------------- (a) The Mercantile Entities and Central Mortgage shall each afford to the other, and to the other's accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Closing Date, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities or banking laws and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. Prior to the Effective Time and in the event of the termination of this Agreement, each party hereto shall, and shall cause its advisors and representatives to, (1) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party which is not otherwise public knowledge, (2) return all documents (including copies thereof) obtained hereunder from the other party to such other party and (3) use its best efforts to cause all information obtained pursuant to this Agreement or in connection with the negotiation hereof to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. (b) Mercantile, through its officers, employees, and/or agents, promptly following the date of the Initial Agreement, commenced its review of Central Mortgage and the Central Mortgage Subsidiaries and the respective operations, business affairs, prospects and financial conditions of each, including, without limitation, those matters which are the subject of Central Mortgage's representations and warranties (the "Mercantile Due Diligence Review"). Mercantile shall conclude such review by not later than thirty (30) business days after the date of the Initial Agreement (the "Mercantile Due Diligence Period"), but the pendency of such Mercantile Due Diligence Review shall not delay Mercantile's obligation pursuant to Section 5.02 of this Agreement to file a Registration Statement with the SEC and all other necessary applications and filings with the appropriate federal and state regulatory agencies. Mercantile shall advise Central Mortgage of any situation, event, circumstance or other matter which first came to the attention of Mercantile during the Mercantile Due Diligence Review which could result in the termination of this Agreement by Mercantile pursuant to Sections 7.01(d) or 7.01(f) hereof, or, if applicable, of the absence of any situation, event, circumstance or other matter, it being the intention of Mercantile to provide notice to Central Mortgage, as promptly as possible, of any perceived impediment to the consummation of the Merger. Notwithstanding anything hereinabove contained or implied to the contrary, the Mercantile Due Diligence Review shall not limit, restrict or preclude, or be construed to limit, restrict or preclude, Mercantile, at any time or from time to time thereafter, from conducting such further reviews or from exercising any rights available to it hereunder as a result of the existence or occurrence prior to the Mercantile Due Diligence Period of any 26 31 event or condition which was not detected in the Mercantile Due Diligence Review by Mercantile and which would constitute a breach of any representation, warranty or agreement of Central Mortgage under this Agreement. (c) Central Mortgage, through its officers, employees, and/or agents, promptly following the date of the Initial Agreement, commenced its review of the Mercantile Entities and their respective operations, business affairs, prospects and financial conditions of each, including, without limitation, those matters which are the subject of the Mercantile Entities' representations and warranties (the "Central Mortgage Due Diligence Review"). Central Mortgage concluded the Central Mortgage Due Diligence Review by not later than thirty (30) business days after the date of the Initial Agreement (the "Central Mortgage Due Diligence Period"). Central Mortgage shall advise the Mercantile Entities of any situation, event, circumstance or other matter which first came to the attention of Central Mortgage during the Central Mortgage Due Diligence Review which could result in the termination of this Agreement pursuant to Sections 7.01(e) or Section 7.01(f) hereof, or, if applicable, of the absence of any situation, event, circumstance or other matter, it being the intention of Central Mortgage to provide notice to the Mercantile Entities, as promptly as possible, of any perceived impediment to the consummation of the Merger. Notwithstanding anything hereinabove contained or implied to the contrary, the Central Mortgage Due Diligence Review shall not limit, restrict or preclude, or be construed to limit, restrict or preclude, Central Mortgage, at any time or from time to time thereafter, from conducting such further reviews or from exercising any rights available to it hereunder as a result of the existence or occurrence prior to the Central Mortgage Due Diligence Period of any event or condition which was not detected in the Central Mortgage Due Diligence Review and which would constitute a breach of any representation, warranty or agreement of the Mercantile Entities under this Agreement. 5.02 Registration Statement; Regulatory Matters. ------------------------------------------ (a) Mercantile shall prepare and file with the SEC, as soon as is reasonably practicable after the date of this Agreement, the Registration Statement with respect to the shares of Mercantile Stock to be issued to Central Mortgage shareholders pursuant to the Merger, and shall use its best efforts to cause the Registration Statement to become effective. Mercantile shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Central Mortgage shall furnish Mercantile all information concerning Central Mortgage and the Central Mortgage Subsidiaries as Mercantile may reasonably request in connection with any such action. (b) Each of the parties hereto shall cooperate and use its respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and governmental bodies necessary to consummate the transactions contemplated by this Agreement as soon as is reasonably practicable after the date of this Agreement, including, without limitation, in any event, Mercantile's filing of the necessary applications with the Federal Reserve Board and the Division of Finance and any other required applications with any other regulatory agency or governing board as soon as is reasonably practicable after the date of this Agreement. 5.03 Shareholder Approval. Central Mortgage shall -------------------- call a special meeting of its shareholders to be held as soon as is reasonably possible for the purpose of voting upon 27 32 this Agreement and the Merger and related matters. In connection with such meeting, Central Mortgage shall aid Mercantile in the preparation and filing of the Proxy Statement (which shall be a part of the Registration Statement to be filed with the SEC by Mercantile) and mail it to its shareholders. The Board of Directors of Central Mortgage shall submit for approval of its shareholders the matters to be voted upon at such meeting. The Board of Directors of Central Mortgage (subject to its fiduciary duties, upon written advice of counsel to Central Mortgage, which counsel shall be reasonably acceptable to Mercantile) will recommend this Agreement and the Merger and will use its best efforts to obtain the votes and approvals of its shareholders necessary for the approval and adoption of this Agreement and the Merger contemplated hereby. 5.04 Current Information. During the period from ------------------- the date of this Agreement to the Closing Date, each party will promptly furnish the other with copies of all monthly and other interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of the following events immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the affected party with respect thereto: (a) the occurrence of any event which could cause any representation or warranty of such party or any schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any material respect; (b) any Material Adverse Change; (c) the issuance or commencement of any governmental and/or regulatory agency complaint, investigation or hearing or any communications indicating that the same may be contemplated and, as to any such matter which shall now or hereafter be in effect, any communications pertaining thereto; or (d) the institution or the threat of litigation involving such party. 5.05 Agreements of Affiliates. Set forth as ------------------------ Schedule 5.05 is a list (which includes individual and - ------------- beneficial ownership) of all persons whom Central Mortgage believes to be "affiliates" of Central Mortgage for purposes of Rule 145 under the Securities Act and for pooling-of-interests accounting treatment. Central Mortgage shall use its best efforts to cause each person who is identified as an "affiliate" to deliver to Mercantile, as of the date hereof, or as soon as practicable hereafter, a written agreement in substantially the form set forth as Exhibit A to this Agreement providing that --------- each such person will agree not to sell, pledge, transfer or otherwise dispose of the shares of Mercantile Stock to be received by such person in the Merger during the period designated in such letter and thereafter in compliance with the applicable provisions of the Securities Act. Prior to the Closing Date, and via letter, Central Mortgage shall amend and supplement Schedule 5.05 and use its best efforts to cause ------------- each additional person who is identified as an "affiliate" to execute a written agreement as provided in this Section 5.05. 5.06 Tax Opinion Certificates. Central Mortgage ------------------------ shall cause such of its executive officers, directors and/or holders of one percent (1%) or more of the Central Mortgage Preferred Stock and/or Central Mortgage Common Stock (including shares beneficially held) as may be reasonably requested by Thompson & Mitchell to timely execute and deliver to Thompson & Mitchell certificates substantially in the form of Exhibit B --------- or Exhibit C hereto, as the case may be. --------- 5.07 Expenses. Each party hereto shall bear its -------- own expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger, 28 33 except that the Mercantile Entities shall pay all printing expenses and filing fees incurred in connection with this Agreement, the Registration Statement and the Proxy Statement. 5.08 Miscellaneous Agreements and Consents. ------------------------------------- Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including, without limitation, using its best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Central Mortgage and the Mercantile Entities shall use their best efforts to obtain consents of all third parties and governmental bodies necessary or, in the opinion of any of the Mercantile Entities or Central Mortgage, desirable for the consummation of the transactions contemplated by this Agreement. 5.09 Press Releases. Central Mortgage and the -------------- Mercantile Entities shall consult with each other as to the form and substance of any proposed press release or other proposed public disclosure of matters related to this Agreement or any of the transactions contemplated hereby. 5.10 Indemnification. Mercantile agrees that the --------------- Merger shall not affect or diminish any of Central Mortgage's duties and obligations of indemnification existing at the Effective Time in favor of employees, agents, directors or officers of Central Mortgage arising by virtue of its Articles of Incorporation or By-laws in the form in effect at the date hereof or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date hereof, and such duties and obligations shall continue in full force and effect for so long as they would otherwise survive and continue in full force and effect. Mercantile represents that the directors and officers liability insurance policy maintained by Mercantile provides for "prior acts" coverage for directors and officers of entities acquired by Mercantile. Mercantile shall provide the directors and officers of Central Mortgage director and officer liability insurance coverage comparable to that provided from time to time to the directors and officers of other Mercantile Subsidiaries. 5.11 Employee Benefit Plans; Employee Stock Options. ---------------------------------------------- (a) Effective as of the Closing Date, the employees of Central Mortgage and the Central Mortgage Subsidiaries (the "Central Employees") shall be eligible to participate in the Mercantile employee benefit plans generally made available to other employees of the Mercantile Subsidiaries, subject to the terms and conditions specified in such Mercantile plans and to such changes therein as may be necessary to reflect the Merger. The service of Central Employees with Central Mortgage or the Central Mortgage Subsidiaries shall be recognized for purposes of vesting and eligibility for participation in Mercantile employee benefit plans generally made available to the other employees of the Mercantile Subsidiaries, except that such service shall not be counted for purposes of benefit accrual under any Mercantile defined benefit pension plans. With respect to any Mercantile welfare benefit plans, any eligibility waiting periods and any preexisting conditions and actively-at-work exclusions shall be waived for Central Employees and their eligible dependents, except that any Central Employee or eligible dependent who, as of the Closing Date, is then in the process of satisfying any similar exclusion or waiting period under a welfare benefit plan of Central Mortgage or any Central Mortgage Subsidiary may be required to fully satisfy the balance of 29 34 the applicable time period for such exclusion or waiting period under the Mercantile welfare benefit plan after granting full credit for service with Central Mortgage and the Central Mortgage Subsidiaries. (b) At the Effective Time, all rights with respect to Central Mortgage Common Stock pursuant to Employee Options that are outstanding at the Effective Time, whether or not then exercisable, shall be converted into and become rights with respect to Mercantile Common Stock and Mercantile shall assume each Employee Option in accordance with the terms of the stock option plan or arrangement under which it was issued and the stock option agreement by which it is evidenced. From and after the Effective Time, (i) each Employee Option assumed by Mercantile may be exercised solely for shares of Mercantile Common Stock, (ii) the number of shares of Mercantile Common Stock subject to each Employee Option shall be equal to the number of shares of Central Mortgage Common Stock subject to each Employee Option immediately prior to the Effective Time multiplied by the Common Exchange Ratio, and (iii) the per share exercise price under each such Employee Option shall be adjusted by dividing the per share exercise price under each Employee Option by the Common Exchange Ratio and rounding down to the nearest cent; provided, however, that the terms of each -------- ------- Employee Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, capitalization or other similar transaction subsequent to the Effective Time. It is intended that the foregoing assumption shall be undertaken in a manner that will not constitute a "modification" as defined in Section 424 of the Code, as to any Employee Option that is an incentive stock option. (c) The shares of Mercantile Stock covered by the stock options to be issued pursuant to Section 5.11(b) shall be covered by an effective registration statement filed on Form S-8 with the SEC and shall be duly authorized, validly issued and in compliance with all applicable federal and state securities laws, fully paid and nonassessable and not subject to or in violation of any preemptive rights. Mercantile shall at and after the Effective Time have reserved sufficient shares of Mercantile Stock for issuance with respect to such options. Mercantile shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares. 5.12 Best Efforts to Insure Pooling. Each of ------------------------------ Mercantile and Central Mortgage undertakes and agrees to use its best efforts to cause the Merger to qualify for pooling-of- interests accounting treatment. 5.13 Payment of Change of Control Benefits. At ------------------------------------- the Effective Time, Mercantile shall pay to each officer of Central Mortgage or a Central Mortgage Subsidiary identified on Schedule 5.13 the amount payable to such officer upon a change of control under the change of control agreement between such officer and Central Mortgage, without regard to any notice or waiting periods set forth in such change of control agreements. Central Mortgage shall provide written notice of such amounts to Mercantile not less than ten business days prior to the Closing Date. 5.14 Cenco Stock Purchase/Redemption. At or prior ------------------------------- to the Effective Time, Central Mortgage shall have caused to be consummated, in accordance with each respective Buy-Sell Stock Option Agreement, the form of which is attached as Exhibit D --------- to this Agreement, by and among Central Mortgage and designated other persons, the purchase or 30 35 redemption of shares of the capital stock of Cenco held of record or beneficially by persons other than Central Mortgage. ARTICLE VI ---------- CONDITIONS 6.01 Conditions to Each Party's Obligation To Effect ----------------------------------------------- the Merger. The respective obligations of each party to effect - ---------- the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) Shareholder Approval. The approval of -------------------- this Agreement and the Merger shall have received the requisite vote of shareholders of Central Mortgage at the special meeting of shareholders called pursuant to Section 5.03 hereof. (b) Regulatory Approval. This Agreement and ------------------- the transactions contemplated hereby shall have been approved by the Federal Reserve Board, the Division of Finance and any other federal and/or state regulatory agencies whose approval is required for consummation of the transactions contemplated hereby. (c) Effectiveness of Registration Statement. --------------------------------------- The Registration Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (d) No Judicial Prohibition. Neither Central ----------------------- Mortgage, Mercantile nor Ameribanc shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. 6.02 Conditions to Obligations of Central Mortgage. --------------------------------------------- The obligations of Central Mortgage to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of the Mercantile Entities set forth in Article III hereof shall be true and correct in all material respects, except such inaccuracies therein as are not of a magnitude as to have a Material Adverse Effect, as of the date of this Agreement and as of the Closing Date, (as though made on and as of the Closing Date except (i) to the extent such representations and warranties are by their express provisions made as of a specified date, and (ii) for the effect of transactions contemplated by this Agreement) and Central Mortgage shall have received a signed certificate which is to the best knowledge of the Vice Chairman of Mercantile, signing on behalf of the Mercantile Entities, and is to that effect. (b) Performance of Obligations. The -------------------------- Mercantile Entities shall have performed in all material respects all obligations required to be performed by each under this Agreement prior to or at the Effective Time, and Central Mortgage shall have received a signed certificate which is to the best knowledge of the Vice Chairman of Mercantile, signing on behalf of the Mercantile Entities, and is to that effect. (c) Permits, Authorizations, etc. The ---------------------------- Mercantile Entities shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by them of the Merger. 31 36 (d) No Material Adverse Change. Since the -------------------------- date of this Agreement, there shall have been no material adverse change in the financial condition, results of operations, business, assets, prospects or operations of Mercantile and the Mercantile Subsidiaries, taken as a whole. (e) Opinion of Counsel. Mercantile shall ------------------ have delivered to Central Mortgage an opinion of counsel to Mercantile dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit E --------- to this Agreement. (f) Tax Opinion. Thompson & Mitchell, as ----------- counsel to Mercantile, shall have delivered to Central Mortgage an opinion dated as of the Closing Date to the effect that the Merger constitutes a reorganization within the meaning of Section 368 of the Code and to the effect that, as a result of the Merger, except with respect to fractional share interests, holders of Central Mortgage Common Stock who receive Mercantile Stock in the Merger will not recognize gain or loss for federal income tax purposes, the basis of such Mercantile Stock will equal the basis of the Central Mortgage Common Stock for which it is exchanged, and the holding period of such Mercantile Stock will include the holding period of the Central Mortgage Common Stock for which it is exchanged, assuming that such Central Mortgage Common Stock is a capital asset in the hands of the holder thereof at the Effective Time. 6.03 Conditions to Obligations of the Mercantile ------------------------------------------- Entities. The obligations of the Mercantile Entities to effect - -------- the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Central Mortgage set forth in Article II hereof shall be true and correct in all material respects, except such inaccuracies therein as are not of a magnitude as to have a Material Adverse Effect, as of the date of this Agreement and as of the Closing Date (as though made on and as of the Closing Date except (i) to the extent such representations and warranties are by their express provisions made as of a specific date; (ii) for the effect of transactions contemplated by this Agreement; (iii) the parties acknowledge that the schedules to this Agreement shall not be supplemented or amended following their delivery to the Mercantile Entities, and the lack of such supplementation or amendments shall not constitute non-fulfillment of the conditions of this Section 6.03(a); and (iv) that any change resulting from Central Mortgage's performance of its covenant set forth in Section 5.15 hereof shall not constitute nonfulfillment of the conditions of this Section 6.03(a)) and Mercantile shall have received a signed certificate which is to the best knowledge of the chief executive officer and chief financial officer of Central Mortgage, signing on behalf of Central Mortgage, and is to that effect. (b) Performance of Obligations. Central -------------------------- Mortgage shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to or at the Closing Date, and Mercantile shall have received a signed certificate which is to the best knowledge of the chief executive officer and chief financial officer of Central Mortgage, signing on behalf of Central Mortgage, and is to that effect. (c) Permits, Authorizations, etc. Central ---------------------------- Mortgage shall have obtained any and all material consents or waivers from other parties to loan agreements, leases or other contracts material to Central Mortgage's businesses required for the consummation of the 32 37 Merger, and Central Mortgage shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Merger. (d) No Material Adverse Change. Since the -------------------------- date of this Agreement, there shall have been no material adverse change in the financial condition, results of operations, business, assets, prospects or operations of Central Mortgage or the Central Mortgage Subsidiaries taken as a whole, except that any change resulting from Central Mortgage's performance of its covenant set forth in Section 5.15 hereof shall not constitute nonfulfillment of the conditions of this Section 6.03(d). (e) Election of Dissenting Shareholders. ----------------------------------- Unless otherwise waived by the Mercantile Entities in their sole discretion, holders of less than ten percent (10%) of the total value of shares of Central Mortgage Stock outstanding shall have taken such steps as are then possible to dissent from the Merger pursuant to Section 351.455 of the Missouri Statute. (f) Pooling Letter. The Mercantile Entities -------------- shall have received as soon as practicable after the date of this Agreement an opinion of KPMG Peat Marwick LLP, satisfactory in form and substance to the Mercantile Entities, to the effect that the Merger will qualify for pooling-of-interests accounting treatment, which opinion shall have not been withdrawn. Baird, Kurtz & Dobson, independent auditors for Central Mortgage, shall provide to Central Mortgage assurance that Baird, Kurtz & Dobson knows of no facts that would prevent pooling-of-interests accounting treatment. (g) Opinion of Counsel. Central Mortgage ------------------ shall have delivered to Mercantile an opinion of counsel to Central Mortgage dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit F to this Agreement. - --------- ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01 Termination. This Agreement may be terminated ----------- at any time prior to the Closing Date, whether before or after approval by the shareholders of Central Mortgage: (a) by mutual consent by the Executive Committee of the Board of Directors of Mercantile and the Board of Directors of each other party hereto; or (b) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of each other party hereto at any time after June 30, 1995 if the Merger shall not theretofore have been consummated; provided, however, ----------------- that such date shall be automatically extended to August 31, 1995 if the cause of the failure to consummate the Merger by such date is the result of regulatory delay not due to the fault or failure of the parties hereto; or (c) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of each other party hereto if the Federal Reserve Board, the Division of Finance or any other federal and/or state regulatory agency whose approval is required for 33 38 the consummation of the transactions contemplated hereby shall have issued a final and nonappealable denial of such approval; or (d) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Ameribanc, at any time prior to the completion of the Mercantile Due Diligence Period, in the event any situation, event, circumstance or other matter shall come to the attention of Mercantile during the course of the Mercantile Due Diligence Review conducted pursuant to Section 5.01(b) hereof which Mercantile shall, in a good faith exercise of its reasonable discretion, determine to be of type or nature which is of such a magnitude as to be materially adverse to the financial condition, results of operations, business, assets, prospects or operations of Central Mortgage and the Central Mortgage Subsidiaries, taken as a whole, and is not capable of being expeditiously or effectively resolved or remedied in a manner reasonably acceptable to Mercantile; or (e) by the Board of Directors of Central Mortgage at any time prior to the completion of the Central Mortgage Due Diligence Period, in the event any situation, event, circumstance or other matter shall come to the attention of Central Mortgage during the course of the Central Mortgage Due Diligence Review conducted pursuant to Section 5.01(c) hereof which Central Mortgage shall, in a good faith exercise of its reasonable discretion, determine to be of the type or nature which is of such a magnitude as to be materially adverse to the financial condition, results of operations, business, assets, prospects or operations of Mercantile and its subsidiaries, taken as a whole, and is not capable of being expeditiously or effectively resolved or remedied in a manner reasonably acceptable to Central Mortgage; or (f) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Ameribanc or the Board of Directors of Central Mortgage in the event of a breach by the other of any representation, warranty or agreement contained in this Agreement, which breach is of such a magnitude as to be materially adverse to the financial condition, results of operations, business, assets, prospects or operations of the breaching party and its subsidiaries taken as a whole and is not cured after 45 days' written notice thereof is given to the party committing such breach or waived by such other party(ies). 7.02 Effect of Termination. In the event of --------------------- termination of this Agreement as provided in Section 7.01 above, this Agreement shall forthwith become void and without further effect and there shall be no liability on the part of any party hereto or the respective officers and directors of each, except as set forth in the second sentence of Section 5.01(a) and in Sections 5.07 and 8.02, and, except that no termination of this Agreement pursuant to subsection (f) of Section 7.01 shall relieve the non-performing party of any liability to any other party hereto arising from the intentional, deliberate and willful non-performance of any covenant herein, after the giving of notice and the opportunity to cure. 7.03 Amendment. This Agreement and the Exhibits --------- and Schedules hereto may be amended by the parties hereto, by action taken by or on behalf of the respective Executive Committees of the Board of Directors or the respective Boards of Directors of the Mercantile Entities, or the Board of Directors of Central Mortgage, at any time before or after approval of this Agreement by the shareholders of Central Mortgage; provided, however, that after any such approval no such modification shall alter the amount or change the form of the consideration contemplated by this Agreement to be received by shareholders of Central Mortgage or alter or change any of the terms of this Agreement if such alteration or change 34 39 would adversely affect the shareholders of Central Mortgage. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 7.04 Waiver. Any term, condition or provision of ------ this Agreement may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. ARTICLE VIII ------------ GENERAL PROVISIONS 8.01 Non-Survival of Representations, Warranties and ----------------------------------------------- Agreements. No investigation by the parties hereto made - ---------- heretofore or hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 8.01, all representations, warranties and agreements in this Agreement of the Mercantile Entities and Central Mortgage or in any instrument delivered by the Mercantile Entities or Central Mortgage pursuant to this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of termination of this Agreement in accordance with its terms, the agreements contained in Sections 5.01(a)(second sentence), 5.07, 7.02 and 8.02 shall survive such termination. In the event of consummation of the Merger, the agreements contained in Sections 1.06, 1.08, 1.10, 5.10, 5.11 and 8.02 shall survive the Effective Time. 8.02 Indemnification. Central Mortgage and the --------------- Mercantile Entities (hereinafter, in such capacity being referred to, individually and/or collectively, as the "Indemnitor") agree to indemnify and hold harmless each other and their officers, directors and controlling persons (each such other party being hereinafter referred to, individually and/or collectively, as the "Indemnitee") against any and all losses, claims, damages or liabilities, joint or several, to which the Indemnitee may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) (a) arise out of any information furnished to the Indemnitee by the Indemnitor or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in the Proxy Statement, or in any amendment thereof or supplement thereto, and provided for inclusion therein by the Indemnitor, or (b) arise out of or are based upon the omission or alleged omission by the Indemnitor to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such Indemnitee, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. The obligations of the Indemnitor under this Section 8.02 shall survive any termination of this Agreement. 8.03 No Assignment; Successors and Assigns. This ------------------------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors (including any corporation deemed to be a successor corporation of any of the parties by operation of law) and assigns, but neither this Agreement nor any right or obligation set forth in any provision hereof may be transferred or assigned (except by operation of law) by any 35 40 party hereto without the prior written consent of all other parties, and any purported transfer or assignment in violation of this Section 8.03 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.08, 1.10, 5.10, 5.11, 5.13 and 8.02 which may be enforced against Mercantile or Central Mortgage, as the case may be, by the parties therein identified or described. 8.04 Severability. Whenever possible, each ------------ provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Agreement. 8.05 No Implied Waiver. No failure or delay on the ----------------- part of any party hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 8.06 Headings. Article, section, subsection and -------- paragraph titles, captions and headings herein are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 8.07 Entire Agreement. This Agreement and the ---------------- Schedules and Exhibits hereto constitute the entire agreement between the parties with respect to the subject matter hereof, supersede all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings with respect thereto. No waiver, and no modification or amendment, of any provision of this Agreement, shall be effective unless specifically made in writing and duly signed by all parties thereto. 8.08 Counterparts. This Agreement may be executed ------------ in one or more counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 8.09 Notices. All notices and other communications ------- hereunder shall be in writing and shall be deemed to be duly received (a) on the date given if delivered personally or by cable, telegram, telex or telecopy or (b) on the date received if mailed by registered or certified mail (return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 36 41 (i) if to the Mercantile Entities: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, MO 63166-0524 Attention: Ralph W. Babb, Jr. Vice Chairman Telecopy: (314) 425-8108 Copy to: Jon W. Bilstrom, Esq. General Counsel Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, MO 63166-0524 Telecopy: (314) 425-1386 and Robert M. LaRose, Esq. Thompson & Mitchell One Mercantile Center St. Louis, Missouri 63101 Telecopy: (314) 342-1717 (ii) if to Central Mortgage: Central Mortgage Bancshares, Inc. 4435 Main Street, Suite 100 Kansas City, Missouri 64111 Attention: Lynn A. Harmon Chairman and Chief Executive Officer Telecopy: (816) 561-3387 Copy to: Robin V.W. Foster, Esq. Blackwell Sanders Matheny Weary & Lombardi Two Pershing Square, Suite 1100 2300 Main Street Kansas City, Missouri 64108 Telecopy: (816) 274-6914 8.10 Governing Law. This Agreement shall be ------------- governed by and controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Missouri applicable to contracts made in that state. 37 42 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate seals to be affixed hereto, all as of the date first written above. MERCANTILE BANCORPORATION INC. By: /s/ Ralph W. Babb, Jr. ------------------------------ Ralph W. Babb, Jr. Vice Chairman AMERIBANC, INC. By: /s/ Ralph W. Babb, Jr. ------------------------------ Ralph W. Babb, Jr. Chairman CENTRAL MORTGAGE BANCSHARES, INC. By: /s/ Lynn A. Harmon ------------------------------ Lynn A. Harmon Chairman and Chief Executive Officer 38 EX-2.2 3 INVESTMENT AGREEMENT 1 INVESTMENT AGREEMENT THIS AGREEMENT, dated as of September 21, 1994, by and between Central Mortgage Bancshares, Inc., a Missouri corporation ("Issuer"), and Mercantile Bancorporation Inc., a Missouri corporation ("Recipient"). W I T N E S S E T H: WHEREAS, Issuer and Recipient are entering into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which agreement is being executed by the parties hereto simultaneously with this Investment Agreement; WHEREAS, as a condition to Recipient's entry into the Merger Agreement and in consideration for such entry, Issuer has agreed to issue to Recipient, on the terms and conditions set forth herein, an Option entitling Recipient to purchase up to an aggregate of 736,667 shares of Issuer's common stock, $1.00 par value (Issuer's common stock being hereinafter referred to as "Common Stock"), subject to adjustment as provided in Section 4 hereof; --------- NOW, THEREFORE, in consideration of the execution of the Merger Agreement and the premises herein contained, Issuer and Recipient agree as follows: 1. Grant of Option. Concurrently with the execution of the ---------------- Merger Agreement, Issuer shall issue to Recipient an Option or Options appropriately completed in the form of Attachment A hereto (the "Option", ------------ which term as used herein includes any Options issued upon transfer or exchange of the original Option or pursuant to Section 3 or 4 of this -------------- Agreement) to purchase up to 736,667 shares of Common Stock. The Option shall be exercisable at a price of $18.50 per share of Common Stock, subject to adjustment as provided herein or in the Option (the "Exercise Price"). Issuer shall at all times maintain and reserve, free from preemptive right, such number of authorized but unissued shares of Common Stock as are issuable upon exercise of the Option without additional authorization of Common Stock after giving effect to all other options, warrants, convertible securities and other rights to acquire shares of Common Stock. Issuer represents and warrants that it has duly authorized the issuance of shares of Common Stock upon exercise of the Option and covenants that the shares of Common Stock issued upon exercise of the Option shall be duly authorized, validly issued and fully paid and nonassessable and subject to no preemptive rights. Issuer represents that this Agreement has been authorized by all necessary corporate action and the execution, delivery and performance of this Agreement do not, and the consummation of the transactions contemplated hereby by Issuer will not, constitute (i) a breach or violation of any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of it or to which it is subject, which breach, violation or default would have a material adverse effect on the financial condition, results of operations, business, assets, prospects or operations of Issuer and its subsidiaries, taken as a whole; or (ii) a breach or violation of, or a default under, Issuer's articles of incorporation or bylaws or the articles of incorporation or the articles of association, as the case may be, or bylaws of its subsidiaries; and the consummation of the transactions contemplated hereby will not require any consent or approval under any judgment, decree, order, governmental permit or license or the consent or approval of any other party to any such agreement, indenture or instrument other than any required approvals of applicable regulatory authorities for the exercise of the Option (or as otherwise herein provided). 2 2. Conditions to Exercise. Subject to any necessary ----------------------- regulatory approvals, the Option may be exercised by Recipient, in whole or in part, at any time or from time to time, but only after the occurrence of any of the following events ("Triggering Events"): (a) The failure of the Issuer's shareholders to approve the Merger Agreement or, if not previously held, the failure of Issuer to promptly hold a shareholders' meeting and the failure of the Issuer's shareholders to thereafter approve the Merger Agreement, in each case, after: (i) Any person makes a public announcement (other than Recipient or any subsidiary thereof) of an offer or proposal to acquire 10% or more of the Common Stock, or to acquire, merge or consolidate with Issuer or any subsidiary of the Issuer (individually, a "Subsidiary" and, collectively, the "Subsidiaries") or to purchase all or any substantial part of Issuer's assets or any Subsidiary's assets; (ii) Any person (other than Recipient or any subsidiary thereof) shall have acquired beneficial ownership or the right to acquire beneficial ownership of 10% or more of the outstanding shares of Common Stock; (iii) Any person shall have commenced a bona fide tender offer or exchange offer to purchase shares of Common Stock such that, upon consummation of said offer, said person would own or control 25% or more of the outstanding shares of Common Stock; (iv) Any person shall have solicited proxies in a proxy solicitation in opposition to approval by Issuer's shareholders of the Merger Agreement; provided, however, that no Triggering Event shall be deemed to have occurred - ------------------ under this Section 2(a) solely due to the beneficial ownership of Common Stock, or securities of a Subsidiary, by any person who has executed a voting agreement in favor of Recipient under the Merger Agreement or by Issuer's ESOP; or (b) Issuer shall have entered into an agreement with a person (other than Recipient or any subsidiary thereof) for such person to acquire, merge or consolidate with Issuer or to purchase all or any substantial part of Issuer's or any Subsidiary's assets (except for the merger of Citizens State Bank of Nevada with Barton County State Bank). As used in this Agreement, "person" shall mean any individual, firm, corporation, or other entity and shall include any syndicate or group of persons deemed to be a "person" by Section 13(d)(3)(e) of the Securities Exchange Act of 1934, as amended. 3. Resale of Option and Option Stock to Issuer. Subject to -------------------------------------------- applicable regulatory restrictions, from and after the date on which a Triggering Event occurs: (a) On or after the consummation of a transaction in which a Market/Offer Price (as hereinafter defined) or a Sale Price (as hereinafter defined) has been established, at the request of Recipient, Issuer shall repurchase for cash the Option from Recipient at a price (the "Option Repurchase Price") equal to the higher of (i) (x) the Market/Offer Price less the Exercise Price, multiplied by (y) the number of shares of Common Stock for which the Option is then exercisable (the "Conversion Number") and (ii) in the event of the sale of all or any substantial part of the assets of Issuer, the 2 3 Conversion Number multiplied by the excess of (x) (I) the sum of (a) the price paid for such assets, (b) the current market value of the remaining assets of Issuer, as determined by a recognized investment banking firm selected by Recipient and acceptable to Issuer, and (c) the Exercise Price multiplied by the Conversion Number, divided by (II) the sum of the number shares of Common Stock then outstanding and the Conversion Number (the "Sale Price"), over (y) the Exercise Price; and (b) On or after the consummation of a transaction in which a Market/Offer Price or a Sale Price has been established, at the request of Recipient on or prior to the termination of the Option ("Option Stock"), Issuer shall repurchase for cash any shares of Common Stock purchased pursuant to the Option, at a price (the "Option Stock Repurchase Price") equal to the highest of (x) the Market/Offer Price multiplied by the number of such shares, and (y) in the event of a sale of all or any substantial part of the assets of Issuer, the Sale Price multiplied by the number of such shares. (c) At the request of Recipient on or prior to the termination of the Option, Issuer shall repurchase for cash any shares of Option Stock, at a price (the "Alternative Option Stock Repurchase Price") equal to the Exercise Price multiplied by the number of such shares. The term "Market/Offer Price" means the highest of (i) the highest price per share of Common Stock at which a tender offer or exchange offer has been consummated and (ii) the highest price per share of Common Stock paid by any third party pursuant to an agreement with Issuer. In the event that an exchange offer is consummated or a merger or consolidation involving consideration other than cash occurs, the value of the securities or other property issued or delivered in exchange for the Common Stock shall be determined by a nationally recognized investment banking firm selected by Recipient and acceptable to Issuer. Recipient may exercise its right to require Issuer to repurchase the Option and the Option Stock pursuant to this Section 3 by surrendering --------- for such purpose to Issuer, at its principal office, the Option and certificates for Option Stock, duly endorsed for transfer and free and clear of all claims and liens of any nature, accompanied by a written notice or notices stating that Recipient elects to require Issuer to repurchase the Option and/or the Option Stock in accordance with the provisions of this Section 3. As promptly as practicable, and in any event within five - ---------- business days after the surrender of the Option and/or certificates representing shares of Option Stock and the receipt of such notice or notices relating thereto, Issuer shall deliver or cause to be delivered to Recipient the Option Repurchase Price and/or the Option Stock Repurchase Price and/or the Alternative Option Stock Repurchase Price therefor (together, the "Aggregate Repurchase Price") or the portion thereof which Issuer is not then prohibited under applicable law and regulation from so delivering. To the extent that Issuer is prohibited under applicable law or regulation, or as a result of administrative or judicial action, from repurchasing the Option and/or the Option Stock in full, Issuer shall immediately so notify Recipient and hereafter deliver or cause to be delivered, from time to time, to Recipient the portion of the Aggregate Repurchase Price which it is no longer prohibited from delivering, within five business days after the date on which Issuer is no longer so prohibited; provided, however, that upon receipt of such notice from Issuer and until - ------------------ five days thereafter, Recipient may revoke its notice of repurchase of the Option and/or Option Stock by written notice to Issuer at its principal office stating that Recipient elects to revoke its election to exercise its right to require Issuer to repurchase the Option and/or Option Stock, whereupon Issuer will promptly deliver to Recipient the Option and/or certificates representing the shares of Option Stock surrendered to Issuer for purposes of such repurchase and Issuer shall have no further obligation to repurchase such Option and/or Option Stock. 3 4 The occurrence of one or more of the Triggering Events shall cause the Option and the Option Stock to become eligible for repurchase as provided in this Section 3. Upon the occurrence of one of the Triggering Events, ---------- Issuer shall promptly notify the Recipient of such event, and promptly compute the Option Repurchase Price and the Option Stock Repurchase Price and furnish to the Recipient a certificate, signed by a principal financial officer of Issuer, setting forth the Option Repurchase Price and the Option Stock Repurchase Price and the basis and computation thereof. 4. Additional Options. In the event that Issuer issues any ------------------- additional shares of Common Stock (other than Common Stock issued in connection with the exercise hereof), Issuer shall issue additional Options to Recipient, such additional options to be exercisable for a number of shares of Common Stock equal to 19.9% of the number of additional shares of Common Stock so issued. Such additional Options shall be identical to the Option. 5. Certain Transactions. Issuer will not enter into any --------------------- transaction described in Subsections (a), (b) or (c) of Section 5(A) of the ------------------------------- Option unless the Acquiring Corporation (as defined in the Option) assumes in writing, in form and substance satisfactory to Recipient, all the obligations of Issuer hereunder. 6. Governmental Approvals. Recipient will not exercise the ----------------------- Option to purchase shares of Common Stock unless it has received any required regulatory approvals for such exercise. 7. Miscellaneous Provisions. ------------------------- (a) Specific Performance. Without limiting any remedies --------------------- available to Recipient, it is specifically acknowledged that Recipient would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations of Issuer under, and/or the injunctive relief against actual or threatened violations of the obligations of Issuer pursuant to, this Agreement. (b) Entire Agreement. Except as otherwise expressly ----------------- provided herein, this Agreement contains the entire agreement between the parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral, except the Merger Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. (c) Assignment. Neither of the parties hereto may sell, ----------- transfer, assign or otherwise dispose of any of its rights or obligations under this Agreement or the Option created hereunder to any other person, without the express written consent of the other party, except as expressly provided herein. (d) Notices. All notices or other communications -------- hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with receipt confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 4 5 If to Issuer: Central Mortgage Bancshares, Inc. 4435 Main Street, Suite 100 Kansas City, Missouri 64111 Attention: Lynn A. Harmon, Chairman and Chief Executive Officer Telecopy: (816) 561-3382 with a copy to: Blackwell Sanders Matheny Weary & Lombardi Two Pershing Square, Suite 1100 2300 Main Street Kansas City, Missouri 64108 Attention: Robin V. W. Foster Telecopy: (816) 274-6914 If to Recipient: Mercantile Bancorporation Inc. Mercantile Tower P. O. Box 524 St. Louis, Missouri 63166-0524 Attention: Ralph W. Babb, Jr., Vice Chairman Telecopy: (314) 425-8108 with a copy to: Mercantile Bancorporation Inc. Mercantile Tower P. O. Box 524 St. Louis, Missouri 63166-0524 Attention: Jon W. Bilstrom, General Counsel Telecopy: (314) 425-1386 A party may change its address for notice purposes by written notice to the other party hereto. (e) Counterparts. This Investment Agreement may be ------------- executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 5 6 (f) Governing Law. This Investment Agreement shall be -------------- governed by, and interpreted in accordance with, the laws of the State of Missouri. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in counterparts by their duly authorized officers as of the day and year first above written. CENTRAL MORTGAGE BANCSHARES, INC. ("Issuer") By: /s/ Lynn A. Harmon ----------------------------------------- Lynn A. Harmon Chairman and Chief Executive Officer Attest: /s/ Robin V. Foster - ------------------------------------- MERCANTILE BANCORPORATION INC. ("Recipient") By: /s/ Ralph W. Babb, Jr. --------------------------------------- Ralph W. Babb, Jr. Vice Chairman Attest: /s/ Jon W. Bilstrom - ------------------------------------- Jon W. Bilstrom, Secretary 6 EX-2.3 4 OPTION 1 THIS OPTION IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN A CERTAIN INVESTMENT AGREEMENT DATED AS OF SEPTEMBER 21, 1994, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY. OPTION to Purchase up to 736,667 shares of Common Stock of Central Mortgage Bancshares, Inc. This is to certify that, for value received, Mercantile Bancorporation Inc. ("Recipient") is entitled to purchase, subject to the provisions of this Option, from Central Mortgage Bancshares, Inc. (the "Issuer"), at any time on or after the date hereof, an aggregate of up to 736,667 fully paid and non-assessable shares of common stock, $1.00 par value (the "Common Stock"), of Issuer at a price of $18.50 per share, subject to adjustment as provided herein and in the Agreement (as hereinafter defined) (the "Exercise Price"). 1. Exercise of Option. Subject to the provisions hereof and ------------------- of the Investment Agreement of even date herewith by and between Recipient and Issuer (the "Agreement"), this Option may be exercised in whole or in part, at any time or from time to time on or after the occurrence of a Triggering Event (as defined in the Agreement). This Option shall be exercised by presentation and surrender hereof to Issuer at the principal office of Issuer, accompanied by (i) a written notice of exercise, (ii) payment to Issuer, for the account of Issuer, of the Exercise Price for the number of shares of Common Stock specified in such notice, and (iii) a certificate of Recipient stating the event or events that have occurred which entitle Recipient to exercise this Option. The Exercise Price for the number of shares of Common Stock specified in the notice shall be payable in immediately available funds. Upon such presentation and surrender, Issuer shall issue promptly (and within one business day if requested by Recipient) to Recipient the shares of Common Stock to which Recipient is entitled hereunder. If this Option should be exercised in part only, Issuer shall, upon surrender of this Option for cancellation, execute and deliver a new Option evidencing the rights of Recipient to purchase the balance of the shares of Common Stock purchasable hereunder. Upon receipt by Issuer of this Option, in proper form for exercise, Recipient shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of Issuer shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Recipient. The Issuer shall pay all expenses, and any and all United States federal, state and local taxes and other charges (not including any taxes on Recipient's income or assets), that may be payable in connection with the preparation, issue and delivery of stock certificates pursuant to this Section 1 in the name of Recipient or its assignee, --------- transferee or designee. 2. Reservation of Shares; Preservation of Rights of Recipient. ----------------------------------------------------------- The Issuer agrees (i) that it will not, by charter amendment or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, terms or conditions to be observed or performed hereunder or under the Agreement by Issuer, (ii) that it will use its best efforts to cooperate fully with Recipient in preparing any such regulatory applications that may be necessary before this Option may be exercised and providing 2 such information to regulators as may be required in order to permit Recipient to exercise this Option and Issuer duly and effectively to issue shares of its Common Stock hereunder, and (iii) that it will promptly take all action necessary to protect the rights of Recipient against dilution as provided herein. 3. Fractional Shares. The Issuer shall not be required to ------------------ issue fractional shares of Common Stock upon exercise of this Option but shall pay for such fraction of a share in cash or by certified or official bank check at the Exercise Price. 4. Exchange, Transfer or Loss of Option. This Option is ------------------------------------- exchangeable without expense, at the option of Recipient, upon presentation and surrender hereof at the principal office of issuer for other Options of different denominations entitling Recipient to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. The term "Option" as used herein includes any Options for which this Option may be exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Option, and (in case of loss, theft or destruction) of reasonably satisfactory indemnification and upon surrender and cancellation of this Option, if mutilated, Issuer will execute and deliver a new Option of like tenor and date. Any such new Option executed and delivered shall constitute an additional contractual obligation on the part of Issuer, whether or not the Option so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. 5. Certain Transactions. --------------------- (A) In case Issuer (a) shall consolidate with or merge into any Person, other than Recipient or one of its Affiliates, and shall not be the continuing or surviving corporation of such consolidation or merger, (b) shall permit any Person, other than Recipient or one of its Affiliates, to merge into Issuer and Issuer shall be the continuing or surviving corporation, but, in connection with such merger, the shares of Common Stock outstanding immediately prior to the merger shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property or shall represent less than 50% of the shares of Common Stock immediately after giving effect to the merger, or (c) shall sell or otherwise transfer all or any substantial part of its assets to any Person, other than Recipient or one of its Affiliates, then, and in each such case, the agreement governing such transaction shall make proper provision so that this Option shall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an Option (the "Substitute Option"), at the option of Recipient, of (I) the Acquiring Corporation (as hereinafter defined), (II) any company which controls the Acquiring Corporation, or (III) in the case of a merger described in Clause (A)(b), -------------- Issuer, in which case such Option shall be a newly issued Option. (B) The following terms have the meanings indicated: (a) "Acquiring Corporation" shall mean (I) the continuing or surviving corporation of a consolidation or merger with Issuer (if other than Issuer), (II) the corporation merging into Issuer in a merger in which Issuer is the continuing or surviving Person and in connection with which the shares of Common Stock outstanding immediately prior to the merger are changed into or exchanged for stock or other securities of any other Person or cash or any other property or shall represent less than 50% of the shares of Common Stock immediately after giving effect to the merger, and (III) the transferee of all or substantially all of the Issuer's assets or other assets of its subsidiaries; 2 3 (b) "Substitute Common Stock" shall mean the common stock issued by the issuer of the Substitute Option; (c) "Assigned Value" shall mean, as appropriate, (I) the Sales Price (as defined in the Agreement) or (II) the highest of the highest price per share of Common Stock at which a tender offer or exchange offer has been made, the highest price per share of Common Stock paid or agreed to be paid therefor by any third party pursuant to an agreement with Issuer and the highest last reported sale price per share of the Issuer's Common Stock within the four-month period immediately preceding the consolidation or merger in question; (d) "Average Price" shall mean the average last reported sale price or closing price, as the case may be, of a share of Substitute Common Stock for the one year immediately preceding the consolidation, merger, or sale in question, but in no event higher than the last reported sale price or closing price, as the case may be, of the shares of Substitute Common Stock on the day preceding such consolidation, merger or sale; provided that if -------- Issuer is the issuer of the Substitute Option, the Average Price shall be computed with respect to a share of the common stock issued by the Person merging into Issuer or by any company which controls such Person, as the Recipient may elect; (e) A "Person" shall mean any individual, firm, corporation or other entity and include as well any syndicate or group deemed to be a "person" by Section 13(d)(3)(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (f) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date hereof. (C) Subject to Subsection (D), the Substitute Option shall --------------- have the same terms as this Option provided that if the terms of the Substitute Option cannot, for legal reasons, be the same as this Option, such terms shall be substantially similar and in no event less advantageous to Recipient, as determined by Recipient in its sole discretion. The issuer of the Substitute Option shall also enter into an agreement with the Recipient of the Substitute Option in substantially the same form as the Agreement, which shall be applicable to the Substitute Option. (D) The Substitute Option shall be exercisable for such number of shares of Substitute Common Stock as is equal to the Assigned Value multiplied by the number of shares of Common Stock for which this Option is then exercisable, divided by the Average Price. The exercise price of the Substitute Option per share of Substitute Common Stock for which the Substitute Option is exercisable shall be equal to the Exercise Price multiplied by a fraction in which the numerator is the number of shares of Common Stock for which this Option is then exercisable and the denominator is the number of shares of Substitute Common Stock for which the Substitute Option is exercisable. (E) In no event, pursuant to any of the foregoing provisions, shall the Substitute Option be exercisable for a number of shares of Substitute Common Stock that equal more than 19.9% of the aggregate of the outstanding shares of Substitute Common Stock prior to issuance of the stock subject to the Substitute Option. 3 4 6. Adjustment. The number of shares of Common Stock ----------- purchasable upon the exercise of this Option and the Exercise Price shall be subject to adjustment from time to time as provided in this Section 6. ---------- (A) (1) In case Issuer shall pay or make a dividend or other distribution on any class of capital stock of Issuer in Common Stock, the number of shares of Common Stock purchasable upon exercise of this Option shall be increased by multiplying such number of shares by a fraction of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the day immediately preceding the date of such distribution and the numerator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the date following such distribution. (2) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the number of shares of Common Stock purchasable upon exercise of this Option at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the number of shares of Common Stock purchasable upon exercise of this Option at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately decreased, such increase or decrease, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (3) The reclassification (excluding any transaction in which a Substitute Option would be issued) of Common Stock into securities (other than Common Stock) and/or cash and/or other consideration shall be deemed to involve a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number or amount of securities and/or cash and/or other consideration outstanding immediately thereafter and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, within the meaning of Clause (2) above. ---------- (4) The Issuer may make such increases in the number of shares of Common Stock purchasable upon exercise of this Option, in addition to those required by this subsection (A), as shall be determined by its --------------- Board of Directors to be advisable in order to avoid taxation so far as practicable of any dividend of stock or stock rights or any event treated as such for federal income tax purposes to the recipients. (B) Whenever the number of shares of Common Stock purchasable upon exercise of this Option is adjusted as herein provided, the Exercise Price shall be adjusted to equal the amount determined by multiplying the Exercise Price in effect immediately prior to such adjustments in the number of shares by a fraction in which the numerator is equal to the number of shares of Common Stock purchasable prior to the adjustment and the denominator is equal to the number of shares of Common Stock purchasable after the adjustment. (C) For the purpose of this Section 6, the term "Common ---------- Stock" shall include any shares of Issuer of any class or series which has no preference or priority in the payment of dividends or in the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of Issuer and which is not subject to redemption by Issuer. 4 5 7. Notice. (A) Whenever the number of shares of Common Stock ------- for which this Option is exercisable is adjusted as provided in Section 6, ---------- Issuer shall promptly compute such adjustment and mail to Recipient a certificate, signed by a principal financial officer of Issuer, setting forth the number of shares of Common Stock for which this Option is exercisable as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof and when such adjustment will become effective. (B) Upon the occurrence of an event which results in this Option becoming convertible into, or exchangeable for, the Substitute Option, as provided in Section 5, each of Issuer and any Acquiring Corporation shall ---------- promptly notify Recipient of such event; and, upon receipt from Recipient of its choice as to Issuer of the Substitute Option, each of the Issuer and any Acquiring Corporation shall promptly compute the number of shares of Substitute Common Stock for which the Substitute Option is exercisable and furnish to Recipient a certificate, signed by a principal financial officer of each of Issuer and any Acquiring Corporation, setting forth the number of shares of Substitute Common Stock for which the Substitute Option is exercisable, a computation thereof and when such adjustment will become effective. 8. Rights of Recipient. (A) Without limiting the foregoing -------------------- or any remedies available to Recipient, it is specifically acknowledged that Recipient would not have an adequate remedy at law for any breach of this Option and will be entitled to specific performance, and injunctive relief against actual or threatened violations, of the obligations of any Person subject to this Option. (B) Except as provided in Section 1, Recipient shall ---------- not, by virtue hereof, be entitled to any rights of a shareholder in Issuer. 9. Termination. This Option and the rights conferred ------------ hereunder and pursuant to the Agreement shall terminate on the earlier of (a) (i) termination of the Merger Agreement (as defined in the Agreement) pursuant to Sections 7.01(a), 7.01(b), 7.01(c), 7.01(d) or 7.01(g) of the Merger Agreement; or (ii) termination of the Merger Agreement by Issuer pursuant to Section 7.01(f) of the Merger Agreement where Recipient has materially breached the Merger Agreement and failed to cure such breach within 45 days after notice thereof from Issuer; or (iii) termination of the Merger Agreement by Recipient pursuant to Section 7.01(f) based upon a non-volitional breach of Sections 2.06 through 2.10, 2.13 through 2.18, 2.20 or 2.21 of the Merger Agreement which Issuer has used its best efforts to cure after notice from Recipient; or (b) twelve months after (i) termination by Issuer of the Merger Agreement pursuant to Section 7.01(e) of the Merger Agreement; or (ii) termination by Recipient of the Merger Agreement pursuant to Section 7.01(f) of the Merger Agreement if Issuer has materially breached the Merger Agreement and failed to cure such breach within 45 days after notice thereof 5 6 from Recipient, except for a termination of the Merger Agreement by Recipient based upon a non-volitional breach of Sections 2.06 through 2.10, 2.13 through 2.18, 2.20 or 2.21 of the Merger Agreement which Issuer has used its best efforts to cure after notice from Recipient prior to such termination; provided, however, that if a Triggering Event (as defined in the Agreement) - ------------------ has occurred prior to the termination of this Option, this Option and said rights shall terminate twelve months after the date of the first Triggering Event to occur. 10. Governing Law. This Option shall be governed by, and -------------- interpreted in accordance with, the laws of the State of Missouri. Dated as of September 21, 1994. CENTRAL MORTGAGE BANCSHARES, INC. By: /s/ Lynn A. Harmon --------------------------------------- Lynn A. Harmon Chairman and Chief Executive Officer ATTEST: /s/ Robin V. Foster - ------------------------------------- 6 EX-2.4 5 FORM OF VOTING AGREEMENT 1 VOTING AGREEMENT This Voting Agreement dated as of September 21, 1994, is entered into between Mercantile Bancorporation Inc. ("Mercantile"), and the undersigned director and shareholder ("Shareholder") of Central Mortgage Bancshares, Inc. ("Central Mortgage"). WHEREAS, Central Mortgage and Mercantile have proposed to enter into an Agreement and Plan of Merger (the "Agreement"), dated as of today, which contemplates the acquisition by Mercantile of 100% of the Series A preferred stock and 100% of the common stock of Central Mortgage (collectively, the "Central Mortgage Stock") by means of a merger between Central Mortgage and Mercantile's subsidiary, Ameribanc, Inc. (the "Merger"); and WHEREAS, Mercantile is willing to expend the substantial time, effort and expense necessary to implement the Merger, only if Shareholder enters into this Voting Agreement; and WHEREAS, the undersigned shareholder of Central Mortgage believes that the Merger is in his best interest and the best interest of Central Mortgage; NOW, THEREFORE, in consideration of the premises, Shareholder hereby agrees as follows: 1. Voting Agreement - Shareholder shall vote all of the ---------------- shares of Central Mortgage Stock he now owns or hereafter acquires, in favor of the Merger at the meeting of shareholders of Central Mortgage to be called for the purpose of approving the Merger (the "Meeting"). 2. No Competing Transaction - Shareholder shall not vote any ------------------------ of his shares of Central Mortgage Stock in favor of any other merger or sale of all or substantially all the assets of Central Mortgage to any person other than Mercantile or its affiliates until closing of the Merger, termination of the Agreement or abandonment of the Merger by the mutual agreement of Central Mortgage and Mercantile, whichever comes first. 3. Transfers Subject to Agreement - Shareholder shall not ------------------------------ transfer his shares of Central Mortgage Stock unless the transferee, prior to such transfer, executes a voting agreement with respect to the transferred shares substantially to the effect of this Voting Agreement and satisfactory to Mercantile. 4. Meeting - At Mercantile's request, Shareholder shall use ------- his best efforts to cause the Meeting to be held as soon as practicable. 5. No Ownership Interest. Nothing contained in this Voting ---------------------- Agreement shall be deemed to vest in Mercantile any direct or indirect ownership or incidence of ownership of or with respect to any shares of Central Mortgage Stock. All rights, ownership and economic benefits of and relating to the shares of Central Mortgage Stock shall remain and belong to Shareholder and Mercantile shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of Central Mortgage or exercise any power or authority to direct Shareholder in the voting of any of his shares of Central Mortgage Stock, except as otherwise expressly provided herein, or the performance of his duties or responsibilities as a director of Central Mortgage. 6. Evaluation of Investment. Shareholder, by reason of his ------------------------- knowledge and experience in financial and business matters and in his capacity as a director of a financial institution, 2 believes himself capable of evaluating the merits and risks of the potential investment in common stock of Mercantile, $5.00 par value ("Mercantile Common Stock"), contemplated by the Agreement. 7. Documents Delivered. Shareholder acknowledges having -------------------- reviewed the Agreement and its attachments and that reports, proxy statements and other information with respect to Mercantile filed with the Securities and Exchange Commission (the "Commission") were, prior to his execution of this Voting Agreement, available for inspection and copying at the Offices of the Commission and that Mercantile delivered the following such documents to Central Mortgage: (a) Mercantile's Annual Report on Form 10-K for the year ended December 31, 1993; (b) Mercantile's Annual Report to Shareholders for the year ended December 31, 1993; (c) Mercantile's Current Report on Form 8-K dated June 17, 1994; and (d) Mercantile's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. 8. Amendment and Modification. This Voting Agreement may be --------------------------- amended, modified or supplemented at any time by the written approval of such amendment, modification or supplement by Shareholder and Mercantile. 9. Entire Agreement. This Voting Agreement evidences the ----------------- entire agreement among the parties hereto with respect to the matters provided for herein and there are no agreements, representations or warranties with respect to the matters provided for herein other than those set forth herein and in the Agreement. This Voting Agreement supersedes any agreements among Central Mortgage and its shareholders concerning the Merger, disposition or control of the stock of Central Mortgage. 10. Severability. The parties agree that if any provision of ------------- this Voting Agreement shall under any circumstances be deemed invalid or inoperative, this Voting Agreement shall be construed with the invalid or inoperative provisions deleted and the rights and obligations of the parties shall be construed and enforced accordingly. 11. Counterparts. This Voting Agreement may be executed in ------------- two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12. Governing Law. The validity, construction, enforcement -------------- and effect of this Voting Agreement shall be governed by the internal laws of the State of Missouri. 13. Headings. The headings for the paragraphs of this Voting --------- Agreement are inserted for convenience only and shall not constitute a part hereof or affect the meaning or interpretation of this Voting Agreement. 14. Termination. This voting agreement shall terminate upon ------------ the consummation of 2 3 the Merger or upon termination of the Agreement, whichever comes first. 15. Successors. This Voting Agreement shall be binding upon ----------- and inure to the benefit of Mercantile and its successors, and Shareholder and Shareholder's spouse and their respective executors, personal representatives, administrators, heirs, legatees, guardians and other legal representatives. This Voting Agreement shall survive the death or incapacity of Shareholder. This agreement may be assigned by Mercantile only to an affiliate of Mercantile. MERCANTILE BANCORPORATION INC. By: --------------------------------------- Ralph W. Babb, Jr. Vice Chairman SHAREHOLDER ------------------------------------------ 3 EX-5.1 6 OPINION RE LEGALITY 1 November 21, 1994 Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 Re: Registration Statement on Form S-4 ---------------------------------- Gentlemen: We refer you to the Registration Statement on Form S-4 filed by Mercantile Bancorporation Inc. (the "Company"), on November 21, 1994 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended, pertaining to the proposed issuance by the Company of up to 2,625,533 shares of the Company's common stock, $5.00 par value (the "Shares"), in connection with the acquisition by merger of Central Mortgage Bancshares, Inc. ("Central Mortgage") pursuant to the Amended and Restated Agreement and Plan of Merger dated as of November 1, 1994 (the "Merger Agreement"), by and among the Company, Central Mortgage and Ameribanc, Inc., all as provided in the Registration Statement. In rendering the opinions set forth herein, we have examined such corporate records of the Company, such laws and such other information as we have deemed relevant, including the Company's Restated Articles of Incorporation and Bylaws, as amended and currently in effect, the resolutions adopted by the Executive Committee of the Company's Board of Directors relating to the merger transaction, certificates received from state officials and statements we have received from officers and representatives of the Company. In delivering this opinion, the undersigned assumed the genuineness of all signatures; the authenticity of all documents submitted to us as originals; the conformity to the originals of all documents submitted to us as certified, photostatic or conformed copies; the authenticity of the originals of all such latter documents; and the correctness of statements submitted to us by officers and representatives of the Company. Based only on the foregoing, the undersigned is of the opinion that: 1. The Company has been duly incorporated and is validly existing under the laws of the State of Missouri; and 2. The Shares to be sold by the Company, when issued as provided in the Merger Agreement, will be duly authorized, duly and validly issued and fully paid and nonassessable. 2 Mercantile Bancorporation, Inc. November 21, 1994 Page 2 We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm in the section of the Proxy Statement/Prospectus entitled "Legal Matters." Very truly yours, /s/ Thompson & Mitchell EX-8.1 7 OPINION RE TAX MATTERS 1 [Letterhead of Thompson & Mitchell] November 21, 1994 Board of Directors Central Mortgage Bancshares, Inc. 4435 Main Street Kansas City, Missouri 64111 Gentlemen: You have requested our opinion with regard to certain federal income tax consequences of the proposed merger (the "Merger") of Central Mortgage Bancshares, Inc. ("CMB") with and into Ameribanc, Inc. ("ABNK"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). In connection with the preparation of our opinion, we have examined and have relied upon the following: (i) The Amended and Restated Agreement and Plan of Merger by and among MBI, ABNK and CMB, dated as of November 1, 1994 (the "Plan"); (ii) MBI's Registration Statement on Form S-4, including the Proxy Statement and Prospectus contained therein, to be filed with the Securities and Exchange Commission on November 17, 1994 (the "Registration Statement"); (iii) The representations and undertaking of MBI substantially in the form of Exhibit A hereto; (iv) The representations and undertakings of CMB and certain holders of CMB common stock, par value $1.00 per share ("CMB Common Stock"), substantially in the form of Exhibits B and C hereto; and (v) The Rights Plan between MBI and Mercantile Bank of St. Louis National Association (as successor in interest to Mercantile Bank National Association), dated May 23, 1988. Our opinion is based solely upon applicable law and the factual information and undertakings contained in the above- mentioned documents. In rendering our opinion, we have assumed the accuracy of all information and the performance of all undertakings contained in each of such documents. We also have assumed the authenticity of all original documents, the conformity of all copies to the original documents, and the genuineness of all signatures. We have not attempted to verify independently the accuracy of any information in any such document, and we have assumed that such documents accurately and completely set forth all material facts relevant to this opinion. All of our assumptions were made with your consent. If any fact or assumption described herein or below is incorrect, any or all of the opinions expressed herein may be inapplicable. 2 Central Mortgage Bancshares, Inc. November 21, 1994 Page 2 OPINIONS Subject to the foregoing, to the conditions and limitations expressed elsewhere herein, and assuming that the Merger is consummated in accordance with the Plan, we are of the opinion that for federal income tax purposes: 1. The Merger will constitute a reorganization within the meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and CMB, ABNK, and MBI each will constitute a "party to a reorganization" within the meaning of section 368(b) of the Code. 2. Each shareholder of CMB who exchanges, in the Merger, shares of CMB Common Stock solely for shares of MBI common stock, par value $5.00 per share ("MBI Common Stock"): a) will recognize no gain or loss, except with regard to cash received in lieu of a fractional share, as discussed below (Code section 354(a)(1)); b) will have an aggregate basis for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 3, below) equal to the aggregate basis of the shares of CMB Common Stock surrendered (Code section 358(a)(1)); and c) will have a holding period for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 3, below) which includes the period during which the shares of CMB Common Stock surrendered were held, provided that the shares of CMB Common Stock surrendered were capital assets in the hands of such holder (Code section 1223(1)). 3. Each shareholder of CMB who receives cash in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received in the Merger and then redeemed by MBI. Provided that the shares of CMB Common Stock surrendered were capital assets in the hands of such holder, the receipt of such cash will cause the recipient to recognize capital gain or loss equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share interest (Code sections 1001 and 1222; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574). 4. Each shareholder of CMB who receives solely cash as a result of the exercise of dissenters' rights will recognize gain or loss (determined separately as to each block of CMB Common Stock exchanged) in an amount equal to the difference between (x) the amount of cash received by such shareholder and (y) such shareholder's basis for the shares of CMB Common Stock surrendered, provided that the cash payment does not have the effect of the distribution of a dividend (Code sections 1001 and 302(a)). Such gain or loss will be capital gain or loss if the shares of CMB Common Stock surrendered were capital assets in the hands of the holder, and long-term or short- 3 Central Mortgage Bancshares, Inc. November 21, 1994 Page 3 term depending on the holder's holding period for each block of CMB Common Stock surrendered (Code section 1222). However, if the cash payment does have the effect of the distribution of a dividend, such shareholder will recognize income in the amount of the cash received (without regard to such shareholder's basis in the CMB Common Stock surrendered), which generally will be taxable as a dividend (Code sections 302(d) and 301). The determination of whether a cash payment has the effect of the distribution of a dividend will be made pursuant to the provisions and limitations of section 302 of the Code, taking into account the stock ownership attribution rules of section 318 of the Code. Because such determination generally will depend on the facts and circumstances of each CMB shareholder, we express no opinion as to whether the cash payments discussed in this paragraph 4 will be treated as having the effect of the distribution of a dividend. A cash payment will be considered not to have the effect of the distribution of a dividend under section 302 of the Code only if the cash payment (i) results in a "complete redemption" of such shareholder's actual and constructive stock interest, (ii) qualifies as a "substantially disproportionate" reduction in such shareholder's actual and constructive stock interest, or (iii) is not "essentially equivalent to a dividend" (Code section 302(b)(1), (2), (3)). A cash payment will result in a "complete redemption" of a shareholder's stock interest if such shareholder does not actually or constructively own any stock after the Merger. A reduction in a shareholder's stock interest will be "substantially disproportionate" if (i) the percentage of outstanding shares actually and constructively owned by such shareholder after the receipt of the cash payment is less than four-fifths (80%) of the percentage of outstanding shares actually and constructively owned by such shareholder immediately prior to the receipt of the cash payment, and (ii) such shareholder actually and constructively owns less than 50 percent of the number of shares outstanding after the receipt of the cash payment (Code section 302(b)(2)). The cash payment will not be "essentially equivalent to a dividend" if there has been a "meaningful reduction" (as the quoted term has been interpreted by judicial authorities and by rulings of the Internal Revenue Service (the "Service")) of the shareholder's actual and constructive ownership interest (Code section 302(b)(1); United ------ States v. Davis, 397 U.S. 301 (1970); see, e.g., Rev. Rul. 76- - --------------- ---- ---- 385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91). Under the traditional analysis (which apparently continues to be used by the Service), section 302 of the Code will apply as though the distribution of cash were made by CMB in a hypothetical redemption of CMB Common Stock immediately prior to, and in a transaction separate from, the Merger (a "deemed CMB redemption"). Thus, under the traditional analysis, the determination of whether a cash payment results in a complete redemption of interest, qualifies as a substantially disproportionate reduction of interest, or is not essentially equivalent to a dividend will be made by comparing (x) the shareholder's actual and constructive stock interest in CMB before the deemed CMB redemption, with (y) such shareholder's actual and constructive stock interest in CMB after the deemed CMB redemption (but before the Merger). Nevertheless, in view of Commissioner v. Clark, 489 U.S. 726 (1989), many tax - --------------------- practitioners believe that the continuing validity of the traditional analysis is open to question and that, in a transaction such as the Merger, the receipt of solely cash in exchange for stock actually owned should be treated in accordance with the principles of Commissioner v. Clark, supra, as if the --------------------- ----- CMB Common Stock exchanged for cash in the Merger 4 Central Mortgage Bancshares, Inc. November 21, 1994 Page 4 had instead been exchanged in the Merger for shares of MBI Common Stock followed immediately by a redemption of such shares by MBI for the cash payment (a "deemed MBI redemption"). Under this analysis, the determination of whether a cash payment satisfies any of the foregoing tests would be made by comparing (i) the shareholder's actual and constructive stock interest in MBI before the deemed MBI redemption (determined as if such shareholder had received solely MBI Common Stock in the Merger), with (ii) such shareholder's actual and constructive stock interest in MBI after the deemed MBI redemption. Because this analysis is more likely to result in capital gain treatment than the traditional analysis, each CMB shareholder who receives solely cash in exchange for all of the CMB Common Stock he or she actually owns should consult his or her own tax advisor with regard to the proper treatment of such cash. The determination of ownership for purposes of the foregoing tests will be made by taking into account both shares actually owned by such shareholder and shares constructively owned by such shareholder pursuant to section 318 of the Code (Code section 302(c)). Under section 318 of the Code, a shareholder will be deemed to own stock that is owned or deemed to be owned by certain members of his or her family (spouse, children, grandchildren, and parents) and other related parties including, for example, certain entities in which such shareholder has a direct or indirect interest (including partnerships, estates, trusts and corporations), as well as shares of stock that such shareholder (or a related person) has the right to acquire upon exercise of an option or conversion right. Section 302(c)(2) of the Code provides certain exceptions to the family attribution rules for the purpose of determining whether a complete redemption of a shareholder's interest has occurred for purposes of Code section 302. * * * * * * * * * * * * We express no opinion with regard to (1) the federal income tax consequences of the Merger not addressed expressly by the above opinions, including without limitation, (i) the tax consequences, if any, to those shareholders of CMB who acquired shares of CMB Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, and (ii) the tax consequences to special classes of shareholders, if any, including without limitation, foreign persons, insurance companies, tax-exempt entities, retirement plans, and dealers in securities; and (2) federal, state, local, or foreign taxes (or any other federal, state, local, or foreign laws) not specifically referred to and discussed herein. Further, our opinions are based upon the Code, Treasury Regulations proposed or promulgated thereunder, administrative interpretations and judicial precedents relating to the Code or Treasury Regulations as of the date hereof, all of which are subject to change at any time, possibly with retroactive effect, and we assume no obligation to advise you of any subsequent change thereto. If there is any change in the applicable law or regulations, or if there is any new administrative or judicial interpretation of the applicable law or regulations, any or all of the opinions expressed herein may become inapplicable. The foregoing opinions reflect our legal judgment solely on the issues presented and discussed herein. These opinions have no official status or binding effect of any kind. Accordingly, we cannot assure you that the Service will agree with the opinions expressed herein, nor can we assure you that any court of competent jurisdiction will agree with such opinions. 5 Central Mortgage Bancshares, Inc. November 21, 1994 Page 5 We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to all references made to this letter in the Registration Statement. Very truly yours, /s/ Thompson & Mitchell 6 Exhibit A CERTIFICATE ----------- The undersigned, Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), through _________________, its [Officer's Title] HEREBY CERTIFIES that (a) it is familiar with the terms and conditions of the Amended and Restated Agreement and Plan of Merger by and among MBI, Ameribanc, Inc., a Missouri corporation ("ABNK"), and Central Mortgage Bancshares, Inc., a Missouri corporation ("CMB"), dated as of November 1, 1994 (the "Agreement"), and (b) it is aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to CMB that the merger of CMB with and into ABNK (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES that: (1) The fair market value of the MBI common stock, par value $5.00 per share ("MBI Common Stock"), to be received by each CMB shareholder in the Merger (including cash to be received in lieu of fractional shares of MBI Common Stock, if any) will be approximately equal to the fair market value of the CMB common stock, par value $1.00 per share ("CMB Common Stock"), exchanged in the Merger by each such shareholder. (2) Except as otherwise set forth by the undersigned on an attachment hereto and excluding the contemplated sale of MBI Common Stock by the Central Mortgage Bancshares, Inc. Restated Employee Stock Ownership Plan to raise funds to retire debt, MBI is aware of no plan, intention or arrangement (including any option or pledge) on the part of any holder of CMB Common Stock to sell, exchange or otherwise dispose of any of the MBI Common Stock to be received in the Merger, with the exception of fractional shares of MBI Common Stock to be exchanged for cash pursuant to the Merger. (3) Before the Merger, MBI will be in control of ABNK within the meaning of section 368(c) of the Code. 7 (4) After the Merger, (a) ABNK will not issue additional shares of ABNK's stock that would result in MBI losing control of ABNK within the meaning of section 368(c) of the Code, and (b) ABNK will not have outstanding any warrants, options, convertible securities, or any other type of right (including any preemptive right) pursuant to which any person could acquire stock in ABNK that, if exercised or converted, would affect MBI's retention of control of ABNK (as defined above). (5) Neither MBI nor any other member of MBI's "affiliated group" (as the quoted term is defined in Code section 1504) (the "MBI Affiliated Group") has any plan or intention to redeem or otherwise reacquire any of the MBI Common Stock issued to the shareholders of CMB in the Merger. MBI may, however, and solely for business purposes unrelated to the Merger, acquire MBI Common Stock from time to time through anonymous purchases on an established securities market at prices then prevailing in such market. (6) MBI has no plan or intention (a) to liquidate ABNK (b) to merge ABNK with and into another corporation, (c) to sell or otherwise dispose (whether by dividend distribution or otherwise) of the stock of ABNK, or (d) except for transfers described in section 368(a)(2)(C) of the Code, dispositions made in the ordinary course of business, or dispositions approved by Thompson & Mitchell, to cause, suffer, or permit ABNK to sell or otherwise dispose (whether by dividend distribution or otherwise) of (i) any assets of CMB acquired in the Merger, or (ii) any assets of any other member of CMB's "affiliated group" (as defined above) (the "CMB Affiliated Group"). (7) After the Merger, ABNK will continue the historic businesses of CMB and the other members of the CMB Affiliated Group, or will use a significant portion of the historic business assets of the CMB Affiliated Group in a business (no stock of any member of the CMB Affiliated Group shall be treated as a business asset for purposes of this representation). (8) MBI, ABNK, CMB, and the shareholders of CMB will each pay their respective expenses, if any, incurred in connection with the Merger; provided, however, that MBI or ABNK may pay and assume those expenses of CMB that are solely and directly related to the Merger in accordance with the guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187, including those expenses described in Section 5.07 of the Agreement. (9) Except with regard to MBI Common Stock and Transactional Costs (as defined below), neither MBI nor any other member of the MBI Affiliated Group will pay any amount 8 or incur any liability to or for the benefit of any person other than CMB in connection with the Merger, and no liability to which CMB Common Stock is subject will be extinguished as a result of the Merger or assumed by MBI or any other member of the MBI Affiliated Group. For purposes of this representation, (a) the term "liability" shall include any contingent or other undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such obligation or undertaking is legally enforceable (for example, and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a CMB shareholder or otherwise to cause the release of such guaranty), and (b) the term "Transactional Costs" shall mean amounts paid or liabilities incurred in connection with the Merger (i) for legal, accounting, and investment banking and/or advisor services rendered to MBI or CMB, if any, (ii) as compensation to any CMB employee for services rendered in the ordinary course of his or her employment, and (iii) to dissenters, if any. (10) No indebtedness between CMB or any other member of the CMB Affiliated Group, on the one hand, and ABNK or any other member of the MBI Affiliated Group, on the other hand, exists or will exist prior to the Merger that (a) was issued or acquired at a discount, or (b) will be settled, as a result of the Merger, at a discount. No "installment obligation" (as the quoted term is defined for purposes of Code section 453B), between CMB, on the one hand, and ABNK, on the other hand, exists or will exist prior to the Merger that will be extinguished as a result of the Merger. (11) The payment of cash in lieu of fractional shares of MBI Common Stock in the Merger will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. The total cash consideration that will be paid in the Merger to the CMB shareholders in lieu of fractional shares of MBI Common Stock will not exceed one percent of the total consideration that will be issued in the transaction to the CMB shareholders in exchange for their shares of CMB Common Stock. The fractional share interests of each CMB shareholder will be aggregated, and no CMB shareholder will receive cash in lieu of fractional share interests in an amount equal to or greater than the value of one full share of MBI Common Stock. (12) None of the compensation to be paid or accrued after the Merger to or for the benefit of any shareholder- employee of CMB will be separate consideration for, or allocable to, any of their shares of CMB Common Stock; none of the shares of MBI Common Stock received in the Merger by any CMB shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and all compensation to be paid or accrued after the Merger to or for the 9 benefit of any CMB shareholder-employee will be for services actually rendered in the ordinary course of his or her employment and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. (13) With regard to the Rights Agreement by and between MBI and Mercantile Bank of St. Louis National Association (as successor in interest to Mercantile Bank National Association) as rights agent, dated May 23, 1988 (the "Rights Agreement"), no "Distribution Date" (as the quoted term is defined in the Rights Agreement) has occurred, and the Merger will not cause the occurrence of a Distribution Date. (14) Neither MBI nor any other member of the MBI Affiliated Group has owned, directly or indirectly, any stock of CMB within the last five years. (15) All payments made to dissenters and all cash payments made in lieu of fractional shares of MBI Common Stock will be funded with assets of MBI. No such payments will be funded with CMB assets. The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of MBI this _____ day of ____________, 1994. MERCANTILE BANCORPORATION INC. By ________________________________ 10 Exhibit B OFFICER CERTIFICATE ------------------- The undersigned, * , [Officer's Title] of ------------- Central Mortgage Bancshares, Inc., a Missouri corporation ("CMB"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Amended and Restated Agreement and Plan of Merger by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation ("ABNK"), and CMB dated as of November 1, 1994, and (b) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to CMB that the merger of CMB with and into ABNK (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF CMB, that: (1) The fair market value of the MBI common stock, par value $5.00 per share ("MBI Common Stock"), to be received by each CMB shareholder in the Merger (including cash to be received in lieu of fractional shares of MBI Common Stock, if any) will be approximately equal to the fair market value of the CMB common stock, par value $1.00 per share ("CMB Common Stock"), surrendered in the Merger by each such shareholder. (2) There is no plan, intention or other arrangement (including any option or pledge) on the part of the holders of 5% or more of the CMB Common Stock and, to the best knowledge of the undersigned, there is no plan, intention or other arrangement (including any option or pledge) on the part of the other holders of CMB Common Stock to sell, exchange or otherwise dispose of a number of shares of MBI Common Stock to be received by such holders in the Merger that would reduce such holders' ownership of MBI Common Stock to a number of shares having a value, as of the date on which the Merger is consummated, of less than 50 percent of the value of all of the formerly outstanding CMB Common Stock as of the such date. For purposes of this representation, shares of CMB Common Stock exchanged for cash or other property, or exchanged for cash in lieu of fractional shares of MBI Common Stock will be treated as outstanding on such date. Moreover, all shares of CMB Common Stock and/or shares of MBI Common Stock held by CMB shareholders and otherwise sold, redeemed, or disposed of before or after such date will be 11 taken into account in making this representation (including the contemplated sale of MBI Common Stock by the Central Mortgage Bancshares, Inc. Restated Employee Stock Ownership Plan to raise funds to retire debt). (3) CMB will transfer to ABNK in the Merger assets representing at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets, in each case, that were held by CMB immediately prior to the Merger. For purposes of this representation, CMB assets used to pay shareholders who receive cash, and CMB assets used to pay expenses of the Merger or to fund any redemption or distribution within 24 months before the Merger (except for regular, normal dividends) shall be included as assets of CMB held immediately prior to the Merger. For purposes of this representation, any asset of CMB or any other member of CMB's "affiliated group" (as the quoted term is defined in Code section 1504) (the "CMB Affiliated Group") that is disposed of within 24 months before the Merger other than in the ordinary course of business also shall be included as an asset of CMB held immediately prior to the Merger. (4) At the time of the Merger and except with regard to Transactional Costs (as defined below), each liability of CMB or each liability to which an asset of CMB is subject will have been incurred by CMB in the ordinary course of business and no such liability will have been incurred in anticipation of the Merger. In addition, at the time of the Merger and except with regard to Transactional Costs, CMB will have neither paid any amount nor incurred any liability, directly or indirectly, to or for the benefit of any person to induce such person's assistance or acquiescence in, or vote in favor of, the Merger. For purposes of this representation, (a) the term "CMB" shall be deemed also to refer to each other member of the CMB Affiliated Group, (b) the term "liability" shall include any contingent obligation or any other undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such obligation or undertaking is legally enforceable (for example, and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a CMB shareholder or to otherwise cause the release of such guaranty), and (c) the term "Transactional Costs" shall mean amounts paid or liabilities incurred in connection with the Merger (i) for legal, accounting, and investment banking and/or advisor services rendered to CMB, if any, and (ii) as compensation to any CMB employee for services rendered in the ordinary course of his or her employment. (5) Before the Merger, CMB will not have outstanding any warrants, options, convertible securities, or any other type of right (including any preemptive right) pursuant to which 12 any person could acquire stock in CMB that, if exercised or converted after the Merger, would affect MBI's retention of control of ABNK (within the meaning of section 368(c) of the Code). (6) Expenses, if any, that are incurred in connection with the Merger and are properly attributable to CMB's shareholders will be paid by those shareholders and not by CMB. CMB will pay its own expenses that are incurred in connection with the Merger. (7) No indebtedness between CMB or any other member of the CMB Affiliated Group, on the one hand, and ABNK or any other member of MBI's "affiliated group" (defined as above), on the other hand, exists or will exist prior to the Merger that (a) was issued or acquired at a discount, or (b) will be settled, as a result of the Merger, at a discount. No "installment obligation" (as the quoted term is defined for purposes of Code section 453B), between CMB, on the one hand, and ABNK, on the other hand, exists or will exist prior to the Merger that will be extinguished as a result of the Merger. (8) The fair market value of the assets of CMB to be transferred to ABNK will exceed the sum of the amount of liabilities to be assumed by ABNK, plus the amount of liabilities, if any, to which the assets to be transferred are subject. (9) The payment of cash in lieu of fractional shares of MBI Common Stock will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. The total cash consideration that will be paid in the Merger to the CMB shareholders in lieu of fractional shares of MBI Common Stock will not exceed one percent of the total consideration that will be issued in the transaction to the CMB shareholders in exchange for their shares of CMB Common Stock. The fractional share interests of each CMB shareholder will be aggregated, and no CMB shareholder will receive cash in lieu of fractional share interests in an amount equal to or greater than the value of one full share of MBI Common Stock. (10) None of the compensation paid or accrued before the Merger to or for the benefit of any CMB shareholder-employee will be separate consideration for, or allocable to, any of their shares of CMB Common Stock; none of the shares of MBI Common Stock received in the Merger by any CMB shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and all compensation paid or accrued before the Merger to or for the benefit of any CMB shareholder-employee will be for services actually rendered in the ordinary course of his 13 or her employment and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that indicates (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of CMB this _____ day of _______________, 1994. ------------------------------ 14 Exhibit C CERTIFICATE ----------- [Shareholder's Name], a shareholder of Central Mortgage -------------------- Bancshares, Inc., a Missouri corporation ("CMB"), who holds (beneficially or otherwise) # shares of CMB common stock, par ----- value $1.00 per share ("CMB Common Stock"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Amended and Restated Agreement and Plan of Merger by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation ("ABNK"), and CMB dated as of November 1, 1994, (the "Agreement"), and (b) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to CMB that the merger of CMB with and into ABNK (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES that the undersigned has no plan, intention or arrangement (including any option or pledge) to sell, exchange or otherwise dispose of any of the MBI common stock, par value $5.00 per share ("MBI Common Stock"), to be received in the Merger, with the exception of fractional shares of MBI Common Stock to be exchanged for cash pursuant to the Merger. The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that indicates (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Merger. IN WITNESS WHEREOF, the undersigned has executed this certificate, or caused this certificate to be executed by its duly authorized representative, this _____ day of _______________, 1994. [Shareholder's Name] ---------------------------- EX-23.1 8 CONSENT OF EXPERT 1 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors and Shareholders Mercantile Bancorporation Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Our reports dated January 13, 1994, except as to Note Q, which is as of February 10, 1994, contains an explanatory paragraph referring to the change in accounting for income taxes. St. Louis, Missouri /s/ KPMG Peat Marwick LLP November 17, 1994 EX-23.2 9 CONSENT OF EXPERT 1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- Mercantile Bancorporation Inc. St. Louis, Missouri We consent to the reference to our firm and to the use of our report dated February 4, 1994, except for Note 23 as to which the date is September 21, 1994, with respect to the consolidated financial statements as of and for the year ended December 31, 1993, of Central Mortgage Bancshares, Inc. included in Mercantile Bancorporation Inc.'s Form S-4 Registration Statement under the Securities Act of 1933. We also consent to the reference to us under the caption "Experts" in the Registration Statement. /s/ Baird, Kurtz & Dobson Kansas City, Missouri November 17, 1994 EX-23.4 10 CONSENT OF EXPERT 1 CONSENT OF STIFEL, NICOLAUS & COMPANY, INCORPORATED --------------------------------------------------- We hereby consent to the summarization of our fairness opinion letter and references to our firm under the caption "TERMS OF THE PROPOSED MERGER - Opinion of Financial Advisor to Central Mortgage" and to the inclusion of such letter as Annex A to the Proxy Statement - Prospectus which is part of this Registration Statement on Form S-4 of Mercantile Bancorporation Inc. By giving such consent, we do not thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "expert" as used in the Securities and Exchange Commission promulgated thereunder. STIFEL, NICOLAUS & COMPANY, INCORPORATED By: /s/ Rick Maples --------------------- Rick Maples Senior Vice President November 17, 1994 EX-24.1 11 POWERS OF ATTORNEY 1 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 the undersigned, and to file with the United States Securities and Exchange Commission, a registration statement on Form S-4, and any amendments or supplements thereto, registering the issuance by Mercantile Bancorporation Inc. of shares of its common stock, and the preferred share purchase rights which trade there-with, in connection with the acquisition of Central Mortgage Bancshares, Inc., as well as such 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 connection with said acquisition, 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. Name Signature Date - --------------------- ---------------------- -------------------- Richard P. Conerly ______________________ ____________________ Harry M. Cornell, Jr. ______________________ ____________________ Earl K. Dille ______________________ ____________________ J. Cliff Eason ______________________ ____________________ Bernard A. Edison ______________________ ____________________ William A. Hall ______________________ ____________________ Thomas A. Hays ______________________ ____________________ William G. Heckman ______________________ ____________________ Thomas H. Jacobsen ______________________ ____________________ James B. Malloy ______________________ ____________________ Charles H. Price II ______________________ ____________________ Harvey Saligman ______________________ ____________________ Craig D. Schnuck ______________________ ____________________ Robert W. Staley ______________________ ____________________ Robert L. Stark ______________________ ____________________ Patrick T. Stokes ______________________ ____________________ Francis A. Stroble ______________________ ____________________ Joseph G. Werner ______________________ ____________________ John A. Wright ______________________ ____________________ EX-99.1 12 FORM OF PROXY CARD 1 PROXY CENTRAL MORTGAGE BANCSHARES, INC. 4435 MAIN STREET, SUITE 100 KANSAS CITY, MISSOURI 64111-1856 FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD _______________, 1995 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned shareholder(s) of CENTRAL MORTGAGE BANCSHARES, INC. ("Central Mortgage"), does hereby nominate, constitute and appoint ___________________, ____________________ and ____________________ (or such other person as is designated by the Board of Directors of Central Mortgage), or each of them (with full power to act alone), true and lawful attorney(s), with full power of substitution, for the undersigned and in the name, place and stead of the undersigned to vote all of the shares of Common Stock, $1.00 par value, of Central Mortgage standing in the name of the undersigned on its books on _______________, 1995 at the Special Meeting of Shareholders to be held at Blue Springs Country Club, 1600 North Circle Drive, Blue Springs, Missouri, on __________, 1995, at ___________, Central Time, and at any adjournments or postponements thereof, with all the powers the undersigned would possess if personally present, as follows: 1. To consider and vote upon the adoption and approval of the Amended and Restated Agreement and Plan of Merger dated as of November 1, 1994 (the "Merger Agreement"), pursuant to which Central Mortgage will be merged with and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI") and whereby, upon consummation of the merger, all shares of Central Mortgage Common Stock will be converted into an aggregate of ______________ shares of MBI Common Stock, as set forth in detail in the Merger Agreement. / / FOR / / AGAINST / / ABSTAIN 2. To transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof. (Continued on Reverse Side) THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE. Dated: _________, 1994 ---------------------------------------- Signature of Shareholder ---------------------------------------- Signature of Shareholder When signing as an attorney, executor, administrator, trustee or guardian, please give full title. If more than one person holds the power to vote the same shares, all must sign. All joint owners must sign. PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----