-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NlFhy0lPp/L/o6oTRAxIKGawLTc7Sx4wF2rheM/+6bmUlezYCjI2mfqdeFYtwwmA nBHRkmacnw+J1fhF2ediPA== 0000950114-97-000239.txt : 19970509 0000950114-97-000239.hdr.sgml : 19970509 ACCESSION NUMBER: 0000950114-97-000239 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 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: 97598229 BUSINESS ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 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 MARCH 31, 1997 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, $.01 PAR VALUE, 74,366,211 SHARES OUTSTANDING AS OF THE CLOSE OF BUSINESS ON APRIL 30, 1997. =============================================================================== 2 INDEX PART I--FINANCIAL INFORMATION
PAGE NO. -------- Item 1-- Financial Statements Consolidated Statement of Income Three months ended March 31, 1997 and 1996 4 Consolidated Balance Sheet March 31, 1997 and 1996, and December 31, 1996 5 Consolidated Statement of Changes in Shareholders' Equity Three months ended March 31, 1997 and 1996 6 Consolidated Statement of Cash Flows Three months ended March 31, 1997 and 1996 7 Notes to Consolidated Financial Statements 8 Item 2-- Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II--OTHER INFORMATION Item 4--Submission of Matters to a Vote of Security Holders Item 6--Exhibits and Reports on Form 8-K 20 Signature 21 Exhibit Index 22
3 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (THOUSANDS EXCEPT PER COMMON SHARE DATA)
THREE MONTHS ENDED MARCH 31 1997 1996 ---------- ---------- INTEREST INCOME Interest and fees on loans and leases $274,754 $257,044 Investments in debt and equity securities Trading 11 95 Taxable 56,254 57,598 Tax-exempt 5,274 5,888 -------- -------- Total 61,539 63,581 Due from banks--interest bearing 1,178 830 Federal funds sold and repurchase agreements 2,468 3,785 -------- -------- Total Interest Income 339,939 325,240 INTEREST EXPENSE Interest bearing deposits 125,579 128,885 Foreign deposits 4,717 2,501 Short-term borrowings 20,299 14,114 Bank notes 2,540 3,972 Long-term debt 7,289 6,032 -------- -------- Total Interest Expense 160,424 155,504 -------- -------- NET INTEREST INCOME 179,515 169,736 PROVISION FOR POSSIBLE LOAN LOSSES 18,198 33,168 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 161,317 136,568 OTHER INCOME Trust 20,991 19,354 Service charges 20,446 19,272 Credit card fees 5,345 1,449 Securitization revenue 7,292 4,502 Mortgage banking 2,728 3,120 Investment banking and brokerage 3,410 3,143 Securities gains (losses) 1,049 (2,956) Other 14,254 11,400 -------- -------- Total Other Income 75,515 59,284 OTHER EXPENSE Salaries 66,641 62,732 Employee benefits 17,390 16,524 Net occupancy 10,419 9,742 Equipment 12,883 11,574 Intangible asset amortization 4,117 2,646 Other 32,236 79,552 -------- -------- Total Other Expense 143,686 182,770 -------- -------- INCOME BEFORE INCOME TAXES 93,146 13,082 INCOME TAXES 32,810 8,517 -------- -------- NET INCOME $ 60,336 $ 4,565 ======== ======== PER COMMON SHARE DATA Average shares outstanding 60,582,101 63,052,401 Net income $1.00 $.07 Dividends declared .43 .41 Includes the following nonrecurring acquisition charges: Provision for possible loan losses $ -- $ 10,851 Other income (securities losses) -- (3,082) Other expense -- 41,678 Income tax benefit -- (15,599) -------- -------- Impact on Net Income $ -- $(40,012) ======== ======== Earnings per common share is calculated by dividing net income, less dividends on preferred stock, by weighted average common shares outstanding.
4 4 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1997 1996 1996 ----------- ----------- ----------- ASSETS Cash and due from banks $ 883,304 $ 1,223,911 $ 888,924 Due from banks--interest bearing 109,614 91,616 77,206 Federal funds sold and repurchase agreements 196,325 234,212 245,037 Investments in debt and equity securities Trading 753 500 13,245 Available-for-sale (Amortized cost of $3,784,394, $3,678,496, and $4,294,437, respectively) 3,784,185 3,691,509 4,307,504 Held-to-maturity (Estimated fair value of $327,070 at March 31, 1997 and $349,738 at December 31, 1996) 325,145 346,566 -- ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,110,083 4,038,575 4,320,749 Loans held-for-sale 62,857 66,373 88,416 Loans and leases, net of unearned income 12,952,617 12,706,547 11,751,826 ----------- ----------- ----------- Total Loans and Leases 13,015,474 12,772,920 11,840,242 Reserve for possible loan losses (198,061) (196,627) (211,608) ----------- ----------- ----------- Net Loans and Leases 12,817,413 12,576,293 11,628,634 Bank premises and equipment 346,417 341,060 311,894 Due from customers on acceptances 2,807 4,946 6,458 Intangible assets 187,416 175,226 117,328 Other assets 294,189 301,120 306,096 ----------- ----------- ----------- Total Assets $18,947,568 $18,986,959 $17,902,326 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 2,525,481 $ 2,584,340 $ 2,040,285 Interest bearing 12,108,768 11,983,660 11,801,245 Foreign 277,560 251,887 160,478 ----------- ----------- ----------- Total Deposits 14,911,809 14,819,887 14,002,008 Federal funds purchased and repurchase agreements 1,448,011 1,589,261 1,220,321 Other short-term borrowings 165,569 198,412 220,891 Bank notes 175,000 175,000 275,000 Long-term debt 449,993 302,795 323,915 Bank acceptances outstanding 2,807 4,946 6,458 Other liabilities 232,896 262,631 245,846 ----------- ----------- ----------- Total Liabilities 17,386,085 17,352,932 16,294,439 Commitments and contingent liabilities -- -- -- MARCH 31 DEC. 31 MARCH 31 1997 1996 1996 -------- -------- -------- SHAREHOLDERS' EQUITY Preferred stock--no par value Shares authorized 5,000 5,000 5,000 Shares issued and outstanding -- -- -- -- -- -- Common stock--$5.00 par value Shares authorized 100,000 100,000 100,000 Shares issued 63,372 63,332 63,211 316,863 316,663 316,058 Capital surplus 226,297 228,151 234,689 Retained earnings 1,197,503 1,163,069 1,052,064 Valuation on available-for-sale securities 2,071 10,345 8,478 Treasury stock, at cost 3,377 1,728 87 (181,251) (84,201) (3,402) ----------- ----------- ----------- Total Shareholders' Equity 1,561,483 1,634,027 1,607,887 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $18,947,568 $18,986,959 $17,902,326 =========== =========== ===========
5 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK ---------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ----------- -------- --------- -------- ------------ --------- ------------- BALANCE AT DECEMBER 31, 1995 62,506,536 $319,434 $ 12,153 $283,288 $1,085,269 $ (60,557) $1,639,587 Net income 4,565 4,565 Common dividends declared--$.41 per share (25,885) (25,885) Preferred dividends declared (408) (408) Redemption of preferred stock (12,153) (531) (12,684) Issuance of common stock in acquisitions of: Metro Savings Bank, F.S.B. 197,902 57 14 8,983 9,054 Security Bank of Conway, F.S.B. 321,964 75 14,614 14,689 First Sterling Bancorp, Inc. 521,417 2,607 1,876 13,772 18,255 Issuance of common stock for employee incentive plans 103,533 486 (302) 276 460 Net fair value adjustment on available-for-sale securities (16,254) (16,254) Purchase of treasury stock (525,000) (23,825) (23,825) Reissuance and retirement of treasury stock (6,458) (50,708) 57,166 -- Other (2,299) (11) 403 (59) 333 ---------- -------- -------- -------- ---------- --------- ---------- BALANCE AT MARCH 31, 1996 63,124,053 $316,058 $ -- $234,689 $1,060,542 $ (3,402) $1,607,887 ========== ======== ======== ======== ========== ========= ========== BALANCE AT DECEMBER 31, 1996 61,604,723 $316,663 $ -- $228,151 $1,173,414 $ (84,201) $1,634,027 Net income 60,336 60,336 Common dividends declared--$.43 per share (25,892) (25,892) Issuance of common stock in acquisition of Regional Bancshares, Inc. 600,417 (474) 361 28,813 28,700 Issuance of common stock for employee incentive plans 99,247 200 (532) 2,596 2,264 Net fair value adjustment on available-for-sale securities (8,923) (8,923) Purchase of treasury stock (2,309,033) (129,029) (129,029) Other (848) 278 570 -- ---------- -------- -------- -------- ---------- --------- ---------- BALANCE AT MARCH 31, 1997 59,995,354 $316,863 $ -- $226,297 $1,199,574 $(181,251) $1,561,483 ========== ======== ======== ======== ========== ========= ========== Includes valuation on available-for-sale securities.
6 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
THREE MONTHS ENDED MARCH 31 1997 1996 ---------- ---------- OPERATING ACTIVITIES Net income $ 60,336 $ 4,565 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 18,198 33,168 Depreciation and amortization 11,247 10,301 Provision for deferred income taxes 719 8,905 Net change in loans held-for-sale 3,516 6,461 Net change in accrued interest receivable 3,709 3,354 Net change in accrued interest payable 1,374 (10,998) Other, net (3,485) 42,194 ---------- ---------- Net Cash Provided by Operating Activities 102,584 97,950 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (572,631) (387,386) Proceeds from maturities 435,753 291,716 Proceeds from sales of available-for-sale securities 167,779 59,435 Net change in loans and leases (238,128) 10,943 Purchases of loans and leases (33,686) (16) Proceeds from sales of loans and leases 39,806 43,779 Purchases of premises and equipment (13,260) (13,748) Proceeds from sales of premises and equipment 1,444 2,714 Proceeds from sales of foreclosed property 7,018 7,393 Cash and cash equivalents from acquisitions, net of cash paid (8,132) 42,907 Other, net (4,181) 145 ---------- ---------- Net Cash Provided (Used) by Investing Activities (218,218) 57,882 FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts (46,624) 78,400 Net change in time certificates of deposit under $100,000 (74,575) (96,712) Net change in time certificates of deposit $100,000 and over 120,523 63,089 Net change in other time deposits (69,029) 4,589 Net change in foreign deposits 25,673 (48,692) Net change in short-term borrowings (183,548) (342,320) Issuance of bank notes -- 25,000 Issuance of long-term debt 150,000 1,500 Principal payments on long-term debt (2,802) (1,706) Cash dividends paid (25,892) (26,293) Proceeds from issuance of common stock 2,215 411 Purchase of treasury stock (140,804) (23,825) Redemption of preferred stock -- (12,684) Other, net 1 336 ---------- ---------- Net Cash Used by Financing Activities (244,862) (378,907) ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (360,496) (223,075) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,549,739 1,434,242 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,189,243 $1,211,167 ========== ==========
7 7 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, with the exception of the nonrecurring acquisition charges totaled on Note 1 of the Consolidated Statement of Income on Page 4. NOTE 2 Effective April 25, 1997, the Registrant acquired Mark Twain Bancshares, Inc., a $3.2 billion-asset bank holding company headquartered in St. Louis, Missouri. This acquisition was accounted for as a pooling-of-interests. 8 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. - ----------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 1 HIGHLIGHTS
FIRST QUARTER ($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA) 1997 1996 CHANGE - ----------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Net income $ 1.00 $ .07 --% Dividends declared .43 .41 4.9 Book value at March 31 26.03 25.47 2.2 Market price at March 31 53 45 3/4 15.8 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS AND SELECTED RATIOS EXCLUDING NONRECURRING EXPENSE Net income $60,336 $44,577 35.4% Net income per common share 1.00 .70 42.9 Return on assets 1.29% 1.00% Return on equity 15.06 10.65 Efficiency ratio 55.57 59.78 Other expense to average assets 3.07 3.16 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Taxable-equivalent net interest income $183,030 $173,657 5.4% Tax-equivalent adjustment 3,515 3,921 (10.4) Net interest income 179,515 169,736 5.8 Provision for possible loan losses 18,198 33,168 (45.1) Other income 75,515 59,284 27.4 Other expense 143,686 182,770 (21.4) Income taxes 32,810 8,517 -- Net income 60,336 4,565 -- - ----------------------------------------------------------------------------------------------------------------------------------- SELECTED RATIOS AND DATA Return on assets 1.29% .10% Return on equity 15.06 1.09 Efficiency ratio 55.57 78.46 Other expense to average assets 3.07 4.09 Net interest rate margin 4.27 4.23 Equity to assets 8.24 8.98 Tier I capital to risk-adjusted assets 11.21 11.90 Total capital to risk-adjusted assets 14.09 14.99 Leverage 8.31 8.28 Reserve for possible loan losses to outstanding loans 1.52 1.79 Reserve for possible loan losses to non-performing loans 269.13 259.41 Non-performing assets to outstanding loans and foreclosed assets .68 .77 Banks 29 72 Banking offices 467 441 Full-time equivalent employees 7,975 7,798 - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Total assets $18,711,937 $17,865,247 4.7% Earning assets 17,149,567 16,410,663 4.5 Loans and leases 12,828,738 11,798,364 8.7 Deposits 14,690,966 13,921,394 5.5 Shareholders' equity 1,603,073 1,674,780 (4.3) - ----------------------------------------------------------------------------------------------------------------------------------- Nonrecurring acquisition charges reduced net income and net income per common share by $40,012,000 and $.63, respectively, in the first quarter of 1996. Includes nonrecurring acquisition charges noted in (1) above. - -----------------------------------------------------------------------------------------------------------------------------------
9 9 PERFORMANCE SUMMARY Net income for Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") in the first quarter of 1997 was $60,336,000 compared with the $4,565,000 earned in the same period a year ago and earnings per common share was $1.00 compared with $.07 in the first quarter of 1996. To allow comparison of the fundamental financial performance of Mercantile for 1997 with 1996, it is helpful to exclude $40,012,000 of nonrecurring acquisition costs from the first quarter 1996 results of operations. Exhibit 2 presents those 1996 results adjusted for such nonrecurring expense and as shown, net income for 1997 was $15,759,000 or 35.4% higher than 1996 adjusted earnings. On a per common share basis, net income was $1.00 compared with the adjusted $.70 earned in last year's first quarter. Return on average assets increased to 1.29% in 1997 compared with 1.00% in 1996, while return on average equity improved to 15.06% from 10.65% last year. - ------------------------------------------------------------------------------- EXHIBIT 2 1996 ADJUSTED RESULTS
EARNINGS NET INCOME PER COMMON RETURN ON (THOUSANDS) SHARE ASSETS ----------- ---------- --------- Reported $ 4,565 $.07 .10% Nonrecurring acquisition expenses 40,012 .63 .90 ------- ---- ---- Adjusted $44,577 $.70 1.00% ======= ==== ==== - -------------------------------------------------------------------------------
Financial Accounting Standard ("FAS") 128, "Earnings per Share," was issued in February 1997. This statement is effective in the fourth quarter of 1997 and requires additional reporting of earnings per share which gives effect to dilutive common shares such as stock options or convertible notes. The Corporation does not anticipate a significant impact when reporting diluted earnings per share. Exhibit 3 details acquisitions completed during 1996 and 1997 as well as two pending acquisitions. On March 5, 1997, the Corporation acquired Regional Bancshares, Inc., ("Regional"), a $172 million-asset bank holding company headquartered in Alton, Illinois. Two significant St. Louis-based mergers were announced in late 1996. On October 27, 1996, a definitive merger agreement was executed with Mark Twain Bancshares, Inc. ("Mark Twain"), a $3.2 billion-asset commercial banking organization with 41 offices in Missouri, Kansas and Illinois. The Mark Twain transaction closed on April 25, 1997 and was accounted for as a pooling-of-interests, with resulting restatement of pre-acquisition accounts and results of operations. The estimated restated earnings per common share for the first quarter of 1997 is $.98 compared with the $1.00 originally reported. During the second quarter of 1997, Mercantile expects to record nonrecurring acquisition charges related to the Regional and Mark Twain acquisitions which will reduce pre-tax income by $44,000,000 to $54,000,000. ---------------------------------------------------------------------------- EXHIBIT 3 ACQUISITIONS ($ IN THOUSANDS)
CONSIDERATION -------------------- GROSS ACCOUNTING DATE ASSETS DEPOSITS CASH SHARES METHOD ---- ------ -------- ---- ------ ---------- ACQUISITIONS COMPLETED Regional Bancshares, Inc. Mar. 5, 1997 $ 171,979 $ 135,954 $12,300 600,417 Purchase Today's Bancorp, Inc. Nov. 7, 1996 501,418 432,104 34,912 1,127,058 Purchase First Financial Corporation of America Nov. 1, 1996 87,649 76,791 3,253 258,742 Purchase Peoples State Bank Aug. 22, 1996 95,657 75,149 -- 325,837 Purchase Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 73,843 5 197,902 Purchase Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 321,964 Purchase Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 7,892,196 Pooling First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 521,417 Pooling ACQUISITIONS PENDING AT MARCH 31, 1997 Mark Twain Bancshares, Inc. Apr. 25, 1997 3,227,972 2,519,474 -- 17,200,000 Pooling Roosevelt Financial Group, Inc. 3rd Qtr. 1997 7,508,309 5,306,723 Purchase The historical financial statements of the Corporation were not restated for the acquisition due to the immateriality of the acquiree's financial condition and results of operations to those of Mercantile. Estimated shares to be issued in acquisition, including shares which can be issued with stock options and convertible notes. The Corporation will deliver up to 13,000,000 shares of its common stock at an exchange ratio of .4211 shares of Mercantile common stock, or $22.00 in cash, for each share of Roosevelt Financial Group, Inc. common stock. ---------------------------------------------------------------------------
10 10 On December 23, 1996, the Corporation announced that a merger agreement had been signed with Roosevelt Financial Group, Inc. ("Roosevelt"), headquartered in St. Louis, Missouri. Roosevelt is a $7.5 billion-asset savings and loan holding company with 81 locations in Missouri, Kansas and Illinois. The merger with Roosevelt, which will be accounted for as a purchase, is expected to be completed in mid-1997 with branch consolidation of the combined entities to occur the following year. Pre-tax nonrecurring acquisition charges associated with the Roosevelt transaction of $38,000,000 to $45,000,000 will be recorded at closing. Net interest income for the first quarter of 1997 was $179,515,000 compared with $169,736,000 in the year-earlier period, an increase of 5.8%. The net interest rate margin was 4.27% compared with 4.34% in the fourth quarter of 1996 and 4.23% last year. Average earning assets of $17.1 billion grew 4.5% from $16.4 billion in the first quarter of 1996, as average loan volume increased 8.7%. This loan growth was funded through an increase in average core deposits and a decline in investment securities. Other income was $75,515,000 in the first quarter of 1997, an increase of 27.4% from a year ago. Included in 1996's first quarter was $3,082,000 in nonrecurring securities losses which resulted from portfolio restructurings of recently acquired banks. Excluding these securities losses, other income increased by 21.1% over 1996. Growth in core fee businesses, such as the trust and investment areas, deposit service charges, credit card related revenues and fees earned in the electronic funds transfer processing business accounted for the strong growth. Non-interest expenses in 1997 were $143,686,000, 21.4% lower than in 1996. Excluding $41,678,000 in nonrecurring merger-related costs, total other expense in 1997 was $2,594,000 or 1.8% higher than a year ago. The efficiency ratio improved to 55.57% compared with the adjusted 59.78% of last year, and the other expense to average assets ratio was 3.07% compared with 3.16% in the first quarter of 1996. On April 3, 1996, the Corporation announced plans to reduce its bank charters by approximately 80% through consolidations during the next year in order to achieve greater operational efficiencies. In total, the Corporation's number of chartered banks dropped from 74 early in 1996 to 29 at March 31, 1997, and further consolidations are scheduled for 1997. The provision for possible loan losses for the quarter was $18,198,000 compared with $33,168,000 in 1996. The first quarter of 1996 included $10,851,000 in nonrecurring merger-related provision and $10,000,000 which was recorded to offset a charge-off on a specialty retailer credit. Net charge-offs for 1997 and 1996 were $18,379,000 and $25,478,000, respectively, and on an annualized basis were .57% of average loans this quarter compared with .86% last year. At March 31, 1997, the reserve for possible loan losses was $198,061,000, and provided coverage of 269.13% of non-performing loans compared with 313.02% at year-end 1996 and 259.41% last March 31. Non-performing loans (i.e., non-accrual and renegotiated loans) as of March 31, 1997 were $73,592,000 or .57% of total loans compared with the year-end 1996 figures of $62,816,000 or .49% and $81,573,000 or .69% at March 31, 1996. Foreclosed assets were $14,962,000 at March 31, 1997 and did not change substantially from year-end 1996. Consolidated assets of $18.9 billion were up 5.8% from last March 31. Core deposits increased by 5.6% to $13.5 billion, loans were up 9.9% to $13.0 billion, and shareholders' equity of $1.6 billion was 2.9% lower than at March 31, 1996, reflecting the impact of treasury share purchases. All measures of capital adequacy remained strong. Tier I capital to risk- adjusted assets was 11.21% while Total capital to risk-adjusted assets at March 31, 1997 was 14.09%. On a pro forma basis after all announced acquisitions are closed, consolidated assets of Mercantile will approximate $30 billion. The following financial commentary presents a more thorough discussion and analysis of the results of operations and financial condition of the Corporation for the first quarter of 1997. 11 11 NET INTEREST INCOME Net interest income for the first quarter of 1997 was $179,515,000, a 5.8% increase from the $169,736,000 earned last year. The net interest rate margin was 4.27% compared with 4.23% in 1996. Continued competitive pricing for both loans and deposits was prevalent in both quarters and impacted the margin. Average earning asset growth in 1997 was 4.5%, led by loan growth of 8.7% and a contraction in the size of the investment portfolio and short-term investments. Investment securities averaged $4.1 billion in the first quarter of 1997, and declined by 5.6% from 1996 due to both maturities and sales. The held-to-maturity and available-for- sale portfolio at March 31, 1997 consisted of 82.93% in U.S. and other Government agency securities, including 26.40% in mortgage-related issues, 12.12% in state and municipal securities, and 4.95% of other miscellaneous securities. The comparable distribution at March 31, 1996 was 83.79%, 13.02% and 3.19%, respectively. Included in other miscellaneous securities as of March 31, 1997 was $55,700,000 transferred from the credit card loan portfolio in accordance with FAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." - ------------------------------------------------------------------------------- EXHIBIT 4 LOANS AND LEASES ($ IN THOUSANDS)
MARCH 31 1997 1996 CHANGE ---- ---- ------ Commercial $ 3,551,920 $ 3,028,211 17.3% Real estate--commercial 2,106,074 2,144,374 (1.8) Real estate--construction 400,115 293,380 36.4 Real estate--residential 4,388,308 3,856,530 13.8 Consumer 1,829,417 1,688,650 8.3 Credit card loans issued 1,139,640 1,229,097 (7.3) Securitized credit card loans (400,000) (400,000) -- ----------- ----------- Total Loans and Leases $13,015,474 $11,840,242 9.9 =========== =========== - -------------------------------------------------------------------------------
Loans on average grew by $1.0 billion or 8.7%. Affecting loan growth figures from 1996 to 1997 is the amount of loans added from acquisitions accounted for as purchases. Loans grew by approximately 5% excluding those from acquired companies. Including acquired balances, average commercial loans grew by $406,073,000 or 13.5%. Commercial loan growth occurred on a system-wide basis. Average commercial real estate mortgage loans increased by only $38,960,000 or 1.6%. Residential real estate mortgage loans averaged $4.3 billion in the first quarter of 1997, an increase of $493,563,000 or 12.9% from the first quarter of 1996. Residential mortgage loans added from acquisitions, as well as continued customer preference for adjustable-rate mortgages which Mercantile generally retained on the balance sheet, accounted for the increase. Average credit card loans were at the same level as in the first quarter of 1996 while other consumer loans increased on average by $104,812,000 or 6.2%, due primarily to growth in indirect auto loans. Average core deposits increased by $572,303,000 or 4.5% over the first quarter of 1996; Mercantile was substantially core funded at 90.47% of total deposits and 77.50% of earning assets. Changes in average core deposits for the past five quarters are shown in the Consolidated Quarterly Average Balance Sheet on Page 19 of this report. Average non-interest bearing deposits grew by $346,558,000 or 17.0%. The United States Government is a significant cash management customer of Mercantile Bank N.A. and pays for services rendered via compensating balances. In the first quarter of 1996, approximately $400,000,000 of such compensating balances were withdrawn by the government to help finance its funding requests due to the lack of an approved 1996 fiscal budget at that time. Accruals were made in 1996 to record the benefit of those missing deposits to better match revenue with services delivered. These balances were redeposited the second quarter of 1996. Average short-term borrowings increased by $154,162,000 or 10.7% in the first quarter of 1997, to replace the decline in bank notes outstanding. Average long-term debt increased by $70,897,000 due to the issuance of $150,000,000 of floating-rate capital trust securities in February 1997 net of a reduction in FHLB advances. The factors discussed previously 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 Page 19. 12 12 OTHER INCOME Non-interest income increased by 27.4% during the first quarter of 1997 to $75,515,000. Trust fees, service charges, investment banking and brokerage fees, credit card related revenue and cash management revenues were at higher levels than last year, while mortgage banking and letters of credit revenues declined. The first quarter of 1996 included $3,082,000 in nonrecurring merger-related securities losses compared with gains of $1,049,000 realized in 1997. Excluding non-interest income from companies acquired in purchase transactions and nonrecurring securities losses, other income grew by 19.0% from the first quarter of 1996. Service charges grew by 6.1%, due largely to selective fee increases and enhanced pricing of low balance, high transaction accounts. Trust fees were the largest source of non-interest income in 1997, and were $20,991,000 compared with $19,354,000 during the first quarter of 1996, an increase of 8.5%. Personal trust fees earned by Mercantile Trust Company N.A. were the largest source of trust revenue and increased 15.1% from last year. Trust income from Mississippi Valley Advisors Inc., the investment management subsidiary of Mercantile, rose by 15.4%. Mississippi Valley Advisors Inc. manages the 15 Mercantile proprietary mutual funds--the ARCH funds. These funds had assets of $2.9 billion at March 31, 1997. Increases in the value of assets managed and successful new business development efforts largely accounted for the growth in trust fees, partially offset by the absence of fees from the indenture trust and agency business which was sold in the fourth quarter of 1996. Investment banking and brokerage fees were $3,410,000 compared with $3,143,000 last year, an increase of 8.5%. This income is largely volume-driven and is derived from transaction fees for services performed for both individual and corporate customers, including sales of annuities and mutual funds, profits earned on limited trading positions and foreign exchange revenue. Mark Twain will add significantly to this source of revenue in 1997. Credit card fee income was $5,345,000 for the first quarter of 1997, compared with $1,449,000 last year. Credit card income primarily represents interchange fees received on transactions of Mercantile cardholders and cardholders' miscellaneous fees. This source of income in 1996 included $1,169,000 in fees charged to merchants for processing credit card transactions. The merchant processing business was sold late in the second quarter of 1996. Transaction-based rebates paid to SBC and MercRewards VISA cardholders are netted against credit card fee income; these rebates totaled $1,403,000 in the first quarter of 1997 versus $6,6121,000 in 1996. The decrease in these rebates were the primary reason for the large growth in credit card fees over 1996. - ----------------------------------------------------------------------------------------- EXHIBIT 5 OTHER INCOME ($ IN THOUSANDS)
FIRST QUARTER 1997 1996 CHANGE ---- ---- ------ Trust $20,991 $19,354 8.5% Service charges 20,446 19,272 6.1 Credit card fees 5,345 1,449 -- Securitization revenue 7,292 4,502 62.0 Mortgage banking 2,728 3,120 (12.6) Investment banking and brokerage 3,410 3,143 8.5 Letters of credit fees 1,179 2,015 (41.5) Securities gains 1,049 126 -- Nonrecurring merger-related securities losses -- (3,082) -- Other 13,075 9,385 39.3 ------- ------- ----- Total Other Income $75,515 $59,284 27.4 ======= ======= - -----------------------------------------------------------------------------------------
Securitization revenue was $7,292,000 in the first quarter of 1997 versus $4,502,000 in 1996, and represents amounts accruing to Mercantile on the $400,000,000 in credit card loans securitized in the Mercantile Credit Card Master Trust during May 1995, as well as $2,200,000 recognized under FAS 125 for investor certificate loans that were sold and reclassified to the investment portfolio. For securitized loans, amounts that would previously have been reported as interest income, interest expense, credit card fees and provision for loan losses are instead netted in non-interest income as securitization revenue. Because credit losses are absorbed against credit card servicing income over the life of these transactions, such income may vary depending upon the credit performance of the securitized loans. Higher levels of net charge-offs continued to adversely impact securitization revenue declined from 4Q96. Mercantile acts as servicing agent and receives loan servicing fees equal to two percent per annum of the securitized receivables. As servicing agent, 13 13 Mercantile continues to provide customer service to collect past due accounts and to provide other services typically performed for its customers. Accordingly, Mercantile's relationship with its credit card customers is not affected by the securitization. Mortgage banking income decreased by $392,000 or 12.6% from the first quarter of 1996, largely due to a decline in gains recognized on the sale of loans. Mortgages serviced totaled $5.9 billion at March 31, 1997 compared with $5.4 billion at March 31, 1996. The Roosevelt transaction will add approximately $8.4 billion to servicing volume, and should increase servicing fees significantly in the last half of 1997. Miscellaneous income of $14,254,000 was 25.0% higher than in 1996, due primarily to a $2,900,000 improvement in cash management fees and $500,000 recorded for loan syndication fees in the current quarter, partially offset by a decline in letters of credit fees. OTHER EXPENSE Expenses other than interest expense and the provision for possible loan losses for the first quarter of 1997 totaled $143,686,000, a decrease of $39,084,000 or 21.4% from 1996. Included in other expense in the first quarter of 1996 was $41,678,000 in expenses associated with mergers, largely for investment banking and other professional services, change in control and severance payments, transition and duplicative costs related to system standardization and signage, and obsolete equipment write-offs. Excluding nonrecurring merger costs, total operating expenses increased by 1.8% over 1996, and were 3.07% of average assets compared with 3.16% last year. The efficiency ratio, defined as operating expenses as a percentage of taxable-equivalent net interest income and other income, was 55.57% versus 59.78% last year. Other expense from acquisitions accounted for as purchases increased the Corporation's expenses by more than $4,000,000. If expense from acquired banks in 1997 and nonrecurring acquisition expense in 1996 are excluded, 1997 non-interest expense was 1.3% lower than in 1996. Salary expenses increased by 6.2% during the first quarter, largely reflecting the costs of merit increases and compensation for employees added in acquisitions. Benefit costs were up by 5.2% due to higher costs of employee benefit programs, a larger salary base and more employees. Occupancy and equipment costs increased by 9.3% in the first quarter, reflecting the costs of maintaining additional offices, costs associated with modifying computer application systems for the year 2000, and an ongoing program of upgrading systems and equipment to further enhance productivity. Exhibit 6 details the composition of all other operating expenses. Credit card fees declined by $1,379,000 or 36.0% due primarily to the costs associated with the merchant processing business which was sold in the second quarter of 1996. Other expense declined largely due to cash recovered on transactions recognized as expenses in prior accounting periods. Intangible asset amortization was $4,117,000 in the first quarter of 1997, 55.6% higher than in 1996. The increase was caused by additional amortization on goodwill recorded in 1996 purchase acquisitions. - ------------------------------------------------------------------------------------ EXHIBIT 6 OTHER EXPENSE ($ IN THOUSANDS)
FIRST QUARTER 1997 1996 CHANGE ---- ---- ------ Salaries $ 66,641 $ 62,732 6.2% Employee benefits 17,390 16,524 5.2 -------- -------- Total Personnel Expense 84,031 79,256 6.0 Net occupancy 10,419 9,742 6.9 Equipment 12,883 11,574 11.3 Marketing/business development 2,982 2,319 28.6 Postage and freight 5,608 5,439 3.1 Office supplies 3,114 3,330 (6.5) Communications 2,808 2,699 4.0 Legal and professional 2,544 2,785 (8.7) Credit card 2,451 3,830 (36.0) FDIC insurance 693 1,256 (44.8) Foreclosed property expense 72 193 (62.7) Intangible asset amortization 4,117 2,646 55.6 Nonrecurring acquisition expense -- 41,678 -- Other 11,964 16,023 (25.3) -------- -------- Total Other Expense $143,686 $182,770 (21.4) ======== ======== - ------------------------------------------------------------------------------------
14 14 RESERVE FOR POSSIBLE LOAN LOSSES The reserve for possible loan losses was $198,061,000 or 1.52% of loans outstanding at March 31, 1997. This compared with $196,627,000 or 1.54% at year's end and $211,608,000 or 1.79% at March 31, 1996. The reserve coverage of non-performing loans was 269.13% compared with 313.02% at year-end and 259.41% last year. One-third of the Corporation's total loan portfolio is invested in residential real estate loans for which the loan loss experience averaged only .06% for the past five years. If those loans are excluded from total loans, the reserve for possible loan losses represented 2.30% of loans outstanding at March 31, 1997. The provision for possible loan losses for the first quarter of 1997 was $18,198,000 compared with $33,168,000 last year. The first quarter of 1996 included a nonrecurring merger- related provision of $10,851,000, which was recorded largely to conform the credit policies of recently acquired entities to those of Mercantile. An additional $10,000,000 in provision was recorded in the first quarter of 1996 to offset an $11,000,000 charge-off of a credit to a St. Louis-based spe- cialty retailer that declared bankruptcy in late 1995. The annualized ratio of net charge-offs to average loans for the first quarter was .57% compared with .86% last year, while the corresponding net charge-off figures were $18,379,000 and $25,478,000, respectively. Excluding securitized credit cards, net credit card charge- offs were $16,886,000 in 1997 versus $13,447,000 last year, which represented 8.24% of average credit card loans for this quarter compared with 6.46% in 1996. On the managed portfolio, the ratio of net charge-offs to average loans was 8.42% versus 7.36% in the first quarter of 1996. By credit policy, losses are taken on credit card loans after six cycles of nonpayment, or within 15 days of receipt of personal bank- ruptcy notice, if earlier. Approximately 37% of the 1997 year-to-date losses were a result of bankruptcy claims. Ex- cluding credit card net charge-offs, net charge-offs were only $1,493,000 or .05% of average loans for the first quarter of 1997. - ------------------------------------------------------------------------------------ EXHIBIT 7 RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 1997 1996 ---- ---- BEGINNING BALANCE $196,627 $201,780 PROVISION 18,198 33,168 Charge-offs (23,995) (31,721) Recoveries 5,616 6,243 -------- -------- NET CHARGE-OFFS (18,379) (25,478) Acquired reserves 1,615 2,138 -------- -------- ENDING BALANCE $198,061 $211,608 ======== ======== LOANS AND LEASES March 31 balance $13,015,474 $11,840,242 =========== =========== Average balance $12,828,738 $11,798,364 =========== =========== RATIOS Reserve balance to outstanding loans 1.52% 1.79% Reserve balance to non- performing loans 269.13 259.41 Net charge-offs to average loans .57 .86 Earnings coverage of net charge-offs 6.06X 1.82x Includes nonrecurring merger-related provision for possible loan losses of $10,851,000 in 1996. - ------------------------------------------------------------------------------------
Mercantile evaluates the reserve for loan losses on a quarterly basis to ensure the timely charge-off of loans and to determine the adequacy of the reserve. Management believes the consolidated reserve of 1.52% of loans and 269.13% of non-performing loans as of March 31, 1997 was adequate based on the risks identified at such date in the portfolio. 15 15 NON-PERFORMING ASSETS Non-performing loans (non-accrual and renegotiated loans) were $73,592,000 or .57% of total loans at March 31, 1997, compared with $62,816,000 or .49% at December 31, 1996 and $81,573,000 or .69% at March 31, 1996. By the Corpora- tion's definition, all non-accrual and renegotiated commer- cial-related loans are considered impaired as defined by FAS 114, "Accounting by Creditors for Impairment of a Loans," as amended by FAS 118. Impaired loans totaled $41,190,000 at March 31, 1997 and averaged $34,869,000 for the quarter. Foreclosed assets were $14,962,000 at March 31, 1997 com- pared with $13,345,000 at year's end and $10,102,000 last year. The ratio of non-performing assets to outstanding loans and foreclosed assets was .68% at March 31, 1997 compared with .60% at December 31, 1996 and .77% last year. Non-accrual loans, while declining $7,697,000 or 9.8% from March 31, 1996, increased $10,840,000 from December 31, 1996. The increase was largely the result of the reclassifica- tion in two asset-based performing loans to non-accrual status and $1,962,000 added from the Regional acquisition. As of March 31, 1997, Mercantile had only seven non- accrual loans with balances in excess of $1,000,000. The largest non-accrual loan had a balance of less than $5,500,000. As significant, the Corporation held only two foreclosed assets with a book value in excess of $1,000,000, the largest being less than $3,500,000. All loans classified as renegotiated were paying in accor- dance with their modified terms at March 31, 1997. Loans past due 90 days and still accruing interest consisted largely of credit card loans, consumer loans and residential real estate mortgage loans. - ------------------------------------------------------------------------------------ EXHIBIT 8 NON-PERFORMING ASSETS ($ IN THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1997 1996 1996 -------- ------- -------- NON-ACCRUAL LOANS Commercial $21,950 $17,303 $30,929 Real estate--commercial 17,157 14,845 21,584 Real estate--construction 1,340 977 617 Real estate--residential 23,033 22,237 20,581 Consumer 7,159 4,437 4,625 ------- ------- ------- TOTAL NON-ACCRUAL LOANS 70,639 59,799 78,336 RENEGOTIATED LOANS 2,953 3,017 3,237 ------- ------- ------- TOTAL NON-PERFORMING LOANS $73,592 $62,816 $81,573 ======= ======= ======= FORECLOSED ASSETS Foreclosed real estate $12,763 $10,519 $ 7,640 Other foreclosed assets 2,199 2,826 2,462 ------- ------- ------- TOTAL FORECLOSED ASSETS $14,962 $13,345 $10,102 ======= ======= ======= TOTAL NON-PERFORMING ASSETS $88,554 $76,161 $91,675 ======= ======= ======= PAST-DUE LOANS (90 DAYS OR MORE) Commercial $ 2,971 $ 2,396 $ 1,407 Real estate--commercial 1,149 643 3,233 Real estate--construction 59 147 1,462 Real estate--residential 2,853 3,370 3,706 Consumer 2,425 5,474 3,604 Credit card 21,346 21,608 17,696 ------- ------- ------- TOTAL PAST-DUE LOANS $30,803 $33,638 $31,108 ======= ======= ======= RATIOS Non-performing loans to outstanding loans .57% .49% .69% Non-performing assets to outstanding loans and foreclosed assets .68 .60 .77 Non-performing assets to total assets .47 .40 .51 Past-due loans 90 days or more are not included in non-performing asset totals or ratios. - ------------------------------------------------------------------------------------
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 is focused on ensuring that adequate capital is provided for both current needs and anticipated growth. This strategy has enabled Mercantile to profitably expand its balance sheet, while maintaining capital ratios which exceed minimum capital requirements. At March 31, 1997, shareholders' equity was $1.6 billion, a managed decline of 2.9% from March 31, 1996. Since December 31, 1996, the Corporation repurchased 2,309,033 shares of its common stock via designated broker-dealers at an average cost of $55.88 per share. A small portion of that stock was held for reissuance in conjunction with the 1994 Stock Incentive Plan, while the remainder was held for future reissuance in the Roosevelt transaction. The net fair value adjustment on available-for-sale securities reduced shareholders' equity by $8,923,000 in the first quarter of 1997, and $28,700,000 was added to equity with the Regional acquisition. Exhibit 9 details all significant capital ratios. 16 16 On July 11, 1996, the Board of Directors authorized the repurchase of up to 6,000,000 shares of the Corporation's common stock. This authorization was inclusive of shares to be repurchased in connection with previously announced pending acquisitions. In conjunction with the Mark Twain pooling transaction, the Board rescinded this program. Mercantile currently has authorization to repurchase up to 7,000,000 shares for reissuance in the Roosevelt transaction. To partially fund the announced treasury share repurchase, the Corporation formed Mercantile Capital Trust I on January 29, 1997. Through this trust, Mercantile obtained $150,000,000 of floating-rate debt which, for regulatory purposes, is part of Tier I capital. Up to $500 million in senior and/or subordinated debt securities will likely be raised in the first half of 1997, primarily to finance the Roosevelt acquisition. - ------------------------------------------------------------------------------------ EXHIBIT 9 RISK-BASED CAPITAL ($ IN THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1997 1996 1996 -------- ------- -------- Capital Tier I $ 1,544,019 $ 1,437,815 $ 1,471,081 Total 1,941,550 1,827,916 1,852,681 Risk-adjusted assets 13,776,916 13,176,540 12,360,988 Tier I capital to risk- adjusted assets 11.21% 10.91% 11.90% Total capital to risk- adjusted assets 14.09 13.87 14.99 Leverage 8.31 7.82 8.28 Double leverage 112.09 104.81 109.25 Long-term debt to total capitalization 22.37 15.63 16.77 - ------------------------------------------------------------------------------------
On February 19, 1997, the Board of Directors declared a quarterly cash dividend of $.43 per common share which was paid April 1, 1997. This represented an increase of 4.9% over the prior quarterly rate of $.41 per common share. Book value per common share was $26.03 at March 31, 1997 compared with $25.47 a year earlier, an increase of 2.2%. Public debt ratings of the Corporation and Mercantile Bank N.A. are shown in Exhibit 10. - ---------------------------------------------------------------------------------------------------------------------------- EXHIBIT 10 DEBT RATINGS
THOMSON STANDARD MOODY'S FITCH BANKWATCH & POOR'S ------- ----- --------- -------- MERCANTILE BANCORPORATION INC. Issuer Rating B Commercial Paper F1 TBW-1 7.625% Subordinated Notes, due 2002 Baa1 BBB+ BBB Floating Rate Capital Trust Pass-Through Securities(SM) a3 BBB- MERCANTILE BANK N.A. Bank Notes A1/P-1 A 6.375% Subordinated Notes, due 2004 A3 A A- BBB+ 9.000% Mortgage-backed Notes, due 1999 AAA Certificates of Deposit TBW-1 A1/A-2 Letters of Credit TBW-1 A1/A-2 - ----------------------------------------------------------------------------------------------------------------------------
17 17 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME ($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA)
1996 1997 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. -------- -------- -------- -------- -------- INTEREST INCOME Interest and fees on loans and leases $257,044 $259,105 $262,310 $270,980 $274,754 Investments in debt and equity securities 63,581 66,811 66,219 63,023 61,539 Short-term investments 4,615 4,416 3,600 3,677 3,646 -------- -------- -------- -------- -------- Total Interest Income 325,240 330,332 332,129 337,680 339,939 Tax-equivalent adjustment 3,921 3,768 3,701 3,752 3,515 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 329,161 334,100 335,830 341,432 343,454 INTEREST EXPENSE Deposits 131,386 127,931 126,453 128,994 130,296 Borrowed funds 24,118 25,679 30,254 28,177 30,128 -------- -------- -------- -------- -------- Total Interest Expense 155,504 153,610 156,707 157,171 160,424 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT NET INTEREST INCOME 173,657 180,490 179,123 184,261 183,030 PROVISION FOR POSSIBLE LOAN LOSSES 33,168 10,638 12,109 15,099 18,198 OTHER INCOME Trust 19,354 20,749 19,388 19,922 20,991 Service charges 19,272 19,905 20,315 21,168 20,446 Credit card fees 1,449 8,130 8,936 8,492 5,345 Securitization revenue 4,502 3,325 4,198 3,983 7,292 Mortgage banking 3,120 2,252 2,421 2,528 2,728 Investment banking and brokerage 3,143 3,216 3,311 3,351 3,410 Securities gains (losses) (2,956) 98 15 2,526 1,049 Other 11,400 20,482 15,904 22,069 14,254 -------- -------- -------- -------- -------- Total Other Income 59,284 78,157 74,488 84,039 75,515 OTHER EXPENSE Personnel expense 79,256 78,736 79,455 78,173 84,031 Net occupancy and equipment 21,316 21,757 22,996 25,010 23,302 Other 82,198 42,831 53,625 51,954 36,353 -------- -------- -------- -------- -------- Total Other Expense 182,770 143,324 156,076 155,137 143,686 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 17,003 104,685 85,426 98,064 96,661 INCOME TAXES Income taxes 8,517 35,841 26,049 27,682 32,810 Tax-equivalent adjustment 3,921 3,768 3,701 3,752 3,515 -------- -------- -------- -------- -------- Adjusted Income Taxes 12,438 39,609 29,750 31,434 36,325 -------- -------- -------- -------- -------- NET INCOME $ 4,565 $ 65,076 $ 55,676 $ 66,630 $ 60,336 ======== ======== ======== ======== ======== NET INCOME PER COMMON SHARE $.07 $1.04 $.92 $1.09 $1.00 SIGNIFICANT RATIOS Return on assets .10% 1.43% 1.23% 1.45% 1.29% Return on equity 1.09 16.15 14.28 16.61 15.06
18 18 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET ($ IN THOUSANDS)
1996 1997 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. ------------------ ------------------ ------------------ ------------------ ------------------ VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 3,006,310 8.38% $ 3,064,431 8.29% $ 3,101,229 8.35% $ 3,247,705 8.32% $ 3,412,383 8.21% Real estate-- commercial 2,133,882 8.69 2,119,736 8.60 2,045,926 8.70 2,025,335 8.57 2,074,626 8.59 Real estate-- construction 300,847 8.99 289,408 9.48 336,511 9.14 394,701 9.24 399,063 8.71 Real estate-- residential 3,833,423 8.14 3,857,914 8.21 3,993,186 8.18 4,214,732 8.13 4,326,986 7.97 Consumer 1,691,444 8.84 1,695,275 8.84 1,698,142 8.89 1,763,503 8.79 1,796,256 8.67 Credit card 832,458 12.77 828,395 13.30 852,335 12.69 872,470 12.69 819,424 13.31 ----------- ----------- ----------- ----------- ----------- Total Loans and Leases 11,798,364 8.75 11,855,159 8.78 12,027,329 8.76 12,518,446 8.70 12,828,738 8.60 Investments in debt and equity securities Trading 7,610 4.99 3,475 5.29 1,473 5.43 892 5.38 659 6.68 Taxable 3,854,326 5.98 4,057,430 6.04 3,974,950 6.11 3,786,944 6.09 3,662,341 6.15 Tax-exempt 434,268 8.02 414,396 7.94 403,208 8.03 404,403 7.85 391,568 7.95 ----------- ----------- ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,296,204 6.19 4,475,301 6.21 4,379,631 6.29 4,192,239 6.26 4,054,568 6.32 Short-term investments 316,095 5.84 309,687 5.70 248,944 5.78 252,867 5.82 266,261 5.48 ----------- ----------- ----------- ----------- ----------- Total Earning Assets 16,410,663 8.02 16,640,147 8.03 16,655,904 8.07 16,963,552 8.05 17,149,567 8.01 Non-earning Assets 1,454,584 1,561,982 1,383,069 1,402,487 1,562,370 ----------- ----------- ----------- ----------- ----------- Total Assets $17,865,247 $18,202,129 $18,038,973 $18,366,039 $18,711,937 =========== =========== =========== =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,037,439 $ 2,721,330 $ 2,639,046 $ 2,399,686 $ 2,383,997 Interest bearing demand 2,238,451 2.19 2,231,716 2.12 2,186,130 2.13 2,264,033 2.15 2,315,063 2.13 Money market accounts 1,971,778 3.89 2,030,992 3.81 2,061,211 3.90 2,108,011 3.90 2,130,369 3.88 Savings 1,073,847 2.29 1,077,854 2.25 1,051,874 2.26 1,029,581 2.26 1,021,710 2.20 Consumer time certificates under $100,000 5,358,411 5.59 5,303,994 5.50 5,192,639 5.49 5,275,918 5.45 5,289,858 5.36 Other time 39,256 19.88 234,904 3.33 234,143 3.32 228,004 3.25 150,488 4.63 ----------- ----------- ----------- ----------- ----------- Total Core Deposits 12,719,182 4.28 13,600,790 4.12 13,365,043 4.13 13,305,233 4.12 13,291,485 4.08 Time certificates $100,000 and over 1,027,545 5.63 993,405 5.51 928,385 5.56 966,956 5.57 1,055,093 5.44 Foreign 174,667 5.73 152,075 5.58 189,295 5.65 220,239 5.82 344,388 5.48 ----------- ----------- ----------- ----------- ----------- Total Purchased Deposits 1,202,212 5.65 1,145,480 5.52 1,117,680 5.58 1,187,195 5.61 1,399,481 5.45 ----------- ----------- ----------- ----------- ----------- Total Deposits 13,921,394 4.42 14,746,270 4.26 14,482,723 4.27 14,492,428 4.27 14,690,966 4.23 Short-term borrowings 1,434,235 3.94 1,030,693 6.12 1,165,000 6.98 1,463,101 5.22 1,588,397 5.11 Bank notes 265,385 5.99 275,000 5.73 275,000 5.92 227,174 5.91 175,000 5.81 Long-term debt 325,149 7.42 321,894 7.44 309,799 7.58 302,887 7.58 396,046 7.36 ----------- ----------- ----------- ----------- ----------- Total Acquired Funds 15,946,163 4.47 16,373,857 4.50 16,232,522 4.61 16,485,590 4.46 16,850,409 4.44 Other liabilities 244,304 216,388 247,329 276,234 258,455 SHAREHOLDERS' EQUITY 1,674,780 1,611,884 1,559,122 1,604,215 1,603,073 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $17,865,247 $18,202,129 $18,038,973 $18,366,039 $18,711,937 =========== =========== =========== =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.55% 3.53% 3.46% 3.59% 3.57% Net interest rate margin 4.23 4.34 4.30 4.34 4.27 Taxable-equivalent basis.
19 19 PART II--OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders of Registrant was held on April 24, 1997. Of 60,209,008 shares issued, outstanding and eligible to be voted at the meeting, 47,544,778 shares, constituting a quorum, were represented in person or by proxy at the meeting. Six (6) matters were submitted to a vote of the security-holders at the meeting. 1. ELECTION OF CLASS III DIRECTORS. The first matter submitted was the election of three Class III director nominees to the Board of Directors, each to continue in office until the year 2000. The Restated Articles of Incorporation of the Registrant allow cumulative voting in all director elections and all shareholders were accordingly allowed to cumulate their votes for directors if they so desired. Upon tabulation of the votes cast, it was determined that all three director nominees had been elected. The voting results are set forth below:
NAME FOR WITHHELD ---- --- -------- Harry M. Cornell, Jr. 47,161,089 311,112 Thomas H. Jacobsen 47,411,719 310,720 Patrick T. Stokes 47,165,135 310,920
2. ELECTION OF CLASS II DIRECTOR. The second matter submitted to the shareholders was the election of one director nominee, Craig D. Schnuck, to the Board of Directors in Class II, to continue in office until 1999. Mr Schnuck was previously elected and served as a Class III director. His term as a Class III director expired as of the 1997 annual meeting. Mr. Schnuck stood for election at the 1997 annual meeting in Class II. Because only one director stood for election in Class II, cumulative voting was not applicable. Upon tabulation of the votes cast it was determined that Mr. Schnuck had been elected. The voting results are set forth below:
NAME FOR WITHHELD ---- --- -------- Craig D. Schnuck 47,198,176 310,238
Because Registrant has a staggered Board, the term of office of the following named Class I and Class II directors, who were not up for election at the 1997 annual meeting, continued after the meeting: Class I (to continue in office until 1998) Thomas A. Hays Harvey Saligman John A. Wright Frank Lyon, Jr. Robert L. Stark Class II (to continue in office until 1999) William A. Hall Robert W. Murray Edward A. Mueller 20 20 3. PROPOSAL TO APPROVE AND ADOPT AGREEMENT AND PLAN OF REORGANIZATION. The third matter, a proposal to adopt and approve the Agreement and Plan of Reorganization dated October 27, 1996, by and among Mercantile Bancorporation Inc., Ameribanc, Inc., and Mark Twain Bancshares, Inc., was approved by a majority of the votes cast on the proposal at the Annual Meeting, as follows: 42,139,806 For 255,030 Against 304,057 Abstain 4,845,884 Broker Non-Votes 4. PROPOSAL TO ADOPT AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES AND TO CHANGE THE PAR VALUE OF COMMON STOCK. The fourth matter, a proposal to Amend the Articles of Incorporation of the Registrant to increase the number of authorized shares of common stock of the Registrant from 100,000,000 shares to 200,000,000 shares, and to change the par value of said common stock from $5.00 per share to $0.01 per share, was approved by a majority of the 60,209,008 shares of the Registrant's Common Stock which were issued, outstanding and eligible to vote. The voting results on this matter were as follows: 45,409,612 For 790,448 Against 264,677 Abstain 1,080,041 Broker Non-Votes 5. PROPOSAL TO ADOPT MERCANTILE BANCORPORATION AMENDED AND RESTATED STOCK INCENTIVE PLAN. The fifth matter, a proposal to adopt the Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan, a plan which provides for the granting of stock options and other stock based awards to employees, and which was amended to (i) increase the aggregate number of shares of stock available for issuance under the plan to 6,000,000 shares, (ii) increase the number of shares available for issuance pursuant to Stock Grants under the plan to 860,000 shares, and (iii) increase the maximum number of shares which may be awarded to any one individual in the form of stock options or SARs to 1,200,000 shares, was approved by a vote of a majority of the shares of the Registrant's Common Stock present and voting at the Annual Meeting, as follows: 38,039,369 For 2,794,621 Against 1,864,902 Abstain 4,845,886 Broker Non-Votes 21 21 6. PROPOSAL TO ADOPT MERCANTILE BANCORPORATION INC. AMENDED AND RESTATED EXECUTIVE INCENTIVE COMPENSATION PLAN. The sixth matter, a proposal to adopt the Mercantile Bancorporation Inc. Amended and Restated Executive Incentive Compensation Plan, a plan which provides senior Mercantile Officers with annual bonus opportunities based upon preestablished performance objectives, and which was amended to conform to new regulatory requirements, to extend the term of the Plan, and to add additional financial measures upon which performance could be measured, was approved by a vote of a majority of the shares of the Registrant's Common Stock present and voting at the Annual Meeting, as follows: 41,854,548 For 2,761,021 Against 1,849,168 Abstain 1,080,041 Broker Non-Votes Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3 Restated Articles of Incorporation of the Registrant, as amended and currently in effect. 10.1 The Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan, filed as Annex G to Registrant's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders, is incorporated herein by reference. 10.2 The Mercantile Bancorporation Inc. Amended and Restated Executive Incentive Compensation Plan, filed as Annex H to Registrant's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders, is incorporated herein by reference. 10.3 Employment Agreement for Alvin J. Siteman dated November 18, 1996. 10.4 Employment Agreement for John P. Dubinsky, dated October 27, 1996. 27. Financial Data Schedule (b) Reports on Form 8-K: Registrant filed one (1) Current Report on Form 8-K. In that report, dated May 2, 1997, under Item 2, Registrant disclosed that it had, effective April 25, 1997, consummated its acquisition of Mark Twain Bancshares, Inc. ("Bancshares") through merger of Bancshares with and into a wholly-owned subsidiary of Registrant, with the shareholders of Bancshares to receive an aggregate of approximately 17,213,114 shares of Registrant's common stock in exchange for their Bancshares shares. 22 22 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 May 8, 1997 /s/ JOHN Q. ARNOLD ------------------------ ---------------------------------------- John Q. Arnold Chief Financial Officer 23 23 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION - ----------- ----------- -------- 3 Restated Articles of Incorporation of the Registrant, Included herein as amended and currently in effect. 10.1 The Mercantile Bancorporation Inc. Amended and Incorporated herein by Restated Stock Incentive Plan, filed as Annex G to reference Registrant's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders. 10.2 The Mercantile Bancorporation Inc. Amended and Incorporated herein by Restated Executive Incentive Compensation Plan, reference filed as Annex H to Registrant's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders. 10.3 Employment Agreement for Alvin J. Siteman dated Included herein November 18, 1996. 10.4 Employment Agreement for John P. Dubinsky, dated Included herein October 27, 1996 27 Financial Data Schedule. Included herein
24 EX-3 2 1 EXHIBIT 3 2 MERCANTILE BANCORPORATION INC. ARTICLES OF INCORPORATION AS OF APRIL 24, 1997 3 MERCANTILE BANCORPORATION INC. ARTICLES OF INCORPORATION AS OF APRIL 24, 1997 ARTICLE 1 --------- The name of the Corporation is MERCANTILE BANCORPORATION INC. ARTICLE 2 --------- The address, including street and number of the Corporation's registered office in this state is Mercantile Tower, P.O. Box 524, St. Louis, Missouri 63166, and the name of its registered agent at such address is Ralph W. Babb, Jr. ARTICLE 3 --------- The Corporation shall have authority to issue the following shares: A. Common Stock 200,000,000 shares of voting Common Stock with a par value of $0.01 per share. B. Preferred Stock 5,000,000 shares of Preferred Stock with no par value which shall have (i) those voting rights required by law and (ii) voting rights equal to those of the shares of Common Stock except to the extent the voting rights of any series of Preferred Stock shall be denied or limited by the Board of Directors in an authorizing resolution as hereinafter provided. (a) The Board of Directors, by adoption of an authorizing resolution may cause Preferred Stock to be issued from time to time in one or more series. (b) The Board of Directors, by adoption of an authorizing resolution, may with regard to the shares of any series of Preferred Stock: (1) Fix the distinctive serial designation of the shares; (2) Fix the dividend rate, if any; (3) Fix the date from which dividends on shares issued before the date for payment of the first dividend shall be cumulative, if any; (4) Fix the redemption price and terms of redemption, if any; 4 (5) Fix the amounts payable per share in the event of dissolution or liquidation of the corporation if any; (6) Fix the terms and amounts of any sinking fund to be used for the purchase or redemption of shares, if any; (7) Fix the terms and conditions under which the shares may be converted, if any; (8) Deny or limit the voting rights of such Preferred Stock not required by law; and (9) Fix such other preferences, qualifications, limitations, restrictions and special or relative rights not required by law. ARTICLE 4 --------- The number and class of shares that were issued before the Corporation commenced business, the consideration that was paid therefor and the capital with which the Corporation commenced business were as follows:
Consideration Number of Shares Class To Be Paid Par Value - ---------------- ----- ------------- --------- 100 Common $500 $5
The Corporation did not commence business until consideration of the value of at least $500 had been received for the issuance of shares. ARTICLE 5 --------- The name and place or residence of the incorporator was as follows:
Name Street City - ---- ------ ---- Donald E. Lasater 17 Southmoor Clayton, MO 63105
ARTICLE 6 --------- A. Board of Directors. The number of Directors to ------------------- constitute the Board of Directors shall be eighteen (18); provided, however, that such number may be fixed, from time to time, at not less than twelve (12) nor more than twenty-four (24), by, or in the manner provided in, the By-laws of the Corporation, and any such change shall be reported to the Secretary of State of the State of Missouri within thirty (30) calendar days of such change. The Directors shall be divided into three classes: Class I, Class II and Class III; and the number of Directors in such classes shall be as nearly equal as possible. The term of office of the initial Class I Directors shall expire at the annual meeting of shareholders of the Corporation in 1986; the term of office of the initial Class II Directors shall expire at the annual meeting of shareholders of the Corporation in 1987; and the term of office of the -2- 5 initial Class III Directors shall expire at the annual meeting of shareholders of the Corporation in 1988; or in each case until their respective successors are duly elected and qualified. At each annual election held after 1985 the Directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the Directors they succeed and shall be elected for a term of three (3) years expiring at the third succeeding annual meeting or thereafter until their respective successors are duly elected and qualified. If the number of Directors is changed, any increase or decrease in the number of Directors shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible. Any Director elected to fill a vacancy in any class (whether such vacancy is caused by death, resignation, or removal, or by an increase in the number of Directors in such class) shall hold office for a term which shall expire with the term of the Directors in such class. At a meeting called expressly for that purpose, the entire Board of Directors, or any individual Director or Directors, may be removed without cause, only upon the affirmative vote of the holders of at least seventy-five percent (75%) of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled; provided, however, that, if less than the entire Board of Directors is to be so removed without cause, no individual Director may be so removed if the votes cast against such Director's removal would be sufficient to elect such Director if then cumulatively voted at an election of the class of Directors of which such Director is a part. At a meeting called expressly for that purpose, any Director may be removed by the shareholders for cause by the affirmative vote of the holders of a majority of the shares entitled to vote upon his election. B. Vote Required for Amendment. In addition to any ---------------------------- affirmative vote required by law or otherwise, any amendment, alteration, change or repeal of the provisions of this Article 6 shall require the affirmative vote of the holders of at least seventy-five percent (75%) of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled, unless such amendment, alteration, change or repeal has previously been expressly approved by the Board of Directors of the Corporation by the affirmative, vote or consent of at least sixty-six and two-thirds percent (66 2/3%) of the number of Directors then authorized by, or in the manner provided in, the By-laws, in which case the shareholder vote required by this Section B of Article 6 shall not apply. ARTICLE 7 --------- The duration of the Corporation is perpetual. ARTICLE 8 --------- The Corporation is formed for the following purposes: (1) To undertake, conduct, manage, assist, promote, operate and to engage or participate in every kind of commercial, industrial, electronic, manufacturing, agricultural, -3- 6 scientific or other enterprise, business, undertaking, venture, corporation, co-partnership, association or operation of every kind and description; (2) To acquire by purchase, exchange, lease, devise or otherwise and to hold, maintain, manage, improve, develop and operate and to sell, transfer, convey, lease, mortgage, exchange or otherwise dispose of or deal in or with real property wheresoever situated, either within or without the State of Missouri, and any and all rights, interests or privileges therein; and to erect, construct, make, improve and operate or aid or subscribe toward the erection, construction, making improvement and operation of offices, warehouses, plants, mills, stores, laboratories, studios, workshops, buildings and other establishments and installations or improvements on any real estate or any right, interest or privilege therein; (3) To acquire by purchase, exchange, lease, bequest or otherwise, to import, export, manufacture, produce, hold, own, use, manage, improve, alter, develop and to mortgage, pledge, sell, assign, transfer, lease, exchange or otherwise dispose of or deal in or with goods, commodities, wares, automobiles, aircraft, machinery, equipment, supplies, merchandise and all other personal property of every kind, nature and description, tangible or intangible, wheresoever situated, either within or without the State of Missouri and any and all other rights, interests or privileges therein; (4) To adopt, apply for, obtain, register, purchase, lease, take assignment or licenses of or otherwise acquire or obtain the use of, to hold, protect, own, use, develop and introduce, and to sell, assign, lease, grant licenses or other rights in respect to, make contracts concerning or otherwise deal with, dispose of or turn to account any copyrights, trademarks, trade names, brands, labels, patent rights, letters patent and patent applications of the United States of America or of any other country, government or authority, and any inventions, improvements, processes, formulae, mechanical and other combinations, licenses and privileges, whether in connection with or secured under letters patent or otherwise; and to carry on any business, whether manufacturing or otherwise, which is or shall be necessary, convenient, advisable or adaptable for the utilization by this corporation in any way, directly or indirectly, of such copyrights, trademarks, trade names, brands, labels, patent rights, letters patent, patent applications, inventions, improvements, processes, formulae, mechanical and other combinations, licenses and privileges; (5) To acquire by purchase, exchange, gift, bequest, subscription, or by acting as an original incorporator or otherwise, and to own, hold, invest in, sell, assign, transfer, exchange, pledge, hypothecate, deal in and otherwise dispose of stocks (preferred as well as common), bonds, notes, debentures, mortgages or other evidences of indebtedness and obligations and securities of, and shares of other interests in or created or issued by any corporation, trust companies or banks (whether incorporated under the laws of Missouri, or other states or under the laws of the United States or any other country), company or joint stock association, persons, firms, associations, copartnerships, domestic or foreign, or of any domestic or foreign state, government, or governmental authority or of any political or administrative subdivision or department thereof, and certificates or receipts of any kind -4- 7 representing or evidencing any interest in any such stocks, bonds, shares of stock, notes, debentures, mortgages or other evidences of indebtedness, obligations or securities including, but not limited to, electronic, commercial, manufacturing, agricultural, industrial, scientific and insurance companies, corporations or agencies, trust companies or banks, whether incorporated under the laws of Missouri or of the United States or of foreign states or countries; to issue its own shares of stock, bonds, notes, debentures, or other evidences of indebtedness and obligations and securities for the acquisition of any such stocks, bonds, notes, debentures, mortgages or other evidences of indebtedness, obligations, securities, certificates or receipts purchased or otherwise acquired by it; and, while the owner or holder of any such stocks, bonds, notes, debentures, mortgages, evidences of indebtedness, obligations, securities, certificates or receipts to exercise all the rights, powers and privileges of ownership in respect thereof, including the right to vote thereon for any and all purposes; (6) To make loans or advances, to guarantee the obligations of, or purchase or acquire shares of stock of, or make contributions to capital or surplus, and to aid in any other manner by providing financial assistance to any corporation, association or copartnership, including, but not by way of limitation, any corporation all or substantially all of the shares of voting stock of which is owned by this Corporation and any affiliate or subsidiary of any such Corporation. Any such loan, advance or other assistance to be with or without interest, unsecured, or secured in any manner, and upon such other terms and conditions as the Board of Directors of this Corporation shall approve; (7) To form general or limited partnerships for any lawful purpose, irrespective of whether any such partnership is to engage in a business in which this Corporation would otherwise be authorized to engage under these Articles of Incorporation, such partnerships to be formed under any present or future laws of the State of Missouri or any other state, and to enter into and execute general or limited partnership agreements and certificates in reference to any such partnerships as either a general or limited partner or as both a general and limited partner, and otherwise to acquire the interests of a general or a limited partner in any such general or limited partnerships, and to act as a general or limited partner in any such general or limited partnerships, and, as such, to perform all obligations thereby imposed upon it by law or by contract including, but not by way of limitation, the use and delivery of the funds and other property of this Corporation to any such partnership as payment of this Corporation's contribution to such partnership or otherwise, all for such purposes and in such amount and subject to such terms and conditions as the Board of Directors of this Corporation deems to be in the best interests of the stockholders of this Corporation; (8) To borrow or raise moneys for any of the purposes of the Corporation, from time to time, without limit as to amount, with or without security, all as determined by the Board of Directors; to issue and sell or exchange its own securities, Common or Preference or other Stock or debt obligations, including but without limitation debentures, either nonconvertible or convertible into any class of stock authorized by the Articles, in such amounts, on such terms and conditions, for such purposes and at such prices as the Board of Directors may determine; to a like extent when deemed desirable, to secure such debt -5- 8 obligations by liens upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets, business, and good will of the Corporation, whether at the time owned or thereafter acquired; and, to a like extent, to purchase, acquire, hold, own, cancel, re-issue, sell, assign, transfer, exchange, or otherwise dispose of or deal in or with, its own securities (including shares of its stock, common or preferred) in any manner whatsoever; (9) To enter into, make and perform contracts of every sort and description with any person, firm, copartnership, association, corporation, public or private; (10) To carry out all or any part of the foregoing objects and purposes as principal, agent, partner, either limited or general, contractor, or otherwise, either alone or in conjunction with any other persons, firms, copartnerships, associations or corporations and in any part of the world, and in carrying on any of its business and for the attainment or furtherance of any of its objects and purposes to make and perform such agreements and contracts of any kind and description, and to do such acts and things and to exercise any and all such powers as a natural person could lawfully make, perform, do or exercise and, as aforesaid, to do anything and everything which is or may appear necessary, useful, convenient or appropriate for the attainment, furtherance or exercise of any of its purposes, objects or powers. The foregoing provisions of this Article shall be construed both as purposes and powers and each as an independent purpose and power in furtherance of, and not in limitation of, the powers which the Corporation may have under present or future laws of the State of Missouri, and the purposes and powers hereinbefore specified shall, except when otherwise provided in this Article 8 be in no wise limited, or restricted by reference to, or inference from the terms or any provisions of this or any other Article of these Articles of Incorporation; but such provisions shall not be construed to permit the Corporation to carry on any business, or to exercise any power, or to do any act which a corporation now or hereafter organized under The General and Business Corporation Law of Missouri may not at the time lawfully carry on, exercise, or do; and provided further that the Corporation shall not carry on any business or exercise any power in any state, territory, or country which under the laws thereof the Corporation may not lawfully carry on or exercise. ARTICLE 9 --------- The power to make, alter, amend or repeal the By-laws of the Corporation shall be vested in the Board of Directors. In addition to the powers which it has pursuant to law, the Board of Directors shall have all the powers herein contained which shall include the power: (i) from time to time to fix the compensation of its members for attending meetings of the Board of Directors, -6- 9 (ii) to adopt, amend, change and readjust any type of pension, retirement, profit sharing or bonus plan, contributing or non-contributing, covering any or all of the officers and employees of said Corporation. ARTICLE 10 ---------- Any person, upon becoming the owner or holder of any shares of stock or other securities issued by this Corporation, does thereby consent and agree that all rights, powers, privileges, obligations or restrictions pertaining to such person or such securities in any way may be altered, amended, restricted, enlarged or repealed by legislative enactments of the State of Missouri or of the United States hereinafter adopted which have reference to or affect corporations, such securities, or such persons in any way; and that the Corporation reserves the right to transact any business of the Corporation, to alter, amend or repeal these Articles of Incorporation, or to do any other act or things as authorized, permitted or allowed by such legislative enactments. ARTICLE 11 ---------- No holder of any share or shares of stock of any kind, series or class now or hereafter authorized shall be entitled as such as a matter of right to subscribe for or purchase any stock of any kind, series or class, whether now or hereafter authorized or outstanding, which may hereafter be issued or sold by this Corporation, or any securities including, but without limitation, debentures convertible into stock of any class, and whether issued or sold for cash, property, services or otherwise. ARTICLE 12 ---------- (1) This Corporation shall and does hereby indemnify any person who is or was a director or officer of the Corporation or any Subsidiary against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred by such person in connection with any civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a Subsidiary) by reason of the fact that such person is or was serving in such capacity; provided however, that no such person ----------------- shall be entitled to any indemnification pursuant to this subsection (l) on account of: (i) conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation. (2) This Corporation may, to the extent that the Board of Directors deems appropriate and as set forth in a bylaw or resolution, indemnify any person who is or was an employee or agent of this Corporation or any Subsidiary or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, banking association, partnership, joint venture, trust or other enterprise (including an -7- 10 employee benefit plan) against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred by such person in connection with any civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a Subsidiary) by reason of the fact that such person is or was serving in such capacity; provided however, that no such person ----------------- shall be entitled to any indemnification pursuant to this subsection (2) on account of: (i) conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation. (3) This Corporation may, to the extent that the Board of Directors deems appropriate, make advances of expenses, including attorneys' fees, incurred prior to the final disposition of a civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a Subsidiary) to any person to whom indemnification is or may be available under this Article 12; provided however, that prior to making any advances, the - ----------------- Corporation shall receive a written undertaking by or on behalf of such person to repay such amounts advanced in the event that it shall be ultimately determined that such person is not entitled to such indemnification. (4) The indemnification and other rights provided by this Article 12 shall not be deemed exclusive of any other rights' to which a person to whom indemnification is or may be otherwise available under these Articles of Incorporation, the By-laws or any agreement, vote of shareholders or disinterested directors or otherwise. This Corporation is authorized to purchase and maintain insurance on behalf of the Corporation or any person to whom indemnification is or may be available against any liability asserted against such person in, or arising out of, such person's status as director, officer, employee or agent of this Corporation, any of its Subsidiaries or another corporation, banking association, partnership, joint venture, trust or other enterprise (including an employee benefit plan) which such person is serving at the request of the Corporation. (5) Each person to whom indemnification is granted under subsection (1) of this Article 12 is entitled to rely upon the indemnification and other rights granted hereby as a contract with this Corporation and such person and such person's heirs, executors, administrator and estate shall be entitled to enforce against this Corporation all indemnification and other rights granted to such person by subsections (1) and (3) and this subsection (5) of this Article 12. The indemnification and other rights granted by subsections (1) and (3) and this subsection (5) of this Article 12 shall survive amendment, modification or repeal of this Article, and no such amendment, modification or repeal shall act to reduce, terminate or otherwise adversely affect the rights to indemnification granted hereby, with respect to any expenses, judgments, fines and amounts paid in settlement incurred by a person to whom indemnification is granted under subsection (1) of this Article 12 with respect to an action, suit, proceeding or claim that arises out of acts or omissions of such person that occurred prior to the effective date of such amendment, modification or repeal. -8- 11 Any indemnification granted by the Board of Directors pursuant to subsection (2) of this Article 12, shall inure to the person to whom the indemnification is granted, and such person's heirs, executors, administrator and estate; provided however, ---------------- that such indemnification may be changed, modified or repealed, at any time or from time to time, at the discretion of the Board of Directors and the survival of such indemnification shall be in accordance with terms determined by the Board of Directors. (6) For the purposes of this Article 12, "Subsidiary" shall mean any corporation, banking association, partnership, joint venture, trust, or other enterprise of which a majority of the equity or ownership interest is directly or indirectly owned by this Corporation. ARTICLE 13 ---------- A. Vote Required for Business Combinations. In addition ---------------------------------------- to any affirmative vote required by law, and except as otherwise expressly provided in Section B of this Article 13, a Business Combination (as hereinafter defined) may not be consummated or effected unless such transaction shall first have received the affirmative vote of the holders of at least seventy-five percent (75%) of the total votes to which all of the then outstanding shares of capital stock of the Corporation are entitled, voting together as a Single class (it being understood that for the purposes of this Article 13, each share of the voting stock shall be entitled to the number of votes granted to it by law or pursuant to Article 3 of these Articles of Incorporation) ("Voting Stock"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by or pursuant to law, these Articles of Incorporation, or any agreement. B. Exception. Section A of this Article 13 shall not be ---------- applicable to a Business Combination, and such Business Combination shall require only the affirmative vote (if any) as required by law or otherwise, if the Business Combination shall have been expressly approved by the Board of Directors of the Corporation by the affirmative vote or consent of at least sixty-six and two-thirds percent (66 2/3%) of the number of directors of the Corporation as then authorized by, or in the manner provided in, the By-laws. In determining whether or not to approve any such Business Combination, the Board of Directors shall give due consideration to all factors the Board may consider relevant, including without limitation: (1) the legal and economic effects on the depositors and customers of the Corporation and its subsidiaries, on the communities and geographic areas in which the Corporation and its subsidiaries operate or are located, and on any of she businesses and properties of the Corporation and its subsidiaries, and (2) the adequacy of the consideration offered in relation not only to the current market price of the outstanding securities of the Corporation but also to the current value of the Corporation in a freely negotiated transaction and the Board -9- 12 of Directors' estimate of the future value of the Corporation (including the unrealized value of its properties and assets) as an independent going concern. C. Definitions. For the purposes of Article 13 of the ------------ Articles of Incorporation: (1) A "Business Combination" shall mean: (a) any merger, consolidation or exchange of shares of capital stock of the Corporation or any Subsidiary (as hereinafter defined) with or into any Interested Person (as hereinafter defined) or any other corporation or entity (whether or not it is an Interested Person) which is, or after such merger, consolidation or exchange of shares would be, an Interested Person or an Affiliate (as hereinafter defined) of an Interested Person, regardless of the surviving entity; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with an Interested Person or any Affiliate of any Interested Person (in a single transaction or a series of related transactions) other than in the ordinary course of business, of all or a substantial part of the assets of the Corporation or of any Subsidiary, or both; or (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the Corporation or any Subsidiary (in a single transaction or a series of related transactions) other than in the ordinary course of business, of all or a substantial part of the assets of an Interested Person or any Affiliate of an Interested Person, or both; or (d) any issuance or transfer by the Corporation or any Subsidiary of any securities of the Corporation or any Subsidiary to an Interested Person or any Affiliate of an Interested Person (other than an issuance or transfer of securities which is effected on a pro rata basis to all shareholders of the Corporation); or (e) any acquisition by the Corporation or any Subsidiary, other than in the ordinary course of business, of: (i) any securities of an Interested Person or any Affiliate of an Interested Persons, or (ii) any securities of the Corporation which are owned by an Interested Person or an Affiliate of an Interested Person; or (f) any recapitalization or reclassification of shares of any class of capital stock of the Corporation or any Subsidiary, or any merger or consolidation of the Corporation with any Subsidiary (whether or not involving an Interested Person), which transaction would have the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of -10- 13 any class of capital stock of the Corporation (or any securities convertible into any class of such capital stock) with respect to which an Interested Person or an Affiliate of an Interested Person is the "Beneficial Owner" (as hereinafter defined); or (g) any merger or consolidation of the Corporation with any Subsidiary after which the provisions of this Article 13 shall not be contained in the articles of incorporation of the surviving entity; or (h) any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an interested Person or an Affiliate of an Interested Person; or (i) any agreement, contract, plan, proposal or other arrangement providing for any of the foregoing. (2) An "Interested Person" shall mean any individual, partnership, firm, corporation or other entity (other than the Corporation or any subsidiary) who or which, directly or indirectly, together with any of his or its Affiliates and Associates (as hereinafter defined), is, or at any time within the one-year period immediately prior to the date in question was, the Beneficial Owner of five percent (5%) or more of the voting power of the outstanding Voting Stock. (3) A "Subsidiary" shall mean any corporation, of which a majority of its capital stock is directly or indirectly owned by the Corporation. (4) The term "Beneficial Owner" shall have the meaning ascribed to such term by Rule l3d-3 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as in effect on February 1, 1985. (5) The term "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule l2b-2 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as in effect on February 1, 1985. D. Vote Required for Amendment. Any amendment, ---------------------------- alteration, change or repeal of the provisions of this Article 13 shall, in addition to any affirmative vote required by law or otherwise, require the affirmative vote of the holders of at least seventy-five percent (75%) of the Voting Stock of the Corporation, unless such amendment, alteration, change or repeal has previously been expressly approved by the Board of Directors of the Corporation by the affirmative vote or consent of at least sixty-six and two-thirds percent (66 2/3%) of the number of Directors then authorized by, or in the manner provided in, the By-laws, in which case the shareholder vote required by this Section D of Article 13 shall not apply. -11- 14 EX-10.3 3 1 EXHIBIT 10.3 2 EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and between Mercantile Bancorporation Inc., a Missouri corporation (the "Company") and Alvin J. Siteman (the "Executive"), dated as of the 18th day of November, 1996. The Executive Committee of the Board of Directors of the Company (the "Company Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the dedication of the Executive pending the merger of Mark Twain Bancshares, Inc. ("Mark Twain") and the Company (the "Merger") pursuant to the Agreement and Plan of Merger dated as of October 27, 1996, and to provide the surviving corporation after the Merger with continuity of management. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the --------------- date on which the Effective Time of the Merger (as defined in the Merger Agreement) occurs, provided that the Effective Time occurs on or before December 31, 1997, or such later date as may be mutually agreed upon by the Company and Mark Twain. 2. Employment Period. The Company hereby agrees to ------------------ continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending eighteen months after such date (the "Employment Period"). In addition, the Company hereby agrees to nominate the Executive for election to the Board of Directors of the Company for a three-year term expiring in 2000. 3. Terms of Employment. (a) Position and Duties. (i) -------------------- -------------------- During the Employment Period, (A) the Executive shall serve as Chairman of the Board of Directors of the Company's St, Louis banking affiliate ("Bank") and (B) the Executive's services shall be performed in St. Louis. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, and recognizing that Executive is involved in other non-related business activities, the Executive agrees to be available from time to time to devote reasonable attention to the business and affairs of the Bank, including governance of its Board and business development endeavors. (b) Compensation. (i) Base Salary. During the ------------- ------------ Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary") of no less than $420,000. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated 3 companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. During the Employment Period, ------------- in addition to Annual Base Salary, the Executive will be eligible to receive, (I) for each fiscal year during which the Executive is employed, an annual bonus (the "Annual Bonus") in an amount to be determined by the Company Board of Directors, but in no event shall the amount of the Annual Bonus during the first fiscal year during which the Executive is employed (the "First Fiscal Year") be less than $231,000 (the "Minimum Bonus") and (II) for that portion of any fiscal year other than the First Fiscal Year during which the Executive is employed for less than twelve full months, an amount equal to the product of (x) the greater of (A) the Minimum Bonus and (B) any other Annual Bonus paid to the Executive during the Employment Period, and (y) a fraction, the numerator of which is the number of days in such fiscal year during which the Executive is employed by the Company, and the denominator of which is 365. Each such Annual Bonus shall be paid in cash in a manner and at a time in accordance with the Company's customary practices with respect to other peer executives of the Company. The Annual Bonus with respect to fiscal year 1997 shall be paid no later than January 31, 1998. (iii) Incentive Savings and Retirement Plans. --------------------------------------- During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the ---------------------- Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the --------- Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the Company's policies. (vi) Fringe Benefits. During the Employment ---------------- period, the Executive shall be entitled to fringe benefits on a basis no less favorable than that applicable to other peer executives of the Company and its affiliated companies, and also, to the extent that the Executive receives such fringe benefits as of the date hereof, payment of club dues and use of an automobile and payment of related expenses. (vii) Office and Support Staff. During the ------------------------- Employment Period, the Executive shall be entitled to an office or offices, one of which shall be located in Clayton, 2 4 Missouri, of a size and with furnishings and other appointments, and to personal secretarial and other assistance, as provided generally to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, --------- the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies on the basis no less favorable than that applicable to other peer executives of the Company and its affiliated companies. 4. Termination of Employment. (a) Death or Disability. -------------------------- -------------------- The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company or Bank on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company or Bank may terminate the ------ Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The Executive's willful and continued failure to substantially perform his duties (other than as a result of incapacity due to physical or mental condition), after a written demand for performance is delivered to the Executive which specifically identifies the manner in which the Executive has not substantially performed his duties; or (ii) The Executive's willful commission or misconduct which is materially injurious to the Company and/or Bank, monetarily or otherwise; or (iii) Conviction of the Executive of a felony; or (iv) A determination by the Company or Bank that the Executive has committed fraud, embezzlement, theft, or misappropriation against or from the Company or Bank; or 3 5 (v) The Executive's material breach of any provision of this Agreement, including any breach of Section 10. For purposes of this Section, no act or failure to act shall be considered "willful" unless done or omitted to be done without good faith and without a reasonable belief that the act or omission was in the best interest of the Company and/or Bank. (c) Good Reason. The Executive's employment may be ------------ terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean a termination by the Executive following a material breach of this Agreement by the Company that is not cured after reasonable notice of such breach. (d) Notice of Termination. Any termination by the ---------------------- Company or Bank for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive, the Company or Bank to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive, the Company or Bank, respectively, hereunder or preclude the Executive, the Company or Bank, respectively, from asserting such fact or circumstance in enforcing the Executive's, the Company's or Bank's rights hereunder. (e) Date of Termination. "Date of Termination" means -------------------- (i) if the Executive's employment is terminated by the Company or Bank for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company or Bank other than for Cause or Disability, the Date of Termination shall be the date on which the Company or Bank notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good -------------------------------------------- ---- Reason; Other Than for Cause, Death or Disability. If, during - -------------------------------------------------- the Employment Period, the Company or Bank shall terminate the Executive's employment other than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason, then, subject to Section 6 of this Agreement: 4 6 (i) The Company shall pay to the Executive the aggregate of the following amounts: A. The sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid ("Accrued Salary") and (2) the product of (x) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any, or, in the event that a fiscal year has not been completed during the Employment Period as of the Date of Termination, the Minimum Bonus, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365 (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. The greater of (1) the amount equal to the product of (i) the number of months remaining in the Employment Period on the Date of Termination (the "Continuation Period"), divided by twelve and (ii) the sum of (x) the Executive's Annual Base Salary and (y) the Annual Bonus paid or payable for the most recently completed fiscal year during the Employment Period (the "Recent Annual Bonus"), or, in the event that a fiscal year has not been completed during the Employment Period as of the Date of Termination, the Minimum Bonus, and (2) the amount equal to the sum of (x) the Executive's Annual Base Salary and (y) the Recent Annual Bonus, payable in 24 equal monthly installments (as appropriate, the "Termination Payment"); (ii) For the greater of (1) one year or (2) the Continuation Period, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall after the Executive's Date of Termination continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families; (iii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is ------ terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than 5 7 for payment of Accrued Obligations and the Termination Payment and the timely payment or provision of Other Benefits. Accrued Obligations and the Termination Payment shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is ----------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligation to the Executive, other than for payment of Accrued Obligations, the Termination Payment and the timely payment or provision of Other Benefits. Accrued Obligations and the Termination Payment shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause: Other than for Good Reason. If the ---------------------------------- Executive's employment shall be terminated for Cause or by the Executive other than for Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive his Accrued Salary and Other Benefits, in each case to the extent theretofore unpaid. 6. Non-exclusivity of Rights. Nothing in this Agreement -------------------------- shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company, or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. In accordance with the foregoing and not in limitation thereof the Executive and his spouse shall be entitled to 6 8 medical coverage in accordance with the letter to the Executive from Keith Miller attached hereto as Exhibit A and to retirement benefits in an amount no less than those indicated on Exhibit B attached hereto. 7. Full Settlement. The Company's obligation to make the ---------------- payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Reduction of Payments by the Company. (a) For --------------------------------------------- purposes of this Section 8, (i) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise; (ii) "Separation Payment" shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section); (iii) "Net After Tax Receipt" shall mean the Present Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), determined by applying the highest marginal rate under Section 1 of the Code which applied to the Executive's taxable income for the immediately preceding taxable year; (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the greatest aggregate amount of Separation Payments which (a) is less than the sum of all Separation Payments and (b) results in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the Executive were paid the sum of all Separation Payments. (b) Anything in this Agreement to the contrary notwithstanding, in the event KPMG Peat Marwick LLP or such other nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") shall determine that receipt of all payments would subject the Executive to tax under Section 4999 of the Code, it shall determine whether some amount of Separation Payments would meet the definition of a "Reduced Amount." If the Accounting Firm determines that there is a Reduced Amount, the aggregate Separation Payments shall be reduced to such Reduced Amount. All fees payable to the Accounting Firm shall be paid solely by the Company. 7 9 (c) If the Accounting Firm determines that aggregate Separation Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect, in his sole discretion, which and how much of the Separation Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Separation Payments equals the Reduced Amount), and shall advise the Company in writing of his election within ten days of his receipt of notice. If no such election is made by the Executive within such ten-day period, the Company may elect which of such Separation Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Separation Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Accounting Firm under this Section shall be binding upon the Company and the Executive and shall be made within 60 days of a termination of employment of the Executive. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Executive such Separation Payments as are then due to the Executive under this Agreement and shall promptly pay to or distribute for the benefit of the Executive in the future such Separation Payments as become due to the Executive under this Agreement. (d) While it is the intention of the Company to reduce the amounts payable or distributable to the Executive hereunder only if the aggregate Net After Tax Receipts to an Executive would thereby be increased, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive which deficiency the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Executive to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. 8 10 9. Confidential Information. The Executive shall hold in a ------------------------- fiduciary capacity for the benefit of the Company and Bank all secret or confidential information, knowledge or data relating to the Company or Bank or any of their affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. Covenant Not To Engage in Competitive or Other ---------------------------------------------- Detrimental Activities. (a) The Executive covenants that from - ----------------------- and after the Effective Date he will not compete with the Company, Bank and/or their affiliates and further covenants that he will not take any action which is detrimental to the Company, Bank and/or their affiliates (i) during the Employment Period, and (ii) if the Executive's employment terminates for any reason (other than the Executive's death) or no reason during the Employment Period, for an additional three (3) year period of time beginning on the Date of Termination. (b) For purposes of paragraph (a) of this Section 10, the Executive shall be deemed to be competing with the Company, Bank and/or their affiliates at any time if the Executive accepts employment with, or serves as an agent, employee, or director of, or a consultant to, a competitor of the Company, Bank and/or their affiliates, or during such time the Executive acquires or has an interest (direct or indirect) in any firm, corporation or enterprise engaged in a business which is in competition with the Company, Bank and/or their affiliates, or at any time, either during employment or thereafter, the Executive divulges any information concerning the Company, Bank and/or their affiliates which is or could be of aid to any such competitor. The mere ownership of a less than a 3% debt and/or equity interest in a competing company whose stock is publicly held shall not be considered as having the prohibited interest in a competitor, and neither shall the mere ownership of a less than a 10% debt and/or equity interest in a competing company whose stock is not publicly held. For purposes of this Agreement, any commercial bank, savings and loan association, securities broker or dealer, or other business or financial institution that offers any major service at the time offered by the Company, Bank and/or their affiliates, and which conducts business in any location encompassed within the areas circumscribed by circles, of which the radii are 50 miles and the mid-points are the geographic centers of Kansas City, Missouri, and St. Louis, Missouri, shall be deemed to be a competitor, (c) Should the Company reasonably believe that the Executive has violated any of the foregoing provisions, it shall give the Executive written notice to such effect, stating the reason(s), for its belief, and pending a final determination as to whether there has been a violation may, without penalty or risk of claim for actual or punitive damages, 9 11 suspend payment of any further amount which might otherwise become payable hereunder. The Company shall, in an expeditious manner, determine from all information available to it whether the Executive violated any of the foregoing covenants, and if the Company in good faith concludes that the Executive has violated this Agreement, the Executive shall not be entitled to any further payment hereunder. (d) The Executive represents, acknowledges and agrees (i) that his experience and capabilities are such that he can obtain employment in activities which do not violate such agreement and that the enforcement by way of injunction of the agreement not to compete will not prevent the Executive from earning a livelihood, (ii) that the Company and Bank do not have an adequate remedy at law for a breach or threatened breach by the Executive of the covenants in this Section and may obtain injunctive and other equitable relief, in addition to receiving its actual damages and any other remedies that may be available to it hereunder or at law or by statute, (iii) that the covenants herein contained are reasonable and necessary for the proper protection of the Company, and (iv) that if any provision or part of any such covenant is invalidated, the remainder shall nevertheless continue to be valid and fully enforceable, and if a court determines that the term of the covenant is too long or the area covered thereby too great, so that the covenant as written is unenforceable, the covenant shall be modified to encompass the longest duration and largest geographic area that the court deems enforceable under the law. 11. Successors. (a) This Agreement is personal to the ----------- Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed -------------- by and construed in accordance with the laws of the State of Missouri, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 10 12 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows; If to the Executive: -------------------- Alvin J. Siteman 11 Terryhill Lane St. Louis, Missouri 63131 If to the Company: ------------------ Mercantile Bancorporation Inc. One Mercantile Center St. Louis, Missouri 63101 Attention: Chairman and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that effective on the Effective Date the agreement between the Executive and Mark Twain dated as of February 1, 1995, shall be superseded by this Agreement, and that the terms and conditions of this Agreement shall be controlling during the Employment Period. Employment hereunder shall be deemed to be continued employment with Mark Twain and its successors for purposes of all option agreements entered into between the Executive and Mark Twain prior to the Effective Date. (g) Either party shall have the right to seek judicial review and determination of any conclusion or action of the other party concerning the interpretation of the provisions 11 13 of this Agreement or the determination of one party that the other party is in violation of a provision of this Agreement or a determination of existence of Cause or Good Reason. IN WITNESS WHEREOF, the Company and the Executive have caused these presents to be executed in their respective names on their behalf, all as of the day and year first above written. s/Alvin J. Siteman ------------------------------------------------ Alvin J. Siteman MERCANTILE BANCORPORATION INC. s/John H. Beirise ------------------------------------------------ By: John H. Beirise Group President-Emerging Markets 12 14 EX-10.4 4 1 EXHIBIT 10.4 2 EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and between Mercantile Bancorporation Inc., a Missouri corporation (the "Company") and John P. Dubinsky (the "Executive"), dated as of the 27th day of October, 1996. The Executive Committee of the Board of Directors of the Company (the "Company Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the dedication of the Executive pending the merger of Mark Twain Bancshares, Inc. ("Mark Twain") and the Company (the "Merger") pursuant to the Agreement and Plan of Merger dated as of October 27, 1996, and to provide the surviving corporation after the Merger with continuity of management. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the --------------- date on which the Effective Time of the Merger (as defined in the Merger Agreement) occurs, provided that the Effective Time occurs on or before December 31, 1997, or such later date as may be mutually agreed upon by the Company and Mark Twain. 2. Employment Period. The Company hereby agrees to ------------------ continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 3. Terms of Employment. (a) Position and Duties. (i) -------------------- -------------------- During the Employment Period, (A) the Executive shall serve as President and Chief Executive Officer of the Company's St. Louis banking affiliate ("Bank") and as a member of the Company's Management Executive Committee and (B) the Executive's services shall be performed in St. Louis, Missouri. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of Bank and to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. The Executive will be the officer responsible for retail and commercial banking activities in the metropolitan St. Louis market and shall report directly to the Chairman and Chief Executive Officer of the Company. (b) Compensation. (i) Base Salary. During the ------------- ------------ Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at an annual rate of 105% of the Executive's annual base salary as of the date hereof. During the Employment Period, the Annual Base Salary shall be reviewed annually in accordance with the Company's customary practice and adjusted in accordance with the base salary 3 adjustment, if any, of other peer executives of the Company. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. During the Employment Period, ------------- in addition to Annual Base Salary, the Executive will be eligible to receive, (I) for each fiscal year of the Company during which the Executive is employed, an annual bonus (the "Annual Bonus") in an amount to be determined by the Company Board of Directors, but in no event shall the amount of the Annual Bonus during the first fiscal year during which the Executive is employed (the "First Fiscal Year") be less than the product of (x) .55 and (y) the Annual Base Salary (the "Minimum Bonus") and (II) for that portion of any fiscal year of the Company other than the First Fiscal Year during which the Executive is employed for less than twelve full months, an amount equal to the product of (x) the greater of (A) the Minimum Bonus and (B) any other Annual Bonus paid to the Executive during the Employment Period, and (y) a fraction, the numerator of which is the number of days in such fiscal year during which the Executive is employed by the Company, and the denominator of which is 365. Each such Annual Bonus shall be paid in cash in a manner and at a time in accordance with the Company's customary practices with respect to other peer executives of the Company, but not later than January 31st of the year following the year to which such Annual Bonus relates. (iii) Incentive, Savings and Retirement Plans. ---------------------------------------- During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the ---------------------- Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the --------- Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the Company's policies. (vi) Fringe Benefits. During the Employment ---------------- Period, the Executive shall be entitled to fringe benefits on a basis no less favorable than that applicable to other peer executives of the Company and its affiliated companies, and also, to the extent that the 2 4 Executive receives such fringe benefits as of the date hereof, payment of club dues and use of an automobile and payment of related expenses. (vii) Office and Support Staff. During the ------------------------- Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, as provided generally to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, --------- the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies on the basis no less favorable than that applicable to other peer executives of the Company and its affiliated companies. 4. Termination of Employment. (a) Death or Disability. -------------------------- -------------------- The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company or Bank on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company or Bank may terminate the ------ Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The Executive's willful and continued failure to substantially perform his duties (other than as a result of incapacity due to physical or mental condition), after a written demand for performance is delivered to the Executive which specifically identifies the manner in which the Executive has not substantially performed his duties; or (ii) The Executive's willful commission or misconduct which is materially injurious to the Company and/or Bank, monetarily or otherwise; or (iii) Conviction of the Executive of a felony; or 3 5 (iv) A determination by the Company or Bank that the Executive has committed fraud, embezzlement, theft, or misappropriation against or from the Company or Bank; or (v) The Executive's material breach of any provision of this Agreement, including any breach of Section 10. For purposes of this Section, no act or failure to act shall be considered "willful" unless done or omitted to be done without good faith and without a reasonable belief that the act or omission was in the best interest of the Company and/or Bank. (c) Good Reason. The Executive's employment may be ------------ terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean a termination by the Executive following a material breach of this Agreement by the Company that is not cured after reasonable notice of such breach. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive of his employment for any reason or no reason during the 30-day period immediately following the thirteenth (13th) month anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the ---------------------- Company or Bank for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive, the Company or Bank to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive, the Company or Bank, respectively, hereunder or preclude the Executive, the Company or Bank, respectively, from asserting such fact or circumstance in enforcing the Executive's, the Company's or Bank's rights hereunder. (e) Date of Termination. "Date of Termination" means -------------------- (i) if the Executive's employment is terminated by the Company or Bank for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company or Bank other than for Cause or Disability, the Date of Termination shall be the date on which the Company or Bank notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 4 6 5. Obligations of the Company upon Termination. (a) Good -------------------------------------------- ---- Reason; Other Than for Cause, Death or Disability. If, during - -------------------------------------------------- the Employment Period, (I) the Company or Bank shall terminate the Executive's employment other than for Cause, Death or Disability or (II) the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive the aggregate of the following amounts: A. The Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid ("Accrued Salary"), provided that if the employment of the Executive is terminated without Cause or for Good Reason before the fourteenth (14th) month anniversary date of the Effective Date, the Date of Termination shall be deemed to be said fourteenth (14th) month anniversary date and the Accrued Bonus (as defined in paragraph 5(b)) shall be added to and be deemed a part of the Annual Base Salary; and B. $1.2 million, payable in 24 equal monthly installments (the "Termination Payment") (which is approximately the amount that would be owed to the Executive as a termination payment under the existing employment arrangements with Mark Twain). (ii) For the greater of (1) twelve months or (2) the number of months remaining in the Employment Period on the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy (the "Benefit Continuation Period"), the Company shall after the Executive's Date of Termination continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed during the Benefit Continuation Period and to have retired an the last day of such period; (iii) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). 5 7 (b) Death. If the Executive's employment is ------ terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Salary and the Termination Payment (if not previously paid), an amount equal to the product of (x) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year of the Company consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any, or, in the event that a fiscal year of the Company has not been completed during the Employment Period as of the Date of Termination, the Minimum Bonus, and (y) a fraction, the numerator of which is the number of days in the current fiscal year of the Company through the Date of Termination, and the denominator, of which is 365 (the "Accrued Bonus") and the timely payment or provision of Other Benefits. The Accrued Salary, the Termination Payment and Accrued Bonus shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is ----------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Salary, the Termination Payment (if not previously paid), Accrued Bonus, and the timely payment or provision of Other Benefits. The Accrued Salary, the Termination Payment and the Accrued Bonus shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the ---------------------------------- Executive's employment shall be terminated for Cause or by the Executive other than for Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the 6 8 Executive other than the obligation to pay to the Executive his Accrued Salary and Other Benefits, in each case to the extent theretofore unpaid. 6. Non-exclusivity of Rights. Nothing in this Agreement -------------------------- shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the ---------------- payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Reduction of Payments by the Company. (a) For --------------------------------------------- purposes of this Section 8, (i) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise; (ii) "Separation Payment" shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section); (iii) "Net After Tax Receipt" shall mean the Present Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), determined by applying the highest marginal rate under Section 1 of the Code which applied to the Executive's taxable income for the immediately preceding taxable year; (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the greatest aggregate amount of Separation Payments which (a) is less than the sum of all Separation Payments and (b) results in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the Executive were paid the sum of all Separation Payments. 7 9 (b) Anything in this Agreement to the contrary notwithstanding, in the event KPMG Peat Marwick LLP or such other nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm") shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, it shall determine whether some amount of Separation Payments would meet the definition of a "Reduced Amount." If the Accounting Firm determines that there is a Reduced Amount, the aggregate Separation Payments shall be reduced to such Reduced Amount. All fees payable to the Accounting Firm shall be paid solely by the Company. (c) If the Accounting Firm determines that aggregate Separation Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect, in his sole discretion, which and how much of the Separation Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Separation Payments equals the Reduced Amount), and shall advise the Company in writing of his election within ten days of his receipt of notice. If no such election is made by the Executive within such ten-day period, the Company may elect which of such Separation Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Separation Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Accounting Firm under this Section shall be binding upon the Company and the Executive and shall be made within 60 days of a termination of employment of the Executive. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Executive such Separation Payments as are then due to the Executive under this Agreement and shall promptly pay to or distribute for the benefit of the Executive in the future such Separation Payments as become due to the Executive under this Agreement. (d) While it is the intention of the Company to reduce the amounts payable or distributable to the Executive hereunder only if the aggregate Net After Tax Receipts to an Executive would thereby be increased, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive which deficiency the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been 8 10 made and no amount shall be payable by the Executive to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. 9. Confidential Information. The Executive shall hold in a ------------------------- fiduciary capacity for the benefit of the Company and Bank all secret or confidential information, knowledge or data relating to the Company or Bank or any of their affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. Covenant Not To Engage in Competitive or Other ---------------------------------------------- Detrimental Activities. (a) The Executive covenants that from - ----------------------- and after the Effective Date he will not compete with the Company, Bank and/or their affiliates and further covenants that he will not take any action which is detrimental to the Company, Bank and/or their affiliates (i) during the Employment Period, and (ii) if the Executive's employment terminates for any reason (other than the Executive's death) or no reason during the Employment Period, for an additional three (3) year period of time beginning on the Date of Termination. (b) For purposes of paragraph (a) of this Section 10, the Executive shall be deemed to be competing with the Company, Bank and/or their affiliates at any time if the Executive accepts employment with, or serves as an agent, employee, or director of, or a consultant to, a competitor of the Company, Bank and/or their affiliates, or during such time the Executive acquires or has an interest (direct or indirect) in any firm, corporation or enterprise engaged in a business which is in competition with the Company, Bank and/or their affiliates, or at any time, either during employment or thereafter, the Executive divulges any information concerning the Company, Bank and/or their affiliates which is or could be of aid to any such competitor. The mere ownership of a less than a 3% debt and/or equity interest in a competing company whose stock is publicly held shall not be considered as having the prohibited interest in a competitor, and neither shall the mere ownership of a less than a 10% debt and/or equity interest in a competing company whose stock is not publicly held. For purposes of this Agreement, any commercial bank, savings and loan association, securities broker or dealer, or other business or financial institution that is principally engaged in the business of offering any service at the time offered by the Company, Bank 9 11 and/or their affiliates, and which conducts business in any location encompassed within the areas circumscribed by circles, of which the radii are 50 miles and the mid-points are the geographic centers of Kansas City, Missouri, and St. Louis, Missouri, shall be deemed to be a competitor. (c) Should the Company reasonably and in good faith believe that the Executive has violated any of the foregoing provisions, it shall give the Executive written notice to such effect, stating the reason(s) for its belief, and pending a final determination as to whether there has been a violation may, without penalty or risk of claim for actual or punitive damages, suspend payment of any further amount which might otherwise become payable hereunder after thirty (30) days of giving such notice. The Company shall, in an expeditious manner, determine from all information available to it whether the Executive violated any of the foregoing covenants, and if the Company in good faith concludes that the Executive has violated this Agreement, the Executive shall not be entitled to any further payment hereunder. (d) The Executive represents, acknowledges and agrees (i) that his experience and capabilities are such that he can obtain employment in activities which do not violate such agreement and that the enforcement by way of injunction of the agreement not to compete will not prevent the Executive from earning a livelihood, (ii) that the Company and Bank do not have an adequate remedy at law for a breach or threatened breach by the Executive of the covenants in this Section and may obtain injunctive and other equitable relief, in addition to receiving its actual damages and any other remedies that may be available to it hereunder or at law or by statute, (iii) that the covenants herein contained are reasonable and necessary for the proper protection of the Company, and (iv) that if any provision or part of any such covenant is invalidated, the remainder shall nevertheless continue to be valid and fully enforceable, and if a court determines that the term of the covenant is too long or the area covered thereby too great, so that the covenant as written is unenforceable, the covenant shall be modified to encompass the longest duration and largest geographic area that the court deems enforceable under the law. 11. Successors. (a) This Agreement is personal to the ----------- Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the 10 12 Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by -------------- and construed in accordance with the laws of the State of Missouri, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: -------------------- John P. Dubinsky 7370 Westmoreland Drive St. Louis, Missouri 63130 If to the Company: ------------------ Mercantile Bancorporation Inc. One Mercantile Center St. Louis, Missouri 63101 Attention: Chairman and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 11 13 (f) The Executive and the Company acknowledge that effective on the Effective Date the agreement between the Executive and Mark Twain dated as of 2/1/95 will be superseded by this Agreement, and that the terms and conditions of this Agreement shall be controlling during the Employment Period. Employment hereunder shall be deemed to be continued employment with Mark Twain and its successors for purposes of all option agreements entered into between the Executive and Mark Twain prior to the Effective Date. (g) Either party shall have the right to seek a judicial review and determination of any conclusion or action of the other party concerning the interpretation of the provisions of this Agreement or the determination of one party that the other party is in violation of a provision of this Agreement or a determination of existence of Cause or Good Reason. IN WITNESS WHEREOF, the Company and the Executive have caused these presents to be executed in their respective names on their behalf, all as of the day and year first above written. s/John P. Dubinsky ------------------------------------------------ John P. Dubinsky MERCANTILE BANCORPORATION INC. s/John H. Beirise ------------------------------------------------ By: John H. Beirise Group President-Emerging Markets 12 EX-27 5 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 883,304 109,614 196,325 753 3,784,185 325,145 327,070 13,015,474 198,061 18,947,568 14,911,809 1,613,580 235,703 449,993 0 0 135,612 1,425,871 18,947,568 274,754 61,539 3,646 339,939 130,296 160,424 179,515 18,198 1,049 143,686 93,146 93,146 0 0 60,336 1.00 1.00 4.27 70,639 30,803 2,953 0 196,627 23,995 5,616 198,061 198,061 0 0 Only reported at year end
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