0000950114-95-000162.txt : 19950816 0000950114-95-000162.hdr.sgml : 19950816 ACCESSION NUMBER: 0000950114-95-000162 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11792 FILM NUMBER: 95563875 BUSINESS ADDRESS: STREET 1: P O BOX 524 STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 10-Q 1 MERCANTILE BANCORPORATION INC. FORM 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1995 Commission File Number 1-11792 --------------- -------- Mercantile Bancorporation Inc. -------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Missouri 43-0951744 -------------------------------------------------------------------------- (State of Incorporation) (IRS Employer Identification No.) P.O. Box 524 St. Louis, Missouri 63166-0524 -------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (314) 425-2525 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X ----- ----- Yes No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $5.00 par value, 55,764,587 shares outstanding as of the close of business on August 1, 1995. 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements. The following consolidated financial statements, included in the Quarterly Report of the Registrant to its Shareholders for the quarter ended June 30, 1995, attached hereto as Exhibit 19, are incorporated herein by reference:
Quarterly Report STATEMENT Reference ----------------------------------------------------- ---------------- Consolidated Statement of Income - Three Months and Six Months ended June 30, 1995 and 1994. Page 18 Consolidated Balance Sheet as of June 30, 1995 and December 31, 1994. Page 19 Consolidated Statement of Cash Flows - Six Months ended June 30, 1995 and 1994. Page 21
The following notes to the consolidated financial statements are included as a part of this report: Mercantile Bancorporation Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 The consolidated financial statements include all adjustments which are, in the opinion of management, necessary for the fair statement of the results of these periods and are of a normal recurring nature. NOTE 2 Effective January 3, 1995, the Registrant acquired UNSL Financial Corp. ("UNSL"), a $508 million asset-holding company for the Lebanon, Missouri-based United Savings Bank. Effective May 1, 1995, the Registrant acquired TCBankshares, Inc. ("TCB"), a $1.4 billion asset-holding company based in North Little Rock, Arkansas. Also effective May 1, 1995, the Registrant acquired Central Mortgage Bancshares, Inc. ("CMB"), a $655 million asset-bank holding company based in Kansas City, Missouri. The UNSL, TCB, and CMB acquisitions were accounted for as poolings-of-interests. The historical consolidated financial statements have been restated to reflect these transactions. Also effective January 3, 1995, the Registrant acquired Wedge Bank ("Wedge"), an Alton, Illinois bank with assets totaling $196 million. The Wedge transaction meets the requirements for treatment as a pooling-of-interests; however, due to the immateriality of Wedge's financial condition and results of operations to those of the Registrant, the historical financial statements of the Registrant have not been restated for the Wedge transaction. 2 3 Net income and net income per share for the Registrant, UNSL, TCB, and CMB prior to restatement were as follows:
($ IN THOUSANDS EXCEPT PER SHARE DATA) -------------------------------------- Three months ended Six months ended June 30, 1994 June 30, 1994 REGISTRANT Net Income $40,203.00 $79,058.00 Net Income per share .93 1.84 UNSL Net Income 1,032.00 2,043.00 Net Income per share .66 1.32 TCB Net Income 3,474.00 7,541.00 Net Income per share 1,510.04 3,298.25 CMB Net Income 1,745.00 3,407.00 Net Income per share .45 .88
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Discussion and Analysis of Financial Condition and Results of Operations, included on pages 4 - 17 in the Quarterly Report of the Registrant to its Shareholders for the quarter ended June 30, 1995, is incorporated herein by reference. 3 4 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10-1 Form of Pooling and Servicing Agreement, as subsequently executed on May 17, 1995 by Mercantile Bank of Illinois National Association, Seller and Servicer, and Chemical Bank as Trustee (the "Pooling and Servicing Agreement"), and filed as Exhibit 4.1 to Registration Statement Number 33-89380 on Form S-3 of Mercantile Credit Card Master Trust, Issuer, and Mercantile Bank of Illinois National Association, originator of the Trust ("Registration Statement Number 33-89380"), is incorporated by reference herein. 10-2 Form of Series Supplement (Version 1) to the Pooling and Servicing Agreement, as subsequently executed on May 17, 1995 by Mercantile Bank of Illinois National Association, Seller and Servicer, and Chemical Bank, Trustee, and filed as Exhibit 4.2 to Registration Statement Number 33-89380, is incorporated by reference herein. 19 Quarterly Report of the Registrant to its Shareholders for the quarter ended June 30, 1995. 27 Financial Data Schedule (b) Reports on Form 8-K: Registrant filed two (2) reports on Form 8-K during the quarter ended June 30, 1995: In the first report, dated May 12, 1995, Registrant disclosed under Item 2 that it had, effective May 1, 1995, consummated its acquisition of TCBankshares, Inc. ("TCB"), through merger of TCB with and into a wholly-owned subsidiary of Registrant, whereby the shareholders of TCB received an aggregate of approximately 4,500,000 shares of Registrant's common stock in exchange for their TCB shares. Also in that report, under Item 7, Registrant filed the financial statements, notes, and report listed below: Report of the Independent Auditors Dated March 10, 1995. Consolidated Balance Sheets of TCB and Subsidiaries as of December 31, 1994 and 1993. Consolidated Statements of Income of TCB and Subsidiaries for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Shareholders' Equity of TCB and Subsidiaries for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows of TCB and Subsidiaries for the years ended December 31, 1994, 1993 and 1992. Notes to the Consolidated Financial Statements. 4 5 In the second report, dated May 31, 1995, under Item 5, Registrant filed supplemental consolidated financial statements for the years ended December 31, 1994, 1993 and 1992, which statements restated Registrant's historical consolidated financial statements for those years to reflect the acquisition of UNSL Financial Corp. on January 3, 1995, and the acquisitions on May 1, 1995 of Central Mortgage Bancshares, Inc. and TCBankshares, Inc. (the "Supplemental Financial Statements"). Also filed under cover of the second 8-K were unaudited supplemental interim consolidated financial statements restating the Corporation's historical consolidated financial statements as of and for the three month periods ended March 31, 1995 and 1994 to reflect the CMB and TCB transactions. Both transactions were accounted for under the pooling-of- interests method of accounting. In addition, under Item 7, Registrant filed the consent of KPMG Peat Marwick LLP to incorporation by reference of its report on the Supplemental Consolidated Financial Statements into active registration statements of the Registrant. The May 31, 1995 Form 8-K included the financial statements, notes and auditor's report listed below: Independent Auditors' Report of KPMG Peat Marwick LLP dated May 31, 1995. Supplemental Consolidated Statement of Income for the years ended December 31, 1994, 1993 and 1992. Supplemental Consolidated Balance Sheet as of December 31, 1994, 1993 and 1992. Supplemental Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992. Supplemental Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1993 and 1992. Notes to Supplemental Consolidated Financial Statements. 5 6 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCANTILE BANCORPORATION INC. (Registrant) Date August 14, 1995 /s/ John Q. Arnold ------------------------ ------------------------------- John Q. Arnold Chief Financial Officer 6 7 EXHIBIT INDEX -------------
Exhibit No. Description Location ----------- ----------- -------- 10-1 Form of Pooling and Servicing Agreement, Incorporated herein by as subsequently entered into on May 17, 1995 reference by Mercantile Bank of Illinois National Association, Seller and Servicer, and Chemical Bank, as Trustee, and filed as Exhibit 4.1 to Registration Statement Number 33-89380, is incorporated by reference herein. 10-2 Form of Series Supplement (Version 1) to Pooling Incorporated herein by Servicing Agreement, as subsequently executed reference on May 17, 1995 by Mercantile Bank of Illinois National Association, Seller and Servicer, and Chemical Bank, Trustee, and filed as Exhibit 4.2 to Registration Statement Number 33-89380, is incorporated by reference herein. 19 Quarterly Report of the Registrant to its Shareholders for the quarter ended June 30, 1995. Included herein 27 Financial Data Schedule Included herein
EX-19 2 QUARTERLY REPORT TO SHAREHOLDERS 1 MERCANTILE BANCORPORATION INC. SECOND QUARTER REPORT 1995 TABLE OF CONTENTS Highlights.......................................................... 1 Letter to Shareholders.............................................. 2 Corporate News Developments......................................... 3 Financial Section Financial Commentary............................................... 4 Condensed Consolidated Quarterly Statement of Income...............................................15 Consolidated Quarterly Average Balance Sheet.....................................................16 Financial Statements...............................................18 Banks and Other Subsidiaries........................................22 Directors and Executive Officers....................................23 Investor Information................................................24
2 HIGHLIGHTS
SECOND QUARTER SIX MONTHS ($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA) 1995 1994 CHANGE 1995 1994 CHANGE -------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Net income $ .99 $ .89 11.2 % $ 1.92 $ 1.76 9.1% Dividends declared .33 .28 17.9 .66 .56 17.9 Book value at June 30 24.55 22.67 8.3 24.55 22.67 8.3 Market price at June 30 44 7/8 35 1/8 27.8 44 7/8 35 1/8 27.8 Average shares outstanding 52,795,393 51,902,973 1.7 52,857,341 51,813,761 2.0 -------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Taxable-equivalent net interest income $149,367 $151,911 (1.7)% $305,704 $300,514 1.7% Tax-equivalent adjustment 3,420 3,402 .5 7,014 6,690 4.8 Net interest income 145,947 148,509 (1.7) 298,690 293,824 1.7 Provision for possible loan losses 6,641 8,544 (22.3) 20,616 17,423 18.3 Other income 58,987 52,185 13.0 115,790 107,279 7.9 Other expense 118,166 120,131 (1.6) 237,409 240,015 (1.1) Income taxes 27,768 25,565 8.6 54,393 51,616 5.4 Net income 52,359 46,454 12.7 102,062 92,049 10.9 -------------------------------------------------------------------------------------------------------------------------------- ENDING BALANCES Total assets $15,296,293 $14,333,058 6.7% Loans and leases 10,090,124 9,025,925 11.8 Deposits 11,342,535 11,190,781 1.4 Shareholders' equity 1,310,457 1,191,107 10.0 Reserve for possible loan losses 179,434 190,251 (5.7) -------------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Total assets $15,254,093 $14,413,763 5.8 % $15,171,488 $14,434,134 5.1% Earning assets 14,058,459 13,208,526 6.4 14,017,276 13,223,852 6.0 Loans and leases 10,001,902 8,829,130 13.3 9,935,805 8,738,988 13.7 Deposits 11,806,064 11,755,563 .4 11,690,069 11,821,613 (1.1) Shareholders' equity 1,293,627 1,181,446 9.5 1,279,493 1,167,659 9.6 -------------------------------------------------------------------------------------------------------------------------------- SELECTED RATIOS Return on assets 1.37% 1.29% 1.35% 1.28% Return on equity 16.19 15.73 15.95 15.77 Overhead ratio 56.71 58.86 56.33 58.86 Other expense to average assets 3.10 3.33 3.13 3.33 Net interest rate margin 4.25 4.60 4.36 4.55 Equity to assets 8.57 8.31 Tier I capital to risk-adjusted assets 12.04 11.69 Total capital to risk-adjusted assets 15.47 15.32 Leverage 8.22 7.80 Reserve for possible loan losses to outstanding loans 1.78 2.11 Reserve for possible loan losses to non-performing loans 420.33 447.31 Non-performing assets to outstanding loans and foreclosed assets .57 .84 -------------------------------------------------------------------------------------------------------------------------------- SELECTED DATA Banks 51 52 Banking offices 320 327 Full-time equivalent employees 6,609 6,906 -------------------------------------------------------------------------------------------------------------------------------- All previously reported financial information has been restated to reflect the January 3, 1995 merger with UNSL Financial Corp and the May 1, 1995 mergers with Central Mortgage Bancshares, Inc. and TCBankshares, Inc., which were accounted for as poolings-of-interests.
MERCANTILE BANCORPORATION INC. 1 3 LETTER TO SHAREHOLDERS Mercantile closed the second quarter of 1995 with a strong 12.7% increase in earnings, attributed to steady loan growth, continued reduction of operating expenses and solid contributions from core businesses. Net income for the second quarter of 1995 was $52,359,000, up from $46,454,000 earned in the second quarter a year earlier. Per share net income rose 11.2% to $.99 from $.89 last year. For the second quarter, net interest income was $145,947,000, down slightly from 1994's $148,509,000, with a net interest rate margin of 4.25%, compared with 4.60% in 1994. A $400,000,000 securitization of credit card loans and more competitive pricing for both loans and deposits accounted for the lower 1995 margins. Total loans outstanding at period end were $10.1 billion, an increase of 11.8% from 1994's $9.0 billion, as loan demand strengthened in Mercantile's markets during the second quarter. Total assets at June 30, 1995 reached $15.3 billion and deposits in the corporation's banks totaled $11.3 billion. Asset quality remained strong, with non-performing loans at June 30, 1995 of $42,689,000, representing .42% of total loans, compared with .47% in 1994. Mercantile's reserve for possible loan losses at June 30 of this year was 1.78% of total loans and 420.33% of non-performing loans, compared with 2.11% and 447.31%, respectively, at June 30, 1994. The provision for possible loan losses for the quarter decreased 22.3% to $6,641,000 this year from $8,544,000 in 1994. Furthering the corporation's aggressive growth initiatives, Mercantile completed two mergers during the quarter. Central Mortgage Bancshares, Inc., based in Kansas City, Missouri, and TCBankshares, based in North Little Rock, Arkansas, joined Mercantile's growing network of community banks. As we move into the second half of 1995, I am confident that Mercantile will continue to be a banking industry leader in financial performance and in the quality of our products and service. /s/ Thomas H. Jacobsen Thomas H. Jacobsen Chairman of the Board and Chief Executive Officer August 2, 1995 2 MERCANTILE BANCORPORATION INC. 4 CORPORATE NEWS DEVELOPMENTS / / MERCANTILE WAS RANKED NUMBER ONE IN THE NATION, BASED ON FINANCIAL PERFORMANCE, BY DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION. Mercantile was named Overall Gold Medal Winner for both the fourth quarter and full year in 1994, in DLJ's Bank Performance Review published in March. Ranking is based on performance in five categories: profitability, capital strength, asset quality, earnings per share growth and management and margin. / / SALOMON BROTHERS RANKED MERCANTILE ONE OF THE TOP TWO PERFORMING BANKING INSTITUTIONS IN THE NATION, IN JUNE 1995. The Salomon Brothers report noted enormous progress in each of four categories: profitability, capital, productivity and credit quality. Mercantile's performance was especially strong, given the impact of several acquisitions completed last year. / / MERCANTILE'S ANNUAL MEETING WAS HELD ON APRIL 27 IN ST. LOUIS. ELECTED TO THE BOARD OF DIRECTORS FOR TERMS EXPIRING IN 1998 were Thomas A. Hays, Harvey Saligman, Patrick T. Stokes and John A. Wright. Elected for a term expiring in 1996 was Francis A. Stroble. / / THE BOARD OF DIRECTORS, AT THEIR REGULAR MEETING ON MAY 11 DECLARED A CASH DIVIDEND OF $.33 PER SHARE OF COMMON STOCK, which was paid on July 3, 1995 to shareholders of record as of the close of business on June 10, 1995. / / MERCANTILE COMPLETED MERGERS WITH CENTRAL MORTGAGE BANCSHARES, INC., BASED IN KANSAS CITY, MISSOURI, AND TCBANKSHARES, BASED IN NORTH LITTLE ROCK, ARKANSAS, ON MAY 1, 1995, ADDING APPROXIMATELY $2 BILLION IN ASSETS. . Central Mortgage, with assets of $655 million, operates three banks with 17 offices in western Missouri. The merger furthers Mercantile's steady growth in the Kansas City area and provides key strategic expansion of the corporation's Missouri franchise. . Mercantile entered the Arkansas banking market through a merger with TCBankshares, the state's third largest bank holding company. With assets approximately $1.4 billion, TCBankshares owns six banks with 36 offices, including Twin City Bank, the third largest bank in Little Rock, the state's capital. 3 5 FINANCIAL COMMENTARY PERFORMANCE SUMMARY Net income for Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") for the second quarter of 1995 was $52,359,000, a 12.7% improvement from the $46,454,000 earned in the same period a year ago. On a per common share basis, net income was $.99, up 11.2% from the $.89 earned in last year's second quarter. Return on assets improved to 1.37% in the second quarter compared with 1.32% in the first quarter of this year and 1.29% last year, while return on average equity was 16.19% versus 15.73% in 1994. For the first half of 1995, net income was $102,062,000, up 10.9% from the $92,049,000 earned last year, and on a per common share basis was $1.92, an improvement of 9.1% from the $1.76 recorded in the first half of 1994. When compared with last year, first-half 1995 overall results reflected moderate improvement in both net interest income and other income, and a lower level of operating expenses, partially offset by an increase in the provision for possible loan losses. For the first six months of 1995, return on average assets was 1.35% compared with 1.28% last year, while return on average equity was 15.95% in 1995, up from 15.77% last year. The financial statements have been restated to include the pre- acquisition accounts and results of operations of UNSL Financial Corp ("UNSL"), Central Mortgage Bancshares, Inc. ("Central") and TCBankshares, Inc. ("TCB"). UNSL was ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 1 ACQUISITIONS ($ IN THOUSANDS)
CONSIDERATION ------------------ ACCOUNTING DATE ASSETS DEPOSITS CASH SHARES METHOD ---- ------ -------- ---- ------ ---------- ACQUISITIONS COMPLETED Central Mortgage Bancshares, Inc. May 1, 1995 $ 654,584 571,105 $ 8 2,537,723 Pooling TCBankshares, Inc. May 1, 1995 1,422,798 1,217,740 - 4,749,999 Pooling UNSL Financial Corp Jan. 3, 1995 508,346 380,716 11 1,578,107 Pooling Wedge Bank Jan. 3, 1995 195,716 152,865 1 969,954 Pooling United Postal Bancorp, Inc. Feb. 1, 1994 1,260,765 1,025,252 39 5,631,953 Pooling Metro Bancorporation Jan. 3, 1994 370,175 333,183 6 1,638,278 Pooling RECENTLY COMPLETED ACQUISITIONS Plains Spirit Financial Corporation July 7, 1995 403,713 291,621 6,697 1,301,180 Purchase Southwest Bancshares, Inc. Aug. 1, 1995 186,076 151,565 - 675,000 Pooling AmeriFirst Bancorporation, Inc. Aug. 1, 1995 158,269 132,117 - 661,385 Pooling ACQUISITIONS PENDING Hawkeye Bancorporation 1st Qtr. 1996 1,982,428 1,709,275 - 7,874,903 Pooling First Sterling Bancorp, Inc. 1st Qtr. 1996 168,300 133,138 - 521,424 Pooling Security Bank of Conway, F.S.B. 1st Qtr. 1996 97,989 85,704 - 322,000 Pooling In addition to Mercantile common stock issued, the Corporation assumed, through an exchange, the outstanding, non-convertible preferred stock of TCBankshares, Inc. Of the total share consideration, 773,350 shares were reissued treasury shares. Estimated shares to be issued in acquisition. -----------------------------------------------------------------------------------------------------------------------------------
4 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 6 merged with Mercantile on January 3, 1995 while Central and TCB were merged with Mercantile on May 1, 1995 in transactions accounted for as poolings-of-interests. Also effective January 3, 1995, Mercantile completed a merger with Wedge Bank. That transaction also met the requirements for treatment as a pooling-of-interests; however, due to its immateriality the historical financial statements were not restated. The Plains Spirit Financial Corporation ("Plains Spirit") transaction, which will be accounted for as a purchase, closed on July 7, 1995. Mercantile completed its mergers of Southwest Bancshares, Inc. and AmeriFirst Bancorporation, Inc. on August 1, 1995. The Corporation announced plans on August 4, 1995 to expand its presence in Iowa through a merger with Hawkeye Bancorporation, a $2.0 billion-asset holding company based in Des Moines. There are currently two other pending acquisitions in various stages of approval which are summarized in Exhibit 1. On May 17, 1995, the Corporation securitized $400,000,000 of its MasterCard and VISA credit card loans through the Mercantile Credit Card Master Trust, largely in a public underwriting. The Class A Floating Rate Credit Card Participation Certificates were rated AAA by Moody's and Standard & Poor's, while the Class B Certificates were rated A. Overnight borrowings were reduced accordingly. The financial statement impact of the securitization is to reduce net interest income, the provision for possible loan losses and operating expenses with a net offsetting increase in other income. There is minimal effect on net income. Average loan volume for the quarter is approximately $189,000,000 less because of the securitization. Net interest income decreased 1.7% to $145,947,000 for the second quarter of 1995, yet was up 1.7% to $298,690,000 for the first six months of 1995. The net interest rate margin was 4.25% this quarter compared with 4.47% in the first quarter and 4.60% for the second quarter of 1994, while the year-to-date margin was 4.36% compared with 4.55% last year. Average earning assets for the first half of 1995 of $14.0 billion were 6.0% higher than the $13.2 billion last year. A positive trend continued during the quarter as average loans grew by $132,924,000 or 1.3% from the first quarter of 1995 and, excluding the credit card securitization, would have grown by $321,924,000 or 3.3%. Other income was $58,987,000 for the second quarter of 1995, an increase of $6,802,000 or 13.0% from a year ago. For the first six months of 1995, other income was $115,790,000, an increase of $8,511,000 or 7.9% from last year. Credit card fees and miscellaneous income showed improvement when compared with the first six months of 1994. Miscellaneous income in the first quarter of 1995 included a $5,155,000 gain on the sale of the Corporation's interest in a joint venture that provides ATM switching capabilities in the Midwest region. Second-quarter non-interest expenses were down 1.6% from a year ago and totaled $118,166,000 compared with $120,131,000 last year. Year- to-date 1995 non-interest expenses were $237,409,000, down 1.1% from the prior year. The reduction in expense levels resulted primarily from the realization of synergies from mergers completed in prior years and lower foreclosed property expense. The result was an improvement in the year-to-date overhead ratio to 56.33% compared with 58.86% last year, and a lowering of the other expense to average assets ratio to 3.13% versus 3.33% in the first half of 1994. 5 7 FINANCIAL COMMENTARY (cont'd) The provision for possible loan losses for the second quarter of 1995 was $6,641,000 compared with $8,544,000 the prior year, and was $20,616,000 for the first six months of 1995 compared with $17,423,000 in 1994. Net charge-offs for the first six months of 1995 and 1994 were $25,743,000 and $12,008,000, respectively, and on an annualized basis were .52% of average loans compared with .27% last year, when significant commercial real estate recoveries were realized. At June 30, 1995, the reserve for possible loan losses was $179,434,000 and covered 420.33% of non-performing loans compared with 579.62% at year- end and 447.31% last June 30. Non-performing loans as of June 30, 1995 were $42,689,000 or .42% of total loans, compared with the year-end 1994 restated figures of $33,559,000 or .35% and $42,532,000 or .47% at June 30, 1994. Foreclosed assets were $14,523,000 compared with $14,157,000 at year's end and $33,772,000 last June 30. Earnings in the St. Louis Area (Mercantile Bank of St. Louis N.A., Mercantile Bank of Illinois N.A. and Mercantile Trust Company N.A.) for the first half of 1995 were $47,824,000, down 2.3% from 1994. Return on average assets was 1.37% for the first six months of 1995 versus 1.45% in 1994. In the 45 Community Banks, net income was $45,228,000, an increase of 7.9%, while return on average assets was 1.28% compared with 1.34% last year. The results for Community Banks included the pre- acquisition financial performance of pooled transactions consummated prior to June 30, 1995, excluding the Wedge Bank transaction. Earnings ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 2 ORGANIZATIONAL CONTRIBUTION ($ IN THOUSANDS)
JUNE 30, 1995 ---------------------------------------------------------------------------- KANSAS PARENT ST. LOUIS CITY COMMUNITY COMPANY AND AREA AREA BANKS ELIMINATIONS CONSOLIDATED --------- ------ --------- ----------- ------------ Net income $ 47,824 $ 10,875 $ 45,228 $ (1,865) $ 102,062 Average assets 6,971,336 1,620,039 7,050,282 (470,169) 15,171,488 Return on assets 1.37% 1.34% 1.28% 1.35% Net interest rate margin 4.06 4.67 4.37 4.36 Overhead ratio 55.58 56.83 54.38 56.33 Equity to assets 8.29 8.68 8.58 8.57 Reserve for possible loan losses to outstanding loans 1.62 2.08 1.85 1.78 Reserve for possible loan losses to non- performing loans 348.17 - 424.63 420.33 Non-performing loans to outstanding loans .47 .17 .44 .42 Non-performing assets to outstanding loans and foreclosed assets .63 .32 .54 .57 Includes the results of Mercantile Bank of St. Louis N.A., Mercantile Bank of Illinois N.A., Mercantile Trust Company N.A., Mercantile Business Credit, Inc. (asset-based lending), Mercantile Investment Services, Inc. (brokerage), Mississippi Valley Advisors Inc. (investment management) and Mississippi Valley Life Insurance Co. (credit life). -----------------------------------------------------------------------------------------------------------------------------------
6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 8 for the three banks in the Kansas City Area for the first half of 1995 were $10,875,000, up 7.0% from a year ago. Return on average assets was 1.34% compared with 1.35% last year. Consolidated assets of $15.3 billion were up 6.7% from last June 30. Core deposits decreased by .5% to $10.4 billion, loans were $10.1 billion, up 11.8% from last year, and shareholders' equity of $1.3 billion was 10.0% higher than at June 30, 1994. Tier I capital to risk-adjusted assets improved to 12.04% compared with 11.69% last year, while Total capital to risk-adjusted assets at June 30, 1995 and 1994 was 15.47% and 15.32%, respectively. The following financial commentary presents a more thorough discussion and analysis of the results of operations and financial position of the Corporation for the first half and second quarter of 1995. NET INTEREST INCOME Net interest income for the second quarter of 1995 was $145,947,000, a 1.7% decline from the $148,509,000 earned last year, and for the first six months of 1995 was $298,690,000, a 1.7% improvement over last year. For the quarter, the net interest rate margin was 4.25% compared with 4.60% last year, while the year-to-date 1995 margin was 4.36%, down from 4.55% in last year's first six months. Factors contributing to the lower net interest rate margins in 1995 included generally more competitive pricing for both loans and deposits, the movement of retail deposits from transaction accounts to higher-costing, longer-term certificates of deposit, a decline in core deposit funding as a percentage of total funding and the credit card securitization. Partially offsetting these negative factors was average loan growth of $1.2 billion or 13.7%. For the first six months of 1995, average loans in the St. Louis Area, Kansas City Area and Community Banks grew by 7.9%, 16.7% and 18.8%, respectively. Exhibit 3 portrays loan volumes at June 30, 1995 and 1994 by category. Another meaningful analysis of loan growth trends is to compare the first and second quarters of 1995. Total average loans grew by $132,924,000, or 5.2% on an annualized basis. Including the securitized loans, growth was $321,924,000, or 13.2% on an annualized basis. Year-to-date average commercial loan growth was $193,088,000, up 8.5%, and was broad-based across the system. Commercial real estate and construction loans grew by $175,430,000 or 10.0% with the growth generally in the smaller markets served by Mercantile. Residential mortgage loans were up $504,104,000 or 18.3%, but that growth is now stabilizing in the current lower interest rate environment as the pipeline mix is changing from adjustable-rate loans, which are generally retained as earning assets, to fixed-rate loans, ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 3 LOANS AND LEASES ($ IN THOUSANDS)
JUNE 30 1995 1994 CHANGE ---- ---- ------ Commercial $ 2,663,157 $2,367,055 12.5% Real estate-commercial 1,624,877 1,541,781 5.4 Real estate-construction 327,690 256,491 27.8 Real estate-residential 3,354,918 2,839,325 18.2 Consumer 1,490,981 1,292,719 15.3 Credit card 628,501 728,371 (13.7) Foreign - 183 - ---------- ---------- Total Loans and Leases $10,090,124 $9,025,925 11.8 =========== ========== ------------------------------------------------------------------------------------------------------------------------------------
7 9 FINANCIAL COMMENTARY (cont'd) which are generally sold with servicing retained. Average credit card loans grew by 6.4%, due primarily to the volume generated by the SBC Communications Inc. co-branded card, partially offset by the impact of the securitization. The co-branded card should significantly add to loan growth in future periods. Excluding the securitization, average credit card loan volume was up $43,564,000 or 5.1% from the first quarter of 1995. Other consumer loans increased by $276,609,000 or 22.8% in the first six months of 1995 primarily due to strong growth in indirect auto lending in outstate Missouri production sites. The 7.1% decline in year-to-date average investments in debt and equity securities came largely through maturities in which the proceeds were used to fund loan growth. Short-term investments are primarily used for short-term excess liquidity or balancing the interest rate sensitivity of the Corporation, and on average decreased by $110,405,000 or 33.5% during the second quarter of 1995. Core deposits continued to contract and were replaced by more costly short-term borrowings and bank notes. Mercantile remained substantially core funded, at 91.68% of total average deposits and 76.46% of average earning assets for the first six months of 1995. Changes in average core deposits for the past six quarters are shown in the Consolidated Quarterly Average Balance Sheet on Pages 16 and 17 of this report. Average non-interest bearing deposits declined by $146,950,000 or 6.8% through the first six months of 1995. A reclassification of $100,000,000 to other time deposits and a decrease of $19,929,000 in cash and due from banks reduced the real loss of net non-interest bearing funds to $27,021,000. Higher interest rates and, thus, larger earnings credits for those balances to pay for services largely accounted for the decline in this important source of funds. The $623,657,000 or 67.5% increase in year-to-date average short-term borrowings and outstanding bank notes of $250,000,000 made up for the loss of core deposits and funded loan growth. All borrowings are in accordance with current liquidity guidelines. Average year-to-date shareholders' equity grew by $111,834,000 or 9.6%, due largely to net earnings retained, stock issued in the Wedge Bank transaction and in the conversion of the capital notes which matured in April 1995, and a continued favorable change in the FAS 115 adjustment. The factors discussed above are consistent with Mercantile's overall corporate policy relative to rate sensitivity and liquidity, which is to produce the optimal yield and maturity mix consistent with interest rate expectations and projected liquidity needs. The Consolidated Quarterly Average Balance Sheet, with rates earned and paid, is summarized by quarter on Pages 16 and 17. OTHER INCOME Non-interest income increased 13.0% during the second quarter of 1995 to $58,987,000, and for the first six months was $115,790,000 compared with $107,279,000 a year ago, an improvement of 7.9%. Credit card fees and miscellaneous income are the categories showing improvement from a year ago. 8 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 10 ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 4 OTHER INCOME ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1995 1994 CHANGE 1995 1994 CHANGE ---- ---- ------ ---- ---- ------ Trust $16,306 $16,166 .9% $ 31,704 $ 32,043 (1.1)% Service charges 16,710 17,318 (3.5) 33,210 34,352 (3.3) Credit card fees 8,756 5,851 49.6 15,332 11,709 30.9 Mortgage banking 2,342 2,637 (11.2) 4,420 6,284 (29.7) Investment banking and brokerage 1,970 2,316 (14.9) 3,386 4,715 (28.2) Letters of credit fees 1,326 1,507 (12.0) 2,844 3,028 (6.1) Foreclosed property income 40 488 (91.8) 120 1,846 (93.5) Securities gains 2,062 409 - 2,019 1,827 10.5 Other 9,475 5,493 72.5 22,755 11,475 98.3 ------- ------- -------- -------- Total Other Income $58,987 $52,185 13.0 $115,790 $107,279 7.9 ======= ======= ======== ======== -----------------------------------------------------------------------------------------------------------------------------------
Trust fees were $16,306,000 for the second quarter of 1995, up .9%. On a year-to-date basis, trust fees totaled $31,704,000, a decline of 1.1% from 1994. When compared with the first quarter of 1995, trust fees were up $908,000 or 5.9%. Strong stock and bond markets increased the value of assets under management-a key factor in fee calculations. Exhibit 5 further details comparative trust revenue by line of business for the second quarter and first six months of 1995 and 1994. ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 5 TRUST INCOME ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1995 1994 CHANGE 1995 1994 CHANGE ---- ---- ------ ---- ---- ------ Personal trust-St. Louis Area banks $ 5,699 $ 5,468 4.2% $10,736 $10,078 6.5% Mississippi Valley Advisors Inc. 3,219 3,202 .5 6,436 6,446 (.2) Corporate and institutional services 2,668 2,884 (7.5) 5,332 6,122 (12.9) Kansas City Area and Community Banks 4,720 4,612 2.3 9,200 9,397 (2.1) ------- ------- ------- ------- Total Trust Income $16,306 $16,166 .9 $31,704 $32,043 (1.1) ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------------
Second quarter service charge income of $16,710,000 was at the same level as the first quarter of 1995, yet was down 3.5% when compared with last year's second quarter, and decreased 3.3% for the first six months of 1995. Declining average deposit volumes, as well as corporate customers who opted to use compensating deposit balances to offset analysis service charges rather than pay fees accounted for the drop in service charges. 9 11 FINANCIAL COMMENTARY (cont'd) Credit card fee income was $8,756,000 for the second quarter of 1995, a 49.6% increase from the 1994 level. For the first six months of 1995, credit card income was $15,332,000 or 30.9% greater than the comparable 1994 period. Credit card income primarily represents fees charged merchants for processing credit card transactions, fees received on transactions of Mercantile cardholders, cardholders' annual fees and excess servicing as well as recurring servicing fees on the securitized credit card loans. The excess servicing fees and the recurring servicing fees on the securitized loans from the Mercantile Credit Card Master Trust, as well as growth in interchange revenue from significant usage of the SBC co-branded credit card, largely accounted for the increases. Investment banking and brokerage fees, which consists of transaction fees for services performed as a dealer bank for both individual and corporate customers, including sales of annuities and mutual funds, profits earned on limited trading positions and foreign exchange revenues, were $1,970,000 for the second quarter of 1995, a decrease of 14.9% from 1994. When compared with the first quarter of 1995, however, investment banking and brokerage grew by $554,000 or 39.1%. For the first six months, revenues were down $1,329,000 or 28.2% from the 1994 results. This source of revenue can vary depending on movements in interest rates and overall market conditions. Mortgage banking income decreased by $1,864,000 or 29.7% from the first half of 1994, when significant gains were recognized on the sales of loans. When compared with the first quarter of 1995, however, mortgage banking revenue grew by $264,000 or 12.7%. At June 30, 1995, servicing volume was $4.6 billion. A breakout of mortgage banking revenues is provided in Exhibit 6. During the second quarter of 1995, Mercantile adopted FAS 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65," and the financial impact was immaterial. ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 6 MORTGAGE BANKING INCOME ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1995 1994 CHANGE 1995 1994 CHANGE ---- ---- ------ ---- ---- ------ Servicing fees $1,768 $2,247 (21.3)% $3,575 $4,082 (12.4)% Gains (losses) on sales of loans 523 (150) - 692 1,282 (46.0) Other 51 540 (90.6) 153 920 (83.4) ------ ------ ------ ------ Total Mortgage Banking Income $2,342 $2,637 (11.2) $4,420 $6,284 (29.7) ====== ====== ====== ====== -----------------------------------------------------------------------------------------------------------------------------------
During the first quarter of 1995, the Corporation recorded a gain of $5,155,000 on the sale of its interest in a joint venture that provides ATM switching capabilities in the Midwest region. Excluding that gain, total non-interest income would be up 3.1% on a year-to- date basis. 10 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 12 OTHER EXPENSE Expenses other than interest expense and the provision for possible loan losses for the second quarter of 1995 were $118,166,000, a decline of .9% from last quarter and 1.6% from the second quarter of 1994. For the first half of 1995, total other expenses were $237,409,000, a 1.1% decrease from the 1994 level. Total operating expenses were 3.13% of average assets compared with 3.33% for the first half of 1994. The overhead ratio, defined as operating expenses as a percentage of taxable-equivalent net interest income and other income, improved to 56.71% in the current quarter from 58.86% last year, while the ratio was 56.33% for the first six months of 1995 compared with 58.86% last year. Salary expenses increased .1% during the first half of 1995, largely reflecting the costs of merit increases offset by a reduction in headcount of 297 or 4.3%. Benefit costs were up by 1.5%, in line with the modest growth in salaries. Occupancy and equipment costs were up .2% during the first six months of 1995, reflecting productivity gains and the closing of United Postal Savings Association overlapping offices during the third quarter of 1994, offset by the costs of maintaining other additional offices and a consistent program of upgrading systems and equipment to further enhance productivity. Exhibit 7 details the composition of all other operating expenses, which in general have declined due to greater expense controls and the benefits of acquisition consolidation efforts. ------------------------------------------------------------------------------------------------------------------------------------ EXHIBIT 7 OTHER EXPENSE ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1995 1994 CHANGE 1995 1994 CHANGE ---- ---- ------ ---- ---- ------ Salaries $ 50,847 $ 51,275 (.8)% $102,335 $102,239 .1% Employee benefits 12,397 12,465 (.5) 25,667 25,278 1.5 -------- -------- -------- -------- Total Personnel Expense 63,244 63,740 (.8) 128,002 127,517 .4 Net occupancy 7,738 7,753 (.2) 15,316 15,529 (1.4) Equipment 9,784 9,294 5.3 19,335 19,044 1.5 Advertising/business development 2,671 3,553 (24.8) 4,888 6,624 (26.2) Postage and freight 4,701 4,063 15.7 9,047 8,171 10.7 Office supplies 2,796 2,337 19.6 5,421 4,746 14.2 Communications 2,338 2,049 14.1 4,390 3,922 11.9 Legal and professional 2,008 2,920 (31.2) 4,101 5,657 (27.5) Credit card 2,253 2,875 (21.6) 4,460 5,118 (12.9) FDIC insurance 6,263 6,450 (2.9) 12,536 12,849 (2.4) Foreclosed property expense 67 380 (82.4) 565 822 (31.3) Intangible asset amortization 1,798 2,028 (11.3) 3,642 4,020 (9.4) Other 12,505 12,689 (1.5) 25,706 25,996 (1.1) -------- -------- -------- -------- Total Other Expense $118,166 $120,131 (1.6) $237,409 $240,015 (1.1) ======== ======== ======== ======== RATIOS Overhead ratio 56.71% 58.86% 56.33% 58.86% Other expense to average assets 3.10 3.33 3.13 3.33 -----------------------------------------------------------------------------------------------------------------------------------
11 13 FINANCIAL COMMENTARY (cont'd) RESERVE FOR POSSIBLE LOAN LOSSES The reserve for possible loan losses was $179,434,000 or 1.78% of loans outstanding at June 30, 1995. This compared with $194,515,000 or 2.01% at year's end and $190,251,000 or 2.11% at June 30, 1994. In conjunction with the securitization of credit card loans on May 17, 1995, $12,000,000 of the Corporation's loan loss reserve was transferred with the loans to the trust. The reserve for possible loan losses as a percentage of non-performing loans was 420.33% compared with 579.62% at year-end and 447.31% last year. The year-to-date 1995 provision for possible loan losses was $20,616,000 compared with $17,423,000 last year, an increase of 18.3%. The annualized ratio of net charge-offs to average loans for the first six months of 1995 was .52% compared with .27% last year, while the corresponding net charge-off figures were $25,743,000 and $12,008,000, respectively. Other than credit card losses and $2,900,000 in charge- offs realized on commercial real estate loans assumed in recent acquisitions, there were no charge-offs of significance in 1995. In 1994 significant recoveries were received on several commercial real estate loans, thereby lowering the net charge-off figures. Credit card losses were 5.23% of average credit card loans in the first six months of 1995 compared with 4.88% in 1994, as net credit card charge-offs were $20,556,000 compared with $18,016,000 last year. The securitization of ------------------------------------------------------------------------------------------------------------------------------------ EXHIBIT 8 RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1995 1994 1995 1994 ---- ---- ---- ---- BEGINNING BALANCE $195,683 $182,551 $194,515 $184,836 PROVISION 6,641 8,544 20,616 17,423 Charge-offs (14,725) (16,690) (33,327) (33,227) Recoveries 3,835 15,846 7,584 21,219 -------- -------- -------- -------- NET CHARGE-OFFS (10,890) (844) (25,743) (12,008) Acquired Reserves - - 2,046 - Transfer to Mercantile Credit Card Master Trust (12,000) - (12,000) - --------- ------- --------- ------- ENDING BALANCE $179,434 $190,251 $179,434 $190,251 ======== ======== ======== ======== LOANS AND LEASES June 30 balance $10,090,124 $9,025,925 $10,090,124 $9,025,925 =========== ========== =========== ========== Average balance $10,001,902 $8,829,130 $9,935,805 $8,738,988 =========== ========== ========== ========== RATIOS Reserve balance to outstanding loans 1.78% 2.11% 1.78% 2.11% Reserve balance to non-performing loans 420.33 447.31 420.33 447.31 Net charge-offs to average loans .44 .04 .52 .27 Earnings coverage of net charge-offs 7.97X 95.45x 6.88X 13.42x ------------------------------------------------------------------------------------------------------------------------------------
12 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 14 $400,000,000 of loans on May 17, 1995 will reduce the amount of credit card charge-offs reported by the Corporation in future periods. In 1995, the Mercantile Credit Card Master Trust will use the $12,000,000 reserve transferred from the Corporation to absorb net charge-offs. However, in future periods the losses will negatively impact the level of excess servicing fees reported in credit card income. Mercantile evaluates the reserves of all banks on a quarterly basis to ensure the timely charge-off of loans and to determine the adequacy of each bank's reserve for possible loan losses. At June 30, 1995, the level of the individual Community Bank reserves as a percentage of total loans outstanding ranged from 1.13% to 6.20% with a combined ratio of 1.85%. The coverage of non-performing loans was 424.63% on a combined basis. The St. Louis Area combined reserve was 1.62% of loans with a resulting coverage ratio of 348.17%, while the Kansas City Area banks combined reserve was 2.08% of loans. Management believes the consolidated reserve of 1.78% of total loans and 420.33% of non- performing loans as of June 30, 1995 was adequate based on the risks identified at such date in the portfolios. ------------------------------------------------------------------------------------------------------------------------------------ EXHIBIT 9 NON-PERFORMING ASSETS ($ IN THOUSANDS)
JUNE 30 DEC. 31 JUNE 30 1995 1994 1994 ------- ------- ------- NON-ACCRUAL LOANS Commercial $15,179 $ 4,752 $ 7,279 Real estate-commercial 13,790 13,182 14,357 Real estate-construction 389 129 977 Real estate-residential 7,694 7,491 8,124 Consumer 3,013 2,133 1,702 ------- ------- ------- Total Non-accrual Loans 40,065 27,687 32,439 RENEGOTIATED LOANS 2,624 5,872 10,093 ------- ------- ------- TOTAL NON-PERFORMING LOANS $42,689 $33,559 $42,532 ======= ======= ======= FORECLOSED ASSETS Foreclosed real estate $12,243 $ 9,161 $30,148 In-substance foreclosures - 2,683 2,613 Other foreclosed assets 2,280 2,313 1,011 ------- ------- ------- TOTAL FORECLOSED ASSETS $14,523 $14,157 $33,772 ======= ======= ======= TOTAL NON-PERFORMING ASSETS $57,212 $47,716 $76,304 ======= ======= ======= PAST-DUE LOANS (90 DAYS OR MORE) $17,563 $21,814 $19,419 ======= ======= ======= RATIOS Non-performing loans to outstanding loans .42% .35% .47% Non-performing assets to outstanding loans and foreclosed assets .57 .49 .84 Non-performing assets to total assets .37 .32 .53 -----------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS Non-performing loans (non-accrual and renegotiated loans) were $42,689,000 or .42% of total loans outstanding at June 30, 1995 compared with $35,825,000 or .36% at March 31, 1995 and $33,559,000 or .35% at December 31, 1994. Foreclosed assets at June 30, 1995 were $14,523,000 compared with $13,425,000 at March 31, 1995 and $14,157,000 at December 31, 1994. The ratio of non-performing assets to outstanding loans and foreclosed assets was .57% at June 30, 1995 compared with .49% at both March 31, 1995 and December 31, 1994. Non-accrual loans increased by $7,679,000 from the March 31, 1995 level. The increase was primarily due to the classification of a $7,000,000 commercial credit at Mercantile Bank of St. Louis N.A. to non-accrual status during the second quarter of 1995. All loans classified as renegotiated were paying in accordance with their modified terms at June 30, 1995. Loans past due 90 days and still accruing interest were down from the March 31, 1995 level, primarily due to the securitization of credit card loans during the second quarter. 13 15 FINANCIAL COMMENTARY (cont'd) CAPITAL RESOURCES Mercantile maintains a strong capital base, which provides a solid foundation for anticipated future asset growth, and promotes depositor and investor confidence. Capital management is a continuous process at Mercantile and ensures that capital is provided for current needs and anticipated growth. Mercantile's strong capital position has enabled it to profitably expand both its asset and deposit bases, while maintaining capital ratios stronger than those of other quality banking organizations, and well in excess of regulatory standards. At June 30, 1995, shareholders' equity was $1.3 billion, an increase of 10.0% from June 30, 1994. Net earnings retained, the conversion of capital notes to equity, a favorable change in the FAS 115 adjustment, and stock issued in the Wedge Bank transaction and under various employee benefit plans accounted for the majority of the increase. In conjunction with the TCB transaction, the Corporation issued $12,153,000 of preferred stock to the preferred shareholder of TCB with the same terms and conditions that existed prior to the merger. Equity represented 8.57% of assets at June 30, 1995 compared with 8.31% a year ago. Significant capital ratios and intangible assets are summarized in Exhibit 10, while Exhibit 2 details the equity capital ratios of the St. Louis Area, Kansas City Area and Community Banks in aggregate. ------------------------------------------------------------------------------------------------------------------------------------ EXHIBIT 10 RISK-BASED CAPITAL ($ IN THOUSANDS)
JUNE 30 DEC. 31 JUNE 30 1995 1994 1994 ------- ------- ------- Capital Tier I $ 1,247,715 $ 1,173,137 $1,117,652 Total 1,603,745 1,525,335 1,464,014 Risk-adjusted assets 10,363,992 10,032,372 9,557,248 Tier I capital to risk-adjusted assets 12.04% 11.69% 11.69% Total capital to risk-adjusted assets 15.47 15.20 15.32 Leverage 8.22 8.02 7.80 Double leverage 108.37 107.54 107.84 Long-term debt to total capitalization 17.60 19.48 20.27 Intangible assets $70,032 $76,172 $82,794 -----------------------------------------------------------------------------------------------------------------------------------
During the first six months of 1995, Mercantile repurchased 736,100 shares of its common stock via a designated broker dealer at an average cost of $36.25 per share. The majority of treasury shares outstanding were reissued in the Plains Spirit acquisition on July 7, 1995; the remaining treasury shares are reserved for issuance in conjunction with the 1994 Stock Incentive Plan. On May 11, 1995, the Board of Directors declared a cash dividend of $.33 per common share, which was paid July 3, 1995, representing a 33.33% payout of second-quarter 1995 earnings. Book value per common share was $24.55 at June 30, 1995 compared with $22.67 a year earlier, an increase of 8.3%. Further information relating to dividends, as well as to quarterly stock prices, is included in the Investor Information summary on Page 24 of this report. 14 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 16 CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME (THOUSANDS EXCEPT PER SHARE DATA)
1994 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. -------- -------- -------- -------- -------- -------- INTEREST INCOME Interest and fees on loans and leases $175,223 $182,359 $193,848 $206,141 $220,430 $223,505 Investments in debt and equity securities 56,971 57,645 56,008 55,464 56,205 56,176 Short-term investments 3,912 2,430 1,874 3,021 3,154 3,167 -------- -------- -------- -------- -------- -------- Total Interest Income 236,106 242,434 251,730 264,626 279,789 282,848 Tax-equivalent adjustment 3,288 3,402 3,345 3,361 3,594 3,420 -------- -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 239,394 245,836 255,075 267,987 283,383 286,268 INTEREST EXPENSE Deposits 78,157 79,032 81,382 86,536 96,226 105,917 Borrowed funds 12,634 14,893 18,841 27,874 30,820 30,984 -------- -------- -------- -------- -------- -------- Total Interest Expense 90,791 93,925 100,223 114,410 127,046 136,901 -------- -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT NET INTEREST INCOME 148,603 151,911 154,852 153,577 156,337 149,367 PROVISION FOR POSSIBLE LOAN LOSSES 8,879 8,544 8,951 16,827 13,975 6,641 OTHER INCOME Trust 15,877 16,166 14,517 14,209 15,398 16,306 Service charges 17,034 17,318 17,737 16,694 16,500 16,710 Credit card fees 5,858 5,851 6,378 6,808 6,576 8,756 Mortgage banking 3,647 2,637 2,297 2,336 2,078 2,342 Investment banking and brokerage 2,399 2,316 1,882 1,704 1,416 1,970 Securities gains (losses) 1,418 409 341 9 (43) 2,062 Other 8,861 7,488 8,994 8,573 14,878 10,841 -------- -------- -------- -------- -------- -------- Total Other Income 55,094 52,185 52,146 50,333 56,803 58,987 OTHER EXPENSE Salaries and benefits 63,777 63,740 63,284 67,745 64,758 63,244 Net occupancy and equipment 17,526 17,047 17,264 17,947 17,129 17,522 Other 38,581 39,344 39,577 46,238 37,356 37,400 -------- -------- -------- -------- -------- -------- Total Other Expense 119,884 120,131 120,125 131,930 119,243 118,166 -------- -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 74,934 75,421 77,922 55,153 79,922 83,547 INCOME TAXES Income taxes 26,051 25,565 26,417 23,672 26,625 27,768 Tax-equivalent adjustment 3,288 3,402 3,345 3,361 3,594 3,420 -------- -------- -------- -------- -------- -------- Adjusted Income Taxes 29,339 28,967 29,762 27,033 30,219 31,188 -------- -------- -------- -------- -------- -------- NET INCOME $ 45,595 $ 46,454 $ 48,160 $ 28,120 $ 49,703 $ 52,359 ======== ======== ======== ======== ======== ======== NET INCOME PER COMMON SHARE $.88 $.89 $.92 $.53 $.93 $.99 SIGNIFICANT RATIOS Return on assets 1.26% 1.29% 1.32% .76% 1.32% 1.37% Return on equity 15.81 15.73 15.87 9.09 15.71 16.19
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 15 17 CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET ($ IN THOUSANDS)
1994 1ST QTR. 2ND QTR. 3RD QTR. ------------------ ------------------- ------------------ VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 2,229,957 6.52% $ 2,316,374 7.04% $ 2,320,860 7.58% Real estate-commercial 1,519,927 7.73 1,540,688 8.13 1,549,421 8.33 Real estate-construction 215,113 6.91 238,358 7.42 265,607 7.97 Real estate-residential 2,755,696 7.46 2,759,102 7.47 2,904,565 7.62 Consumer 1,181,026 8.14 1,244,165 8.24 1,363,704 8.21 Credit card 745,830 16.64 730,259 16.10 743,515 15.98 Foreign 289 5.54 184 6.52 336 7.14 ----------- ----------- ----------- Total Loans and Leases 8,647,838 8.14 8,829,130 8.29 9,148,008 8.51 Investments in debt and equity securities Trading 10,516 5.44 6,028 6.57 12,736 4.24 Taxable 3,738,603 5.53 3,780,115 5.50 3,659,536 5.52 Tax-exempt 383,942 8.12 392,067 8.40 391,719 8.22 ----------- ----------- ----------- Total 4,133,061 5.77 4,178,210 5.78 4,063,991 5.77 Short-term investments 458,448 3.41 201,186 4.83 187,389 4.00 ----------- ----------- ----------- Total Earning Assets 13,239,347 7.23 13,208,526 7.44 13,399,388 7.61 Non-earning Assets 1,215,388 1,205,237 1,155,175 ----------- ----------- ----------- Total Assets $14,454,735 $14,413,763 $14,554,563 =========== =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,212,411 $ 2,097,064 $ 2,066,474 Interest bearing demand 1,991,760 1.82 1,986,560 1.84 1,948,431 1.86 Money market accounts 1,795,869 2.79 1,798,281 2.97 1,777,751 3.13 Savings 1,015,114 2.33 1,036,466 2.33 1,017,426 2.36 Consumer time certificates under $100,000 4,096,735 4.26 4,030,312 4.24 3,965,616 4.36 Other time 39,538 2.81 39,274 3.35 39,922 3.29 ----------- ----------- ----------- Total Core Deposits 11,151,427 3.20 10,987,957 3.22 10,815,620 3.32 Time certificates $100,000 and over 695,565 3.61 687,141 3.85 667,744 4.31 Foreign 41,399 4.52 80,465 4.14 136,111 4.81 ----------- ----------- ----------- Total Purchased Deposits 736,964 3.66 767,606 3.88 803,855 4.40 ----------- ----------- ----------- Total Deposits 11,888,391 3.23 11,755,563 3.27 11,619,475 3.41 Short-term borrowings 895,437 2.99 951,617 3.86 1,217,980 4.32 Bank notes - - - - - - Long-term debt 313,250 7.58 305,812 7.47 301,650 7.56 ----------- ----------- ----------- Total Acquired Funds 13,097,078 3.34 13,012,992 3.44 13,139,105 3.62 Other liabilities 203,948 219,325 201,898 SHAREHOLDERS' EQUITY 1,153,709 1,181,446 1,213,560 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $14,454,735 $14,413,763 $14,554,563 =========== =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.89% 4.00% 3.99% Net interest rate margin 4.49 4.60 4.62 Taxable-equivalent basis.
16 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 18
1995 4TH QTR. 1ST QTR. 2ND QTR. -------------------- ------------------- ------------------- VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 2,347,324 8.12% $ 2,385,772 8.54% $ 2,546,320 8.71% Real estate-commercial 1,570,255 8.79 1,614,612 8.81 1,621,916 9.15 Real estate-construction 292,584 8.27 303,620 8.62 324,885 8.73 Real estate-residential 3,031,618 7.76 3,213,334 7.84 3,309,161 7.96 Consumer 1,452,334 8.17 1,492,632 8.11 1,486,180 8.49 Credit card 785,721 15.37 858,686 16.25 713,250 15.32 Foreign 387 7.24 322 8.70 190 8.42 ----------- ----------- ----------- Total Loans and Leases 9,480,223 8.73 9,868,978 8.97 10,001,902 8.97 Investments in debt and equity securities Trading 14,443 5.10 12,375 5.27 6,907 6.25 Taxable 3,528,652 5.66 3,474,489 5.80 3,445,068 5.90 Tax-exempt 385,729 8.20 399,629 8.47 387,326 8.11 ----------- ----------- ----------- Total 3,928,824 5.91 3,886,493 6.07 3,839,301 6.12 Short-term investments 224,792 5.38 220,163 5.73 217,256 5.83 ----------- ----------- ----------- Total Earning Assets 13,633,839 7.86 13,975,634 8.11 14,058,459 8.15 Non-earning Assets 1,076,454 1,112,335 1,195,634 ----------- ----------- ----------- Total Assets $14,710,293 $15,087,969 $15,254,093 =========== =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 1,815,288 $ 1,924,778 $ 2,089,244 Interest bearing demand 1,915,387 1.98 1,914,165 2.10 1,824,665 2.25 Money market accounts 1,679,736 3.32 1,591,716 3.73 1,570,447 3.96 Savings 971,211 2.41 959,793 2.42 931,215 2.39 Consumer time certificates under $100,000 3,988,880 4.62 4,112,714 4.94 4,240,201 5.42 Other time 40,553 3.58 135,037 5.51 139,721 5.69 ----------- ----------- ----------- Total Core Deposits 10,411,055 3.52 10,638,203 3.83 10,795,493 4.17 Time certificates $100,000 and over 696,118 4.83 728,465 5.33 802,981 5.85 Foreign 176,189 5.59 206,123 6.20 207,590 6.38 ----------- ----------- ----------- Total Purchased Deposits 872,307 4.98 934,588 5.52 1,010,571 5.96 ----------- ----------- ----------- Total Deposits 11,283,362 3.66 11,572,791 3.99 11,806,064 4.36 Short-term borrowings 1,656,950 5.17 1,654,108 5.70 1,441,738 5.92 Bank notes 50,000 6.24 106,667 6.26 250,000 6.54 Long-term debt 299,546 7.58 296,456 7.53 287,926 7.71 ----------- ----------- ----------- Total Acquired Funds 13,289,858 3.99 13,630,022 4.34 13,785,728 4.68 Other liabilities 183,386 192,743 174,738 SHAREHOLDERS' EQUITY 1,237,049 1,265,204 1,293,627 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $14,710,293 $15,087,969 $15,254,093 =========== =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.87% 3.77% 3.47% Net interest rate margin 4.51 4.47 4.25 Taxable-equivalent basis. 1994 1995 SIX MONTHS SIX MONTHS -------------------- ------------------- VOLUME RATE VOLUME RATE ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 2,273,406 6.78% $ 2,466,494 8.63% Real estate-commercial 1,530,368 7.93 1,618,283 8.98 Real estate-construction 226,802 7.17 314,317 8.68 Real estate-residential 2,757,404 7.47 3,261,508 7.90 Consumer 1,212,771 8.19 1,489,380 8.30 Credit card 738,001 16.37 785,567 15.83 Foreign 236 5.93 256 8.59 ----------- ----------- Total Loans and Leases 8,738,988 8.21 9,935,805 8.97 Investments in debt and equity securities Trading 8,260 5.86 9,626 5.63 Taxable 3,759,472 5.52 3,459,697 5.85 Tax-exempt 388,023 8.26 393,444 8.29 ----------- ----------- Total 4,155,755 5.77 3,862,767 6.10 Short-term investments 329,109 3.85 218,704 5.78 ----------- ----------- Total Earning Assets 13,223,852 7.34 14,017,276 8.13 Non-earning Assets 1,210,282 1,154,212 ----------- ----------- Total Assets $14,434,134 $15,171,488 =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,154,416 $ 2,007,466 Interest bearing demand 1,989,147 1.83 1,869,168 2.18 Money market accounts 1,797,082 2.88 1,581,021 3.85 Savings 1,025,852 2.33 945,422 2.41 Consumer time certificates under $100,000 4,063,337 4.25 4,176,811 5.18 Other time 39,407 3.08 137,391 5.60 ----------- ----------- Total Core Deposits 11,069,241 3.21 10,717,279 4.00 Time certificates $100,000 and over 691,332 3.73 765,929 5.60 Foreign 61,040 4.26 206,861 6.29 ----------- ----------- Total Purchased Deposits 752,372 3.77 972,790 5.75 ----------- ----------- Total Deposits 11,821,613 3.25 11,690,069 4.18 Short-term borrowings 923,679 3.44 1,547,336 5.80 Bank notes - - 178,729 6.44 Long-term debt 309,510 7.53 291,495 7.64 ----------- ----------- Total Acquired Funds 13,054,802 3.39 13,707,629 4.51 Other liabilities 211,673 184,366 SHAREHOLDERS' EQUITY 1,167,659 1,279,493 ----------- ----------- Total Liabilities and Shareholders' Equity $14,434,134 $15,171,488 =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.95% 3.62% Net interest rate margin 4.55 4.36 Taxable-equivalent basis.
17 19 CONSOLIDATED STATEMENT OF INCOME (THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1995 1994 1995 1994 ---- ---- ---- ---- INTEREST INCOME Interest and fees on loans and leases $223,505 $182,359 $443,935 $357,582 Investments in debt and equity securities Trading 108 92 271 218 Taxable 50,745 52,002 101,096 103,562 Tax-exempt 5,323 5,551 11,014 10,836 -------- -------- -------- -------- Total 56,176 57,645 112,381 114,616 Due from banks-interest bearing 214 1,179 556 2,496 Federal funds sold and repurchase agreements 2,953 1,251 5,765 3,846 -------- -------- -------- -------- Total Interest Income 282,848 242,434 562,637 478,540 INTEREST EXPENSE Interest bearing deposits 102,607 78,200 195,637 155,889 Foreign deposits 3,310 832 6,506 1,300 Short-term borrowings 21,346 9,183 44,906 15,880 Bank notes 4,087 - 5,757 - Long-term debt 5,551 5,710 11,141 11,647 -------- -------- -------- -------- Total Interest Expense 136,901 93,925 263,947 184,716 -------- -------- -------- -------- NET INTEREST INCOME 145,947 148,509 298,690 293,824 PROVISION FOR POSSIBLE LOAN LOSSES 6,641 8,544 20,616 17,423 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 139,306 139,965 278,074 276,401 OTHER INCOME Trust 16,306 16,166 31,704 32,043 Service charges 16,710 17,318 33,210 34,352 Credit card fees 8,756 5,851 15,332 11,709 Mortgage banking 2,342 2,637 4,420 6,284 Investment banking and brokerage 1,970 2,316 3,386 4,715 Securities gains 2,062 409 2,019 1,827 Other 10,841 7,488 25,719 16,349 -------- -------- -------- -------- Total Other Income 58,987 52,185 115,790 107,279 OTHER EXPENSE Salaries 50,847 51,275 102,335 102,239 Employee benefits 12,397 12,465 25,667 25,278 Net occupancy 7,738 7,753 15,316 15,529 Equipment 9,784 9,294 19,335 19,044 Other 37,400 39,344 74,756 77,925 -------- -------- -------- -------- Total Other Expense 118,166 120,131 237,409 240,015 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 80,127 72,019 156,455 143,665 INCOME TAXES 27,768 25,565 54,393 51,616 -------- -------- -------- -------- NET INCOME $ 52,359 $ 46,454 $102,062 $ 92,049 ======== ======== ======== ======== PER COMMON SHARE DATA Average shares outstanding 52,795,393 51,902,973 52,857,341 51,813,761 Net income $.99 $.89 $1.92 $1.76 Dividends declared .33 .28 .66 .56 Earnings per common share calculated by dividing net income, after deducting dividends on preferred stock, by weighted average common shares outstanding.
18 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 20 CONSOLIDATED BALANCE SHEET (THOUSANDS)
JUNE 30 DECEMBER 31 JUNE 30 1995 1994 1994 ------- ----------- ------- ASSETS Cash and due from banks $ 690,831 $ 770,710 $ 627,616 Due from banks-interest bearing 2,128 29,166 32,525 Federal funds sold and repurchase agreements 355,830 128,264 125,456 Investments in debt and equity securities Trading 5,123 14,299 6,020 Available-for-sale 438,741 416,059 712,437 Held-to-maturity (Estimated fair value of $3,343,498, $3,301,207 and $3,362,937, respectively) 3,322,486 3,413,142 3,399,957 ----------- ----------- ----------- Total 3,766,350 3,843,500 4,118,414 Loans held-for-sale 38,721 21,383 48,621 Loans and leases, net of unearned income 10,051,403 9,648,595 8,977,304 ----------- ----------- ----------- Total Loans and Leases 10,090,124 9,669,978 9,025,925 Reserve for possible loan losses (179,434) (194,515) (190,251) ----------- ----------- ----------- Net Loans and Leases 9,910,690 9,475,463 8,835,674 Bank premises and equipment 259,434 248,318 248,426 Due from customers on acceptances 2,711 6,609 12,174 Other assets 308,319 304,314 332,773 ----------- ----------- ----------- Total Assets $15,296,293 $14,806,344 $14,333,058 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 1,714,799 $ 1,763,439 $ 1,684,167 Interest bearing 9,435,021 9,206,676 9,391,038 Foreign 192,715 219,135 115,576 ----------- ----------- ----------- Total Deposits 11,342,535 11,189,250 11,190,781 Federal funds purchased and repurchase agreements 1,339,260 1,495,540 768,214 Other short-term borrowings 583,053 315,425 675,759 Bank notes 250,000 100,000 - Long-term debt 279,958 298,664 302,778 Bank acceptances outstanding 2,711 6,609 12,174 Other liabilities 188,319 166,520 192,245 ----------- ----------- ----------- Total Liabilities 13,985,836 13,572,008 13,141,951 Commitments and contingent liabilities - - - JUNE 30 DEC. 31 JUNE 30 1995 1994 1994 ------- ------- ------- SHAREHOLDERS' EQUITY Preferred stock-no par value Shares authorized 5,000 5,000 5,000 Shares issued 15 15 15 12,153 12,153 12,153 Common stock-$5.00 par value Shares authorized 100,000 100,000 100,000 Shares issued 53,703 52,167 52,012 268,515 260,836 260,064 Capital surplus 178,906 166,878 164,937 Retained earnings 880,450 797,423 753,953 Treasury stock, at cost 828 94 - (29,567) (2,954) - ----------- ----------- ---------- Total Shareholders' Equity 1,310,457 1,234,336 1,191,107 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $15,296,293 $14,806,344 $14,333,058 =========== =========== ===========
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 19 21 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK --------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ----------- ------- --------- ------- -------- -------- ------------- BALANCE AT DECEMBER 31, 1993, AS RESTATED 51,666,199 $258,332 $12,153 $161,188 $700,996 $ - $1,132,669 Net income 92,049 92,049 Common dividends declared Mercantile Bancorporation Inc.-$.56 per share (24,107) (24,107) Pooled companies prior to acquisition (1,457) (1,457) Preferred dividends declared (600) (600) Issuance of common stock Employee incentive plans 202,399 1,012 912 1,924 Convertible notes 132,312 662 2,771 3,433 Net fair value adjustment for available-for- sale securities (12,974) (12,974) Pre-merger transactions of pooled companies and other 11,450 58 66 46 170 ---------- -------- ------- -------- -------- -------- ---------- BALANCE AT JUNE 30, 1994 52,012,360 $260,064 $12,153 $164,937 $753,953 $ - $1,191,107 ========== ======== ======= ======== ======== ======= ========== BALANCE AT DECEMBER 31, 1994, AS REPORTED 43,207,524 $216,506 $ - $170,083 $684,615 $(2,954) $1,068,250 Adjustment to reflect pooling-of-interests 8,865,829 44,330 12,153 (3,205) 112,808 - 166,086 ---------- -------- ------- --------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1994, AS RESTATED 52,073,353 260,836 12,153 166,878 797,423 (2,954) 1,234,336 Net income 102,062 102,062 Common dividends declared Mercantile Bancorporation Inc.-$.66 per share (31,998) (31,998) Pooled companies prior to acquisition (3,715) (3,715) Preferred dividends declared (510) (510) Issuance of common stock Acquisition of Wedge Bank 969,954 4,850 1,649 7,314 13,813 Employee incentive plans 236,860 1,174 2,979 67 4,220 Convertible notes 331,075 1,655 6,935 8,590 Net fair value adjustment for available-for- sale securities 9,874 9,874 Purchase of treasury stock (736,100) (26,680) (26,680) Pre-merger transactions of pooled companies 465 465 ---------- -------- ------- -------- -------- -------- ---------- BALANCE AT JUNE 30, 1995 52,875,142 $268,515 $12,153 $178,906 $880,450 $(29,567) $1,310,457 ========== ======== ======= ======== ======== ======== ==========
20 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 22 CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
SIX MONTHS ENDED JUNE 30 1995 1994 ---- ---- OPERATING ACTIVITIES Net income $ 102,062 $ 92,049 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 20,616 17,423 Depreciation and amortization 16,843 16,848 Provision for deferred income taxes 1,947 (1,940) Net change in loans held-for-sale (17,338) 92,847 Net change in accrued interest receivable 974 (752) Net change in accrued interest payable 16,413 (7,294) Other, net 4,570 9,124 ---------- ---------- Net Cash Provided by Operating Activities 146,087 218,305 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (463,071) (808,920) Proceeds from maturities 606,070 740,423 Proceeds from sales of: Available-for-sale securities 14,011 16,381 Securities from acquired entities - 79,388 Net change in loans and leases (727,557) (581,119) Purchases of loans and leases (93,521) (20,063) Proceeds from sales of loans and leases 489,762 152,209 Purchases of premises and equipment (27,730) (22,312) Proceeds from sales of premises and equipment 2,204 1,532 Proceeds from sales of foreclosed property 8,623 12,834 Cash and cash equivalents from acquisitions, net of cash paid 7,968 - Other, net (4,417) 20,291 ---------- ---------- Net Cash Used by Investing Activities (187,658) (409,356) FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts (363,404) (288,541) Net change in time certificates of deposit under $100,000 203,803 (182,923) Net change in time certificates of deposit $100,000 and over 85,088 (27,614) Net change in other time deposits 101,353 5,655 Net change in foreign deposits (26,420) 89,491 Sale of branch deposits, net of premium received - (3,796) Net change in short-term borrowings 82,796 241,580 Issuance of bank notes 150,000 - Issuance of long-term debt 2,996 75,000 Principal payments on long-term debt (13,036) (56,617) Cash dividends paid (36,223) (26,164) Proceeds from issuance of common stock 1,482 1,924 Purchase of treasury stock (26,680) - Other, net 465 4 ---------- ---------- Net Cash Provided (Used) by Financing Activities 162,220 (172,001) ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 120,649 (363,052) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 928,140 1,148,649 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,048,789 $ 785,597 ========== ==========
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES 21 23 BANKS AND OTHER SUBSIDIARIES
TOTAL ASSETS JUNE 30, 1995 BANK MAIN OFFICE (THOUSANDS) ---- ----------- ------------- Mercantile Bank of St. Louis N.A. St. Louis, MO $6,696,782 Twin City Bank North Little Rock, AR 1,030,097 Mercantile Bank of Kansas City Kansas City, MO 788,401 Mercantile Bank of Kansas Overland Park, KS 596,161 Mercantile Bank of Illinois Alton, IL 507,602 Citizens-Jackson County Bank Blue Springs, MO 503,646 Mercantile Bank of Springfield Springfield, MO 442,017 Mercantile Bank of Joplin Joplin, MO 391,133 Mercantile Bank of Illinois N.A. Hartford, IL 349,124 Mercantile Bank of Northern Iowa Waterloo, IA 348,221 Mercantile Bank of St. Joseph St. Joseph, MO 320,432 Mercantile Bank of Lawrence Lawrence, KS 222,983 Mercantile Bank of Jefferson County High Ridge, MO 218,557 Mercantile Bank of Topeka Topeka, KS 207,076 Mercantile Bank of Cape Girardeau Cape Girardeau, MO 171,291 Mercantile Bank of Lake of the Ozarks Eldon, MO 169,387 Mercantile Bank of Franklin County Washington, MO 163,581 Mercantile Bank of North Central Missouri Macon, MO 159,985 Mercantile Bank of the Mineral Area Farmington, MO 159,366 Mercantile Bank of West Central Missouri Sedalia, MO 149,648 Mercantile Bank of Lebanon Lebanon, MO 136,079 First National Bank of Crawford County Van Buren, AR 134,636 Mercantile Bank of Phelps County Rolla, MO 104,456 Mercantile Bank of Poplar Bluff Poplar Bluff, MO 102,951 Mercantile Bank of Mt. Vernon Mt. Vernon, IL 101,677 Mercantile Bank of Missouri Valley Richmond, MO 94,863 TOTAL ASSETS JUNE 30, 1995 BANK MAIN OFFICE (THOUSANDS) ---- ----------- ------------- Mercantile Bank of Western Missouri Lamar, MO $93,689 Mercantile Bank of Centralia Centralia, IL 92,604 Mercantile Bank of Monett Monett, MO 91,898 First National Bank of Conway County Morrilton, AR 88,002 Mercantile Bank of Boone County Columbia, MO 86,125 Mercantile Bank of Trenton Trenton, MO 74,431 Mercantile Bank of Stoddard/Bollinger Counties Dexter, MO 74,048 Mercantile Bank of Perryville Perryville, MO 71,470 First National Bank of Cleburne County Heber Springs, AR 67,460 Mercantile Bank of Flora Flora, IL 67,296 Mercantile Bank of Pike County Bowling Green, MO 59,219 Mercantile Bank of East Central Missouri Montgomery City, MO 54,960 First Ozark National Bank Flippin, AR 54,211 Mercantile Bank of Memphis Memphis, MO 52,023 Mercantile Bank of Doniphan Doniphan, MO 50,826 Mercantile Bank of Ste. Genevieve Ste. Genevieve, MO 48,999 TCB The Community Bank of Arkansas Batesville, AR 44,154 Mercantile Bank of Northwest Missouri Maryville, MO 40,861 Mercantile Bank of Willow Springs Willow Springs, MO 39,217 Mercantile Bank of Sikeston Sikeston, MO 38,841 Mercantile Bank of Carlyle Carlyle, IL 38,479 Mercantile Bank of Wright County Hartville, MO 38,232 Mercantile Bank of Plattsburg Plattsburg, MO 36,766 Farmers Bank of Stover Stover, MO 25,283 Mercantile Trust Company N.A. St. Louis, MO 9,869
------------------------------------------------------------------------ ASSET-BASED LENDING Mercantile Business Credit, Inc. 10 S. Brentwood Clayton, MO 63105-1694 BROKERAGE SERVICES Mercantile Investment Services, Inc. Mercantile Tower St. Louis, MO 63101-1643 CREDIT LIFE INSURANCE Mississippi Valley Life Insurance Co. Mercantile Tower St. Louis, MO 63101-1643 INSURANCE AGENCY Mercantile Insurance Services, Inc. Mercantile Tower St. Louis, MO 63101-1643 INVESTMENT MANAGEMENT Mississippi Valley Advisors Inc. Mercantile Tower St. Louis, MO 63101-1643 OFF-SHORE BRANCH Mercantile Bank of St. Louis N.A. Cayman Branch Grand Cayman, B.W.I. RECENTLY COMPLETED ACQUISITIONS Plains Spirit Financial Corporation Davenport, IA Southwest Bancshares, Inc. Springfield, MO AmeriFirst Bancorporation, Inc. Sikeston, MO PENDING AFFILIATIONS Hawkeye Bancorporation Des Moines, IA Security Bank of Conway, F.S.B. Conway, AR First Sterling Bancorp, Inc. Sterling, IL 22 MERCANTILE BANCORPORATION INC. 24 DIRECTORS AND EXECUTIVE OFFICERS DIRECTORS RICHARD P. CONERLY, Retired Chairman Orion Capital Inc. HARRY M. CORNELL, JR., Chairman and Chief Executive Officer Leggett & Platt, Inc. EARL K. DILLE,, Retired President Union Electric Company J. CLIFF EASON President and Chief Executive Officer Southwestern Bell Services BERNARD A. EDISON, Director Emeritus Edison Brothers Stores, Inc. WILLIAM A. HALL Assistant to the Chairman Hallmark Cards, Inc. THOMAS A. HAYS,, Deputy Chairman The May Department Stores Company WILLIAM G. HECKMAN, Chairman Emeritus Arch Mineral Corporation THOMAS H. JACOBSEN, Chairman and Chief Executive Officer Mercantile Bancorporation Inc. CHARLES H. PRICE II Chairman Mercantile Bank of Kansas City HARVEY SALIGMAN Managing Partner Cynwyd Investments CRAIG D. SCHNUCK Chairman and Chief Executive Officer Schnuck Markets, Inc. ROBERT L. STARK Dean University of Kansas Regents Center PATRICK T. STOKES President Anheuser-Busch, Inc. FRANCIS A. STROBLE Retired Chief Financial Officer Monsanto Company JOHN A. WRIGHT President and Chief Executive Officer Big River Minerals Corp. [FN] Member of Audit Committee Member of Compensation and Management Development Committee Member of Executive Committee Member of Nominating and Board Affairs Committee Member of Community Relations Committee Member of Credit Policy Committee ------------------------------------------------------------------------ EXECUTIVE OFFICERS THOMAS H. JACOBSEN Chairman and Chief Executive Officer W. RANDOLPH ADAMS Chairman and Chief Executive Officer Mercantile Bank of St. Louis N.A. JOHN Q. ARNOLD Senior Executive Vice President and Chief Financial Officer JOHN H. BEIRISE Group President- Emerging Markets RICHARD H. GOLDBERG Chief Information Officer MICHAEL J. GORMAN Chairman of the Executive Committee and Chief Retail Banking Strategist Mercantile Bank of St. Louis N.A. RICHARD C. KING President and Chief Executive Officer Mercantile Bank of Kansas City JOHN W. MCCLURE Group President- Community Banking JON P. PIERCE Executive Vice President Human Resources JON W. BILSTROM General Counsel and Secretary PATRICK STRICKLER Executive Vice President Public Affairs ARTHUR G. HEISE Senior Vice President and Auditor MICHAEL T. NORMILE Senior Vice President Finance and Control KENNETH E. SCHUTTE Senior Vice President and Treasurer MERCANTILE BANCORPORATION INC. 23 25 INVESTOR INFORMATION NEW YORK STOCK EXCHANGE: MTL SELECTED DATA
JUNE 30 1995 1994 ---- ---- Market Price $44 7/8 $35 1/8 Yield 2.94% 3.19% Price Earnings Ratio 12.29x 11.67x Book Value per Common Share $24.55 $22.67 Common Shares Outstanding Average 52,857,341 51,813,761 Period-end 52,875,142 52,012,360 Shareholders of Record 14,458 14,770 Average Daily Volume 82,574 54,342
------------------------------------------------------------------------ COMMON STOCK INFORMATION
MARKET PRICE AVERAGE ----------------------------------- DAILY DIVIDEND HIGH LOW CLOSE VOLUME DECLARED ---- --- ----- ------ -------- 1995 1ST QUARTER $37 1/4 $31 1/4 $36 1/2 55,337 $.33 2ND QUARTER 44 7/8 36 44 7/8 109,811 .33 1994 1st Quarter $34 1/8 $29 7/8 $31 7/8 62,279 $.28 2nd Quarter 38 1/8 31 1/8 35 1/8 48,340 .28 3rd Quarter 39 1/4 34 7/8 36 7/8 47,814 .28 4th Quarter 36 7/8 29 1/2 31 1/4 53,259 .28 -------------------------------------------------------------------------------------------------------------------------- Generally appears as MercBcpMO or MercBc in newspaper stock tables.
DIVIDEND REINVESTMENT PLAN AND DIVIDEND DIRECT DEPOSIT The Dividend Reinvestment Plan provides shareholders of record a regular way of investing cash dividends in additional shares at an average market price and/or investing optional cash payments without payment of brokerage commissions or service charges. Dividend Direct Deposit is a timesaving method of receiving cash dividends through automatic deposit on date of payment to a checking, savings or money market account at any financial institution which participates in an Automated Clearing House. If you wish to participate in or want further information concerning the Dividend Reinvestment Plan or Dividend Direct Deposit, please contact KeyCorp Shareholder Services, Inc., One Mercantile Center, Suite 2120, St. Louis, MO 63101-1673, telephone 314-241-4002. DIVIDEND DATES Dividends are normally paid the first business day of January, April, July and October. 24 MERCANTILE BANCORPORATION INC. 26 DEBT SECURITIES OUTSTANDING (THOUSANDS)
JUNE 30 1995 ------ 7.625% Subordinated Notes, due 2002 $150,000 6.375% Subordinated Notes, due 2004 75,000 9.000% Mortgage-backed Notes, due 1999 53,450
------------------------------------------------------------------------ DEBT RATINGS
THOMSON STANDARD MOODY'S FITCH BANKWATCH & POOR'S ------- ----- --------- -------- MERCANTILE BANCORPORATION INC. Issuer Rating B Commercial Paper P-2 TBW-1 A-2 Subordinated Debt 7.625% Subordinated Notes, due 2002 Baa1 BBB + BBB MERCANTILE BANK OF ST. LOUIS N.A. Bank Notes A1/P-1 A 6.375% Subordinated Notes, due 2004 A3 A- A- BBB + 9.000% Mortgage-backed Notes, due 1999 AAA Certificates of Deposit TBW-1 A-/A-2 Letters of Credit TBW-1 A-/A-2
------------------------------------------------------------------------ INVESTOR RELATIONS John H. Beirise Group President- Emerging Markets Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, MO 63166-0524 GENERAL COUNSEL Thompson & Mitchell One Mercantile Center St. Louis, MO 63101-1693 TRANSFER AGENT KeyCorp Shareholder Services, Inc. P.O. Box 6477 Cleveland, OH 44101-1477 INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP 1010 Market Street St. Louis, MO 63101-2085 25 27 APPENDIX There is a bar-graph titled "COMMON STOCK PRICE RANGE" on page 24 of the printed Second Quarter Report. The graph plots Fiscal Quarters to Dollars on the X and Y axis respectively. This graph shows six quarters of market price ranges from the first quarter of 1994 to the second quarter of 1995. Each bar indicates the dollar range of the stock price for the period. The high price is printed above and the low price below the bar. These figures correspond with the Common Stock Information table also on page 24. EX-27 3 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 690,831 2,128 355,830 5,123 438,741 3,322,486 3,343,498 10,090,124 179,434 15,296,293 11,342,535 1,922,313 191,030 279,958 0 12,153 238,948 1,059,356 15,296,293 443,935 112,381 6,321 562,637 202,143 263,947 298,690 20,616 2,019 237,409 156,455 102,062 0 0 102,062 1.92 1.92 4.36 40,065 17,563 2,624 0 194,515 33,327 7,584 179,434 179,434 0 0 Information only reported at fiscal year-end date.