-----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, HUIEMzVhHDYaaZespsfqo0ep7uNNqGbwBOx3B/j6zSkB8lNH6GQdteCxS/t1/oQu a24qJcZ7hqKdfIHCdYvbGw== 0000950114-97-000372.txt : 19970815 0000950114-97-000372.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950114-97-000372 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97661343 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 JUNE 30, 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, 130,143,195 SHARES OUTSTANDING AS OF THE CLOSE OF BUSINESS ON JULY 31, 1997. THE NUMBER OF SHARES OUTSTANDING HAS BEEN RESTATED TO GIVE EFFECT TO A THREE-FOR-TWO STOCK SPLIT DECLARED ON JULY 16, 1997, TO BE DISTRIBUTED ON OCTOBER 1, 1997. =============================================================================== 2 INDEX PART I--FINANCIAL INFORMATION
PAGE NO. ------- Item 1--Financial Statements Consolidated Statement of Income Three months and six months ended June 30, 1997 and 1996 4 Consolidated Balance Sheet June 30, 1997 and 1996, and December 31, 1996 5 Consolidated Statement of Changes in Shareholders' Equity Six months ended June 30, 1997 and 1996 6 Consolidated Statement of Cash Flows Six months ended June 30, 1997 and 1996 7 Notes to Consolidated Financial Statements 8 Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II--OTHER INFORMATION Item 6--Exhibits and Reports on Form 8-K 23 Signature 25 Exhibit Index 26
SPECIAL NOTE Certain statements in this report that relate to the plans, objectives or future performance of Mercantile Bancorporation Inc. may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on Management's current expectations. Actual strategies and results in future periods may differ materially from those currently expected because of various risks and uncertainties. 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 SIX MONTHS ENDED JUNE 30 JUNE 30 1997 1996 1997 1996 ---- ---- ---- ---- INTEREST INCOME Interest and fees on loans and leases $331,688 $303,073 $652,959 $604,462 Investments in debt and equity securities Trading 1,636 708 2,800 1,998 Taxable 67,185 71,984 133,949 140,627 Tax-exempt 5,164 5,642 10,518 11,592 -------- -------- -------- -------- Total 73,985 78,334 147,267 154,217 Due from banks--interest bearing 1,800 946 3,036 1,782 Federal funds sold and repurchase agreements 3,690 3,556 6,363 7,371 -------- -------- -------- -------- Total Interest Income 411,163 385,909 809,625 767,832 INTEREST EXPENSE Interest bearing deposits 148,875 147,482 297,920 298,706 Foreign deposits 6,722 2,121 11,439 4,622 Short-term borrowings 27,888 18,753 50,760 36,015 Bank notes 2,633 3,937 5,173 7,909 Long-term debt 9,482 6,058 16,809 12,484 -------- -------- -------- -------- Total Interest Expense 195,600 178,351 382,101 359,736 -------- -------- -------- -------- NET INTEREST INCOME 215,563 207,558 427,524 408,096 PROVISION FOR POSSIBLE LOAN LOSSES(1) 27,695 11,152 46,138 45,301 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 187,868 196,406 381,386 362,795 OTHER INCOME Trust 24,022 22,347 46,823 43,406 Service charges 22,591 21,967 45,389 43,181 Investment banking and brokerage 7,760 7,631 15,742 16,198 Credit card fees 5,373 8,322 10,772 9,883 Securitization revenue 4,725 3,325 12,017 7,827 Mortgage banking 2,728 2,293 5,506 5,461 Securities gains (losses) 1,818 98 2,867 (2,624) Other 18,910 21,733 36,911 34,179 -------- -------- -------- -------- Total Other Income 87,927 87,716 176,027 157,511 OTHER EXPENSE Salaries 80,599 73,342 158,739 147,070 Employee benefits 17,653 17,731 37,235 36,263 Net occupancy 12,434 11,873 25,146 23,829 Equipment 15,005 13,056 28,821 25,528 Intangible asset amortization 4,603 2,914 8,982 5,736 Other 90,181 43,929 127,147 128,115 -------- -------- -------- -------- Total Other Expense 220,475 162,845 386,070 366,541 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 55,320 121,277 171,343 153,765 INCOME TAXES 23,141 43,216 64,169 58,619 -------- -------- -------- -------- NET INCOME $ 32,179 $ 78,061 $107,174 $ 95,146 ======== ======== ======== ======== PER COMMON SHARE DATA Average shares outstanding 112,054,583 117,083,562 113,450,600 117,404,468 Net income $.29 $.67 $.94 $.81 Dividends declared .287 .273 .574 .546 Includes the following nonrecurring amounts: Provision for possible loan losses $ 6,540 $ -- $ 6,540 $ 10,851 Other income (securities losses) -- -- -- (3,082) Other expense 51,863 -- 51,863 41,678 Income tax benefit (15,977) -- (15,977) (15,599) -------- -------- -------- -------- Impact on Net Income $(42,426) $ -- $(42,426) $(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)
JUNE 30 DEC. 31 JUNE 30 1997 1996 1996 ------- ------- ------- ASSETS Cash and due from banks $ 1,053,338 $ 1,296,053 $ 971,654 Due from banks--interest bearing 180,445 96,453 65,322 Federal funds sold and repurchase agreements 420,988 265,498 207,358 Investments in debt and equity securities Trading 73,429 31,272 23,468 Available-for-sale (Amortized cost of $4,327,370, $4,139,525, and $4,882,454, respectively) 4,336,067 4,149,674 4,860,378 Held-to-maturity (Estimated fair value of $305,797, $567,152 and $229,934, respectively) 303,214 565,045 234,961 ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,712,710 4,745,991 5,118,807 Loans held-for-sale 59,457 66,373 66,470 Loans and leases, net of unearned income 15,361,854 14,886,257 13,900,373 ----------- ----------- ----------- Total Loans and Leases 15,421,311 14,952,630 13,966,843 Reserve for possible loan losses (234,684) (230,372) (236,885) ----------- ----------- ----------- Net Loans and Leases 15,186,627 14,722,258 13,729,958 Bank premises and equipment 388,524 367,311 340,073 Intangible assets 193,120 186,181 122,086 Other assets 443,857 350,634 358,607 ----------- ----------- ----------- Total Assets $22,579,609 $22,030,379 $20,913,865 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 3,105,751 $ 3,003,972 $ 3,010,133 Interest bearing 13,577,786 14,080,592 13,588,873 Foreign 270,908 251,887 97,362 ----------- ----------- ----------- Total Deposits 16,954,445 17,336,451 16,696,368 Federal funds purchased and repurchase agreements 2,057,710 1,781,011 1,327,683 Other short-term borrowings 391,816 206,253 167,592 Bank notes 175,000 175,000 275,000 Long-term debt 796,049 304,831 315,147 Company-obligated mandatorily redeemable preferred securities of Mercantile Capital Trust I 150,000 -- -- Other liabilities 294,337 281,182 252,373 ----------- ----------- ----------- Total Liabilities 20,819,357 20,084,728 19,034,163 Commitments and contingent liabilities -- -- -- JUNE 30 DEC. 31 JUNE 30 1997 1996 1996 ------- ------- ------- SHAREHOLDERS' EQUITY Preferred stock--no par value Shares authorized 5,000 5,000 5,000 Shares issued and outstanding -- -- -- -- -- -- Common stock--$.01 par value at June 30, 1997, and $5.00 par value at December 31, 1996 and June 30, 1996 Shares authorized 200,000 200,000 200,000 Shares issued 117,885 118,821 117,774 1,179 594,107 588,871 Capital surplus 582,567 34,956 29,850 Retained earnings 1,428,844 1,392,218 1,301,775 Valuation on available-for-sale securities 7,797 8,571 (13,797) Treasury stock, at cost 6,821 2,591 908 (260,135) (84,201) (26,997) ----------- ----------- ----------- Total Shareholders' Equity 1,760,252 1,945,651 1,879,702 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $22,579,609 $22,030,379 $20,913,865 =========== =========== ===========
5 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
COMMON STOCK --------------------- TOTAL OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY ----------- ------- --------- ------- ------------ --------- ------------- BALANCE AT DECEMBER 31, 1995 116,815,628 $594,430 $12,153 $ 88,284 $1,281,183 $ (60,557) $1,915,493 Net income 95,146 95,146 Common dividends declared: Mercantile Bancorporation Inc.--$.546 per share (51,598) (51,598) Pooled company prior to acquisition (10,048) (10,048) 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. 296,853 57 14 8,983 9,054 Security Bank of Conway, F.S.B. 482,946 75 14,614 14,689 First Sterling Bancorp, Inc. 782,126 3,911 572 13,772 18,255 Issuance of common stock for: Employee incentive plans 266,283 1,235 (1,182) 534 587 Convertible notes 317,745 1,589 1,945 3,534 Net fair value adjustment on available-for-sale securities (39,552) (39,552) Purchase of treasury stock (1,575,000) (47,678) (47,678) Reissuance and retirement of treasury stock (9,688) (47,478) 57,166 -- Pre-merger transactions of pooled company and other (520,964) (2,606) (12,423) (59) (15,088) ----------- -------- --------- -------- ----------- --------- ----------- BALANCE AT JUNE 30, 1996 116,865,617 $588,871 $ -- $ 29,850 $1,287,978 $ (26,997) $1,879,702 =========== ======== ========= ======== =========== ========= =========== BALANCE AT DECEMBER 31, 1996 116,229,704 $594,107 $ -- $ 34,956 $1,400,789 $ (84,201) $1,945,651 Net income 107,174 107,174 Common dividends declared: Mercantile Bancorporation Inc.--$.574 per share (57,738) (57,738) Pooled company prior to acquisition (12,812) (12,812) Issuance of common stock in acquisition of Regional Bancshares, Inc. 900,625 (474) 361 28,813 28,700 Change in par value of common stock from $5.00 per share to $.01 per share (587,016) 587,016 -- Issuance of common stock for: Employee incentive plans 369,993 388 2,157 3,387 5,932 Convertible notes 73,408 22 794 816 Net fair value adjustment on available-for-sale securities (1,411) (1,411) Purchase of treasury stock (6,724,699) (259,050) (259,050) Reissuance and retirement of treasury stock (7,396) (42,950) 50,346 -- Pre-merger transactions of pooled company and other 214,484 1,074 1,068 278 570 2,990 ----------- -------- --------- -------- ----------- --------- ----------- BALANCE AT JUNE 30, 1997 111,063,515 $ 1,179 $ -- $582,567 $1,436,641 $(260,135) $1,760,252 =========== ======== ========= ======== =========== ========= =========== Includes valuation on available-for-sale securities.
6 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS)
SIX MONTHS ENDED JUNE 30 1997 1996 ---- ---- OPERATING ACTIVITIES Net income $ 107,174 $ 95,146 Adjustments to reconcile net income to net cash provided by operating activities Provision for possible loan losses 46,138 45,301 Depreciation and amortization 24,856 20,111 Provision for deferred income taxes (credits) (4,157) 5,483 Net change in loans held-for-sale 6,916 28,407 Net change in trading securities (42,157) 43,788 Net change in accrued interest receivable (6,983) (3,741) Net change in accrued interest payable 741 (20,654) Other, net (44,819) 67,782 ---------- ---------- Net Cash Provided by Operating Activities 87,709 281,623 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (1,072,164) (1,157,490) Proceeds from maturities 968,083 891,750 Proceeds from sales of available-for-sale securities 324,100 98,079 Net change in loans and leases (531,741) (279,796) Purchases of loans and leases (98,135) (14,558) Proceeds from sales of loans and leases 101,241 139,575 Purchases of premises and equipment (43,803) (34,283) Proceeds from sales of premises and equipment 2,323 6,568 Proceeds from sales of foreclosed property 21,101 18,211 Cash and cash equivalents from acquisitions, net of cash paid (8,132) 41,782 Other, net 1,806 88 ---------- ---------- Net Cash Used by Investing Activities (335,321) (290,074) FINANCING ACTIVITIES Net change in non-interest bearing, savings, interest bearing demand and money market deposit accounts (115,082) 459,827 Net change in time certificates of deposit under $100,000 (249,982) (250,019) Net change in time certificates of deposit $100,000 and over (97,923) (53,941) Net change in other time deposits (73,995) 200,257 Net change in foreign deposits 19,021 (111,808) Net change in short-term borrowings 452,807 (454,488) Issuance of bank notes -- 25,000 Issuance of long-term debt 500,000 2,000 Issuance of company-obligated mandatorily redeemable preferred securities 150,000 -- Principal payments on long-term debt (7,966) (25,429) Cash dividends paid (70,550) (62,054) Proceeds from issuance of common stock 8,936 541 Purchase of treasury stock (270,086) (63,934) Redemption of preferred stock -- (12,684) Other, net (801) 1,168 ---------- ---------- Net Cash Provided (Used) by Financing Activities 244,379 (345,564) ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (3,233) (354,015) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,658,004 1,598,349 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,654,771 $1,244,334 ========== ==========
7 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A ACCOUNTING POLICIES 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 merger-related charges disclosed in Note 1 of the Consolidated Statement of Income on Page 4. Derivative Financial Instruments: Mercantile Bancorporation Inc. ("Mercantile" or "Corporation") is a party to certain financial instruments, primarily to stabilize interest rate margins and to hedge against interest rate movements. An instrument designated to hedge an asset or liability carried at cost is accounted for on an accrual basis, in which interest income or interest expense of the related asset or liability is adjusted for the net amount of any interest receivable or payable generated by the hedging instrument. There is no market valuation on these interest rate contracts. If the underlying assets or liabilities hedged are no longer recorded on the Consolidated Balance Sheet (e.g., due to sale), the gain or loss related to the interest rate contract is recognized through earnings immediately. In the normal course of business, the Corporation does not maintain trading positions in interest rate derivative financial instruments. The Corporation's non-hedging transactions are entered into on behalf of customers and are subsequently matched off by the Corporation. As a consequence, these matched transactions do not represent exposure to market risk. The Corporation manages the potential credit exposure through established credit approvals, risk control limits and other monitoring procedures. These contracts are recorded at their fair value with gains or losses included in the Consolidated Statement of Income. Mercantile has entered into foreign exchange forward contracts, primarily to facilitate customers' foreign exchange requirements. The Corporation maintains a generally matched position; therefore, exchange rate and market risks are minimal. Credit risk to the Corporation could result from non-performance by a counterparty to a contract. Credit risk is managed as indicated in the previous paragraph. Unrealized gains and losses on these foreign exchange forward contracts are reflected in the Consolidated Statement of Income. NOTE B NEW ACCOUNTING STANDARDS 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 share equivalents such as stock options or convertible notes. The Corporation does not anticipate a significant impact when reporting diluted earnings per share. FAS 130, "Reporting Comprehensive Income," and FAS 131, "Disclosures about Segments of an Enterprise and Related Information," were issued in June 1997. Disclosures prescribed in FAS 130 and FAS 131 will be required for periods beginning after December 15, 1997. In January 1997, the Securities and Exchange Commission issued Release No. 33-7386 relating to derivatives and exposures to market risk from derivative and other financial instruments. The market risk disclosures are required commencing with the Corporation's 1997 Annual Report on Form 10-K. Mercantile is currently evaluating the impact of FAS 130, FAS 131 and Release No. 33-7386 on future financial statement disclosures. 8 8 NOTE C SUBSIDIARIES Effective April 25, 1997, the Corporation acquired Mark Twain Bancshares, Inc. ("Mark Twain"), a $3.2 billion-asset bank holding company headquartered in St. Louis, Missouri. The Mark Twain acquisition was accounted for as a pooling-of-interests. The historical consolidated financial statements have been restated to reflect this transaction. Net income and net income per common share for Mercantile and Mark Twain prior to the pooling-of-interests were as follows:
(THOUSANDS EXCEPT PER COMMON SHARE DATA) THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1996 1996 ------------ ---------- MERCANTILE Net income $65,076 $69,641 Net income per common share .69 .73 MARK TWAIN Net income $12,985 $25,505 Primary earnings per share .80 1.55
On July 1, 1997, the Corporation acquired Roosevelt Financial Group, Inc. ("Roosevelt"), a $7.3 billion-asset thrift holding company headquartered in St. Louis, Missouri. The Roosevelt acquisition was accounted for as a purchase. Unaudited pro forma combined consolidated financial data including the Corporation and Roosevelt for the six months ending June 30, 1997 and 1996 is disclosed below. The unaudited pro forma combined consolidated financial data provided includes the impact of goodwill amortization and the reduction in net interest income due to: 1) interest lost on cash paid for share repurchases or paid directly to Roosevelt shareholders as consideration; and 2) interest on $650 million of senior debt, subordinated debt and redeemable preferred securities issued in 1997 to finance the Roosevelt acquisition, offset by interest earned on funds not utilized in the acquisition.
(THOUSANDS EXCEPT PER COMMON SHARE DATA) AS OF OR FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 ------- -------- Total assets $29,961,999 $30,441,637 Net interest income 505,162 481,541 Other income 163,453 176,305 Net income 77,261 105,496 Net income per common share .58 .77
NOTE D COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRRED SECURITIES OF MERCANTILE CAPITAL TRUST I Mercantile Capital Trust I is a wholly-owned subsidiary of the Corporation; its sole assets are the $150,000,000 in mandatorily redeemable preferred securities, and considered together, the back-up undertakings constitute a full and unconditional guarantee by Mercantile Bancorporation Inc. of the trust's obligations under the preferred securities. 9 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. - ---------------------------------------------------------------------------------------------------------------------------- EXHIBIT 1 HIGHLIGHTS
SECOND QUARTER SIX MONTHS ($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA) 1997 1996 CHANGE 1997 1996 CHANGE - ---------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Net income $.29 $.67 (56.7)% $.94 $.81 16.0% Dividends declared .287 .273 5.1 .574 .546 5.1 Book value at June 30 15.85 16.08 (1.4) 15.85 16.08 (1.4) Market price at June 30 40 1/2 29 11/16 36.4 40 1/2 29 11/16 36.4 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS AND SELECTED RATIOS EXCLUDING NONRECURRING MERGER-RELATED EXPENSE Net income $74,605 $78,061 (4.4)% $149,600 $135,158 10.7% Net income per common share .67 .67 -- 1.32 1.15 14.8 Return on assets 1.33% 1.48% 1.36% 1.29% Return on equity 16.38 16.57 16.00 14.08 Efficiency ratio 54.83 54.40 54.66 56.31 Other expense to average assets 3.02 3.09 3.03 3.10 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Taxable-equivalent net interest income $219,577 $211,619 3.8% $435,395 $416,336 4.6% Tax-equivalent adjustment 4,014 4,061 (1.2) 7,871 8,240 (4.5) Net interest income 215,563 207,558 3.9 427,524 408,096 4.8 Provision for possible loan losses 27,695 11,152 -- 46,138 45,301 1.8 Other income 87,927 87,716 .2 176,027 157,511 11.8 Other expense 220,475 162,845 35.4 386,070 366,541 5.3 Income taxes 23,141 43,216 (46.5) 64,169 58,619 9.5 Net income 32,179 78,061 (58.8) 107,174 95,146 12.6 - ---------------------------------------------------------------------------------------------------------------------------- SELECTED RATIOS AND DATA Return on assets .58% 1.48% .97% .91% Return on equity 7.07 16.57 11.46 9.91 Efficiency ratio 71.70 54.40 63.14 63.87 Other expense to average assets 3.94 3.09 3.50 3.50 Net interest rate margin 4.30 4.39 4.33 4.34 Equity to assets 7.80 8.99 Tangible equity to tangible assets 7.00 8.45 Tier I capital to risk-adjusted assets 10.38 11.81 Total capital to risk-adjusted assets 14.19 14.60 Leverage 7.80 8.30 Reserve for possible loan losses to outstanding loans 1.52 1.70 Reserve for possible loan losses to non-performing loans 285.57 327.33 Non-performing assets to outstanding loans and foreclosed assets .62 .61 Banks 28 65 Banking offices 513 471 Full-time equivalent employees 8,718 8,687 - ---------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Total assets $22,369,177 $21,107,134 6.0% $22,066,686 $20,955,279 5.3% Earning assets 20,476,699 19,383,938 5.6 20,275,964 19,279,130 5.2 Loans and leases 15,288,972 13,860,141 10.3 15,141,515 13,823,509 9.5 Deposits 17,460,544 17,101,680 2.1 17,306,659 16,690,670 3.7 Shareholders' equity 1,821,411 1,884,208 (3.3) 1,870,271 1,919,310 (2.6) - ---------------------------------------------------------------------------------------------------------------------------- All previously reported financial information has been restated to reflect the April 25, 1997 merger with Mark Twain Bancshares, Inc., which was accounted for as a pooling-of-interests. All per share amounts have been restated to give effect to a three-for-two stock split declared on July 16, 1997, to be distributed on October 1, 1997. Nonrecurring expense reduced net income in the first six months of 1997 and 1996 by $42,426,000 and $40,012,000, respectively. Includes nonrecurring expense noted in (2) above.
10 10 PERFORMANCE SUMMARY Net income for Mercantile Bancorporation Inc. ("Mercantile" or "Corporation") was $32,179,000 in the second quarter of 1997 versus $78,061,000 in the same period of 1996. Net income for the six months ended June 30, 1997 was $107,174,000 compared with $95,146,000 last year. To allow comparison of the fundamental financial performance of Mercantile, it is helpful to exclude certain one-time charges from the results of operations of both years. Exhibit 2 presents the results for both years adjusted for such charges, which include Mark Twain Bancshares, Inc. ("Mark Twain") and Regional Bancshares, Inc. in 1997, and the four acquisitions noted in Exhibit 3 that closed in the first quarter of 1996. After excluding nonrecurring items, adjusted net income for the second quarter of 1997 was $74,605,000, 4.4% lower than 1996 quarterly net income of $78,061,000. On a per common share basis, adjusted net income was $.67 in both quarters; however, year-to-date 1997 adjusted net income was $149,600,000, an improvement of $14,442,000 or 10.7% over last year. Year-to-date earnings per common share totaled $1.32 versus $1.15 last year, an increase of 14.8%. On July 16, 1997, the Board of Directors declared a three-for-two stock split, in the form of a dividend, with a record date of September 10, 1997, to be distributed October 1, 1997. All per common share amounts in this Management's Discussion and Analysis have been restated to reflect this stock split. - ---------------------------------------------------------------------------------- EXHIBIT 2 ADJUSTED RESULTS
EARNINGS NET INCOME PER COMMON RETURN ON (THOUSANDS) SHARE ASSETS ----------- ---------- --------- SECOND QUARTER ENDED JUNE 30, 1997: REPORTED $ 32,179 $ .29 .58% NONRECURRING ACQUISITION EXPENSE 42,426 .38 .75 --------- ------ ---- ADJUSTED $ 74,605 $ .67 1.33% ========= ====== ==== SIX MONTHS ENDED JUNE 30, 1997: REPORTED $ 107,174 $ .94 .97% NONRECURRING ACQUISITION EXPENSE 42,426 .38 .39 --------- ------ ---- ADJUSTED $ 149,600 $ 1.32 1.36% ========= ====== ==== SIX MONTHS ENDED JUNE 30, 1996: Reported $ 95,146 $ .81 .91% Nonrecurring acquisition expense 40,012 .34 .38 --------- ------ ---- Adjusted $ 135,158 $ 1.15 1.29% ========= ====== ==== - -------------------------------------------------------------------------------
All prior year figures have also been restated to include the pre-acquisition accounts and results of operations of Mark Twain, a bank holding company with assets totaling $3.2 billion, headquartered in St. Louis, Missouri. Mark Twain was merged with Mercantile on April 25, 1997 in a transaction accounted for as a pooling-of-interests. The dilution of earnings per common share attributable to the Mark Twain acquisition was $.03 in the first six months of 1997. On July 1, 1997, the Corporation completed its merger with Roosevelt Financial Group, Inc. ("Roosevelt"), also headquartered in St. Louis. The Roosevelt acquisition will be accounted for under the purchase method of accounting, where historical financial statements are not restated. Roosevelt is a $7.3 billion-asset savings and loan holding company with 81 locations in Missouri, Kansas and Illinois. Pre-tax nonrecurring acquisition charges associated with the Roosevelt transaction will be recorded in the third quarter of 1997. Exhibit 3 details acquisitions completed during 1996 and 1997. 11 11 -------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 3 ACQUISITIONS ($ IN THOUSANDS)
CONSIDERATION ------------------- GROSS ACCOUNTING DATE ASSETS DEPOSITS CASH SHARES METHOD ---- ------ -------- ---- ----- ---------- ACQUISITIONS COMPLETED Mark Twain Bancshares, Inc. Apr. 25, 1997 $3,227,972 $2,519,474 $ 73 24,088,713 Pooling Regional Bancshares, Inc. Mar. 5, 1997 171,979 135,954 12,300 900,625 Purchase Today's Bancorp, Inc. Nov. 7, 1996 501,418 432,104 34,912 1,690,587 Purchase First Financial Corporation of America Nov. 1, 1996 87,649 76,791 3,253 388,113 Purchase Peoples State Bank Aug. 22, 1996 95,657 75,149 -- 488,756 Purchase Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 73,843 5 296,853 Purchase Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 482,946 Purchase Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 11,838,294 Pooling First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 782,126 Pooling ACQUISITIONS PENDING AT JUNE 30, 1997 Roosevelt Financial Group, Inc. Jul. 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase Horizon Bancorp, Inc. 1st Qtr. 1998 550,673 466,700 -- 2,550,000 Pooling 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. --------------------------------------------------------------------------------------------------------------------------------
Net interest income increased 3.9% to $215,563,000 for the second quarter of 1997 and was up 4.8% to $427,524,000 for the first six months of 1997. The net interest rate margin was 4.30% this quarter compared with 4.36% in the first quarter and 4.39% for the second quarter of 1996, while the year-to-date margin was 4.33% compared with 4.34% last year. Average earning assets for the first half of 1997 of $20.3 billion were 5.2% higher than the $19.3 billion reported last year, as average loan volume increased by 9.5%. This loan growth was funded through a decline in investment securities, growth in core deposits and increased short-term borrowings. For the first six months of 1997, other income was $176,027,000, an increase of $18,516,000 or 11.8% from last year. Included in 1996's first quarter was nonrecurring merger-related securities losses of $3,082,000. Growth in core fee businesses, such as the trust and investment areas, deposit service charges, and fees earned in the electronic funds transfer processing business, as well as gains realized on the sale of available-for-sale investment securities, accounted for the strong year-to-date growth. Second quarter non-interest expenses were $220,475,000 compared with $162,845,000 last year, an increase of 35.4%, and year-to-date were $386,070,000, up 5.3%. Nonrecurring merger-related expenses during the first six months of 1997 and 1996 were $51,863,000 and $41,678,000, respectively. Excluding merger costs, year-to-date operating expenses grew by 2.9% and the efficiency ratio was 54.66% compared with 56.31% last year. The other expense to average assets ratio improved to 3.03% from 3.10% the prior year. The provision for possible loan losses for the second quarter of 1997 was $27,695,000 compared with $11,152,000 in the prior year, and was $46,138,000 for the first six months of 1997 compared with $45,301,000 in 1996. Included in these totals was nonrecurring merger-related provision of $6,540,000 in the second quarter of 1997 and $10,851,000 in the first quarter of 1996. Net charge-offs for the first six months of 1997 and 1996 were $43,441,000 and $42,842,000, respectively, and on an annualized basis were .57% of average loans compared with .62% last year. At June 30, 1997, the reserve for possible loan losses was $234,684,000 and provided coverage of 285.57% of non-performing loans compared with 318.99% at year-end and 327.33% last June 30. 12 12 Non-performing loans as of June 30, 1997 were $82,182,000 or .53% of total loans compared with $84,741,000 or .56% at March 31, 1997 and $72,368,000 or .52% at June 30, 1996. Foreclosed assets declined to $13,497,000 compared with $18,115,000 at March 31, 1997 and $12,307,000 last June 30. Consolidated assets of $22.6 billion were up 8.0% from a year ago. On a pro forma basis including Roosevelt, consolidated assets of Mercantile were $30 billion. Total deposits increased by 1.5% to $17.0 billion, loans were $15.4 billion, up 10.4% from last year, and shareholders' equity of $1.8 billion was 6.4% lower than at June 30, 1996, reflecting the impact of treasury share purchases. All measures of capital adequacy remained adequate. Tier I capital to risk-adjusted assets was 10.38% while Total capital to risk-adjusted assets at June 30, 1997 was 14.19%. The following financial commentary presents a more thorough discussion and analysis of the results of operations and financial position of the Corporation for the first half and second quarter of 1997. NET INTEREST INCOME Net interest income for the second quarter of 1997 was $215,563,000, a 3.9% increase from the $207,558,000 earned last year, and for the first six months of 1997 was $427,524,000, or 4.8% higher than last year. For the quarter, the net interest rate margin was 4.30% compared with 4.36% in the first quarter of 1997 and 4.39% last year, while the year-to-date 1997 margin was 4.33%, generally at the same level as last year. The rate margin's decline from the first quarter of 1997 was due to competitive pricing for both loans and deposits, the interest expense incurred on recent debt issues and a less favorable mix of liabilities. Average earning asset growth in the first six months of 1997 was 5.2%, led by loan growth of 9.5%, but offset by a contraction in the size of the investment portfolio. ----------------------------------------------------------------------------- EXHIBIT 4 LOANS AND LEASES ($ IN THOUSANDS)
JUNE 30 1997 1996 CHANGE ---- ---- ------ Commercial $ 4,478,483 $ 3,923,981 14.1% Real estate--commercial 2,878,332 2,796,087 2.9 Real estate--construction 660,981 490,012 34.9 Real estate--residential 4,812,741 4,160,370 15.7 Consumer 1,921,062 1,755,684 9.4 Credit card loans issued 1,069,712 1,240,709 (13.8) Securitized credit card loans (400,000) (400,000) -- ----------- ----------- Total Loans and Leases $15,421,311 $13,966,843 10.4 =========== =========== -----------------------------------------------------------------------------
Investment securities averaged $4.8 billion in the first six months of 1997, and declined by 6.6% from 1996 due to both maturities and sales. The held-to-maturity and available-for-sale portfolio as of June 30, 1997 consisted of 84.49% in U.S. and other government agency securities, including 30.90% in mortgage-related issues, 10.18% in state and municipal securities, and 5.33% of other miscellaneous securities. The comparable distribution at June 30, 1996 was 86.42%, 31.76%, 10.68% and 2.90%, respectively. Included in other miscellaneous securities as of June 30, 1997 was $85,028,000 transferred from the credit card loan portfolio in accordance with FAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Mortgage-related issues which are not guaranteed by the U.S. Government will likely increase as a percentage of total investment securities as a result of the Roosevelt acquisition. Affecting loan growth figures from 1996 to 1997 is the amount of loans added from acquisitions accounted for as purchases. Loans grew by approximately 6% excluding those from acquired companies. Including acquired balances, year-to-date average commercial loans grew by $493,057,000 or 12.8%. Commercial loan growth occurred on a system-wide basis. Average commercial real estate mortgage loans increased by $87,432,000 or 3.1%. Residential real estate mortgage loans averaged $4.7 billion in the first six months of 1997, an increase of $571,733,000 or 13.9% from 1996. Residential mortgage loans added from acquisitions, as well as continued customer preference for adjustable-rate mortgages that Mercantile generally retained on the balance sheet, accounted for the increase. The Roosevelt purchase acquisition will add approximately $3.8 billion to the Corporation's residential real estate mortgage loan portfolio. Average credit card loans were at $761,052,000 which reflected a managed decline of 8.4%, while other consumer loans increased on average by $130,963,000 or 7.5%, due primarily to growth in indirect loans and leases. 13 13 Average core deposits increased by $321,263,000 or 2.1% in the first six months of 1997. Mercantile was substantially core funded at 90.41% of total deposits and 77.17% of earning assets. Changes in average core deposits for the past six quarters are shown in the Consolidated Quarterly Average Balance Sheet on Pages 21 and 22 of this report. Average non-interest bearing deposits increased by $133,836,000 or 4.8% through the first six months of 1997. 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 was withdrawn by the government to help finance its funding requests due to the lack of an approved 1996 fiscal budget at that time. Revenue accruals were made in 1996 to record the benefit of those missing deposits to better match revenue with services delivered. These balances were redeposited in the second quarter of 1996, but the average balances for the first six months of 1996 were lower as a result. Year-to-date average short-term borrowings increased by $477,406,000 or 32.3%, mainly to fund loan growth and to offset the decline in bank notes outstanding. Average long-term debt increased by $133,237,000 due to the issuance of $150,000,000 of floating-rate capital trust securities in February 1997 and the June 1997 issuance of $500,000,000 in senior and subordinated debt. Average shareholders' equity declined by $49,039,000 or 2.6%, due largely to share repurchases. The factors discussed above are consistent with Mercantile's overall corporate policy relative to rate sensitivity and liquidity, which is to produce the optimal yield and maturity mix consistent with interest rate expectations and projected liquidity needs. The Consolidated Quarterly Average Balance Sheet, with rates earned and paid, is summarized by quarter on Pages 21 and 22. OTHER INCOME Non-interest income increased .2% during the second quarter of 1997 to $87,927,000, and for the six months was $176,027,000 compared with $157,511,000 a year ago, an improvement of 11.8%. The first quarter of 1996 was negatively impacted by securities losses of $3,082,000 incurred by recently acquired banks in investment portfolio restructurings. Excluding non-interest income from companies acquired in purchase transactions and the nonrecurring securities losses, other income grew by approximately 8% from the first six months of 1996. In addition to other income from acquired companies and merger-related securities losses, the second quarter of 1996 was favorably impacted by a $10,000,000 gain on the transfer of the Corporation's merchant processing business and a $4,000,000 reimbursement for co-branded credit card start-up costs. In the first quarter of 1997, a $2,300,000 gain was recognized on the sale of Mark Twain's merchant credit card processing business. Trust fees were the largest source of non-interest income in 1997, and were $46,823,000 compared with $43,406,000 during 1996, an increase of 7.9%. Personal trust fees earned by Mercantile Trust Company N.A. were the largest source of trust revenue and increased 12.2% from last year. Income from Mississippi Valley Advisors Inc., the investment management subsidiary of Mercantile, rose by 20.1%. Mississippi Valley Advisors Inc. manages 16 proprietary mutual funds--the ARCH funds, which had assets of $3.2 billion at June 30, 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. Year-to-date investment banking and brokerage fees were $15,742,000 compared with $16,198,000 last year, a decrease of 2.8%; second quarter fees totaled $7,760,000, 1.7% higher than the same period a year earlier. This income is derived from transaction fees for services performed for both individual and corporate customers, including sales of annuities and mutual funds, profits earned on limited trading positions, the sale of fixed income securities to institutional customers and foreign exchange revenue. There was a substantial decline in commission income earned on fixed income securities in 1997. The Mark Twain acquisition significantly increased this source of revenue over Mercantile's previously reported results. 14 14 ----------------------------------------------------------------------------------------------------------------------- EXHIBIT 5 OTHER INCOME ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1997 1996 CHANGE 1997 1996 CHANGE ---- ---- ------ ---- ---- ------ Trust $24,022 $22,347 7.5% $ 46,823 $ 43,406 7.9% Service charges 22,591 21,967 2.8 45,389 43,181 5.1 Investment banking and brokerage 7,760 7,631 1.7 15,742 16,198 (2.8) Credit card fees 5,373 8,322 (35.4) 10,772 9,883 9.0 Securitization revenue 4,725 3,325 42.1 12,017 7,827 53.5 Mortgage banking 2,728 2,293 19.0 5,506 5,461 .8 Securities gains 1,818 98 -- 2,867 458 -- Nonrecurring merger-related securities losses -- -- -- -- (3,082) -- Other 18,910 21,733 (13.0) 36,911 34,179 8.0 ------- ------- -------- -------- Total Other Income $87,927 $87,716 .2 $176,027 $157,511 11.8 ======= ======= ======== ======== -----------------------------------------------------------------------------------------------------------------------
Credit card fee income was $5,373,000 for the second quarter of 1997, down $2,949,000 from last year. For the first six months of 1997, credit card income was $10,772,000 or 9.0% higher than the comparable 1996 period. The 1996 quarterly results included the reimbursement of $4,000,000 for co-branded start-up costs. Credit card income primarily represents interchange fees received on transactions of Mercantile cardholders and cardholders' miscellaneous fees. This source of income in 1996 included $3,153,000 in fees charged to merchants for processing credit card transactions. The Mercantile business was sold in the second quarter of 1996 and the Mark Twain operation was sold in the first quarter of 1997. Transaction-based rebates paid to SBC and MercRewards VISA(R) cardholders were netted against credit card fee income; these rebates totaled $2,446,000 in the first six months of 1997 versus $12,352,000 in 1996. The decrease in these rebates was the reason for the growth in year-to-date credit card fees over 1996. Securitization revenue for the first six months of 1997 was $12,017,000 compared with $7,827,000 last year, 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 $3,052,000 recognized under FAS 125 for investor certificate loans that were sold and reclassified to the investment portfolio. For securitized loans, amounts that would otherwise 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. Mercantile acts as servicing agent and receives loan servicing fees equal to two percent per annum of the securitized receivables. As servicing agent, 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 for the first six months of 1997 was at the same level as last year. Mortgages serviced totaled $6.0 billion at June 30, 1997 compared with $5.7 billion at June 30, 1996. The Roosevelt transaction will add approximately $8.4 billion to servicing volume, and should increase servicing fees significantly in the second half of 1997. Miscellaneous income of $36,911,000 was 8.0% higher than in 1996, which included a $10,000,000 gain on the sale of the Mercantile merchant credit card processing business. Significant revenue items in 1997 included a $7,100,000 improvement in cash management fees, a $2,300,000 gain on the sale of the Mark Twain merchant credit card processing business and $800,000 of loan syndication fees. Securities gains of $2,867,000 were realized on the sale of available-for-sale investment securities during the first six months of 1997. 15 15 OTHER EXPENSE For the first half of 1997, expenses other than interest expense and the provision for possible loan losses were $386,070,000, a 5.3% increase from the 1996 level. Included in other expense in the second quarter of 1997 was $51,863,000 in expenses associated with mergers, largely for investment banking and other professional services, change in control and severance payments, and obsolete equipment write-offs. Nonrecurring merger-related expense of a similar nature which totaled $41,678,000 was recorded in the first quarter of 1996. Excluding nonrecurring merger costs, year-to-date operating expenses increased by 2.9% over 1996, yet declined to 3.03% of average assets compared with 3.10% last year. The efficiency ratio, defined as operating expenses as a percentage of taxable-equivalent net interest income and other income, was also improved, to 54.66% compared with 56.31% last year. Other expense from acquisitions accounted for as purchases increased the Corporation's expenses by more than $8,000,000. If expense from acquired banks and nonrecurring acquisition expense are excluded, non-interest expense for the first six months of 1997 was approximately 1% higher than last year. Year-to-date salary expenses were 7.9% higher than last year, largely reflecting the costs of merit increases and compensation for employees added in acquisitions. Benefit costs were up by 2.7% due to higher costs of employee benefit programs, a larger salary base and more employees. Occupancy and equipment costs through June 30, 1997 increased by 9.3% from the prior year, 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. Year-to-date expense of $1,823,000 was incurred to ensure that systems are ready for the date transition to the year 2000. ---------------------------------------------------------------------------------------------------------- EXHIBIT 6 OTHER EXPENSE ($ IN THOUSANDS)
SECOND QUARTER SIX MONTHS 1997 1996 CHANGE 1997 1996 CHANGE ---- ---- ------ ---- ---- ------ Salaries $ 80,599 $ 73,342 9.9% $158,739 $147,070 7.9% Employee benefits 17,653 17,731 (.4) 37,235 36,263 2.7 -------- -------- -------- -------- Total Personnel Expense 98,252 91,073 7.9 195,974 183,333 6.9 Net occupancy 12,434 11,873 4.7 25,146 23,829 5.5 Equipment 15,005 13,056 14.9 28,821 25,528 12.9 Postage and freight 5,804 6,233 (6.9) 12,010 12,261 (2.0) Marketing/business development 3,619 3,346 8.2 6,907 6,059 14.0 Office supplies 3,357 3,251 3.3 6,629 6,707 (1.2) Communications 3,416 3,091 10.5 6,609 6,196 6.7 Legal and professional 2,935 2,961 (.9) 5,739 6,220 (7.7) Credit card 2,380 3,411 (30.2) 4,831 7,241 (33.3) FDIC insurance 742 1,288 (42.4) 1,511 2,547 (40.7) Foreclosed property expense (4,297) (717) -- (4,219) (503) -- Intangible asset amortization 4,603 2,914 58.0 8,982 5,736 56.6 Nonrecurring merger-related expense 51,863 -- -- 51,863 41,678 24.4 Other 20,362 21,065 (3.3) 35,267 39,709 (11.2) -------- -------- -------- -------- Total Other Expense $220,475 $162,845 35.4 $386,070 $366,541 5.3 ======== ======== ======== ======== ----------------------------------------------------------------------------------------------------------
Exhibit 6 details the composition of all other operating expenses. Credit card fees declined by $2,410,000 or 33.3%, due primarily to the absence of the costs associated with the merchant processing businesses which were sold. Recoveries related to foreclosed property were $4,219,000 in the first six months of 1997, compared with recoveries of $503,000 in 1996. Intangible asset amortization was $8,982,000 in the first six months of 1997, 56.6% higher than in 1996. The increase was caused by additional amortization on goodwill recorded in 1996 purchase acquisitions. The Roosevelt purchase acquisition 16 16 will increase goodwill by approximately $600 million, which will be reflected in significantly higher intangible asset amortization expense during the second half of 1997. RESERVE FOR POSSIBLE LOAN LOSSES The reserve for possible loan losses was $234,684,000 or 1.52% of loans outstanding at June 30, 1997 compared with $230,372,000 or 1.54% at year's end and 1.70% at June 30, 1996. The reserve coverage of non-performing loans was 285.57% compared with 318.99% at year-end and 327.33% last year. Approximately one-third of the Corporation's total loan portfolio is invested in residential real estate loans for which the loan loss experience averaged only .06% for the past five years. If those loans are excluded from total loans, the reserve for possible loan losses represented 2.21% of loans outstanding at June 30, 1997. ------------------------------------------------------------------------------ EXHIBIT 7 RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1997 1996 1997 1996 ---- ---- ---- ---- BEGINNING BALANCE $231,496 $242,806 $230,372 $232,288 PROVISION 27,695 11,152 46,138 45,301 Charge-offs (30,329) (21,169) (55,126) (53,639) Recoveries 5,822 4,096 11,685 10,797 ----------- ----------- ----------- ----------- NET CHARGE-OFFS (24,507) (17,073) (43,441) (42,842) Acquired Reserves -- -- 1,615 2,138 ----------- ----------- ----------- ----------- ENDING BALANCE $234,684 $236,885 $234,684 $236,885 =========== =========== =========== =========== LOANS AND LEASES June 30 balance $15,421,311 $13,966,843 $15,421,311 $13,966,843 =========== =========== =========== =========== Average balance $15,288,972 $13,860,141 $15,141,515 $13,823,509 =========== =========== =========== =========== RATIOS Reserve balance to outstanding loans 1.52% 1.70% 1.52% 1.70% Reserve balance to non-performing loans 285.57 327.33 285.57 327.33 Net charge-offs to average loans .64 .49 .57 .62 Includes merger-related provision of $6,540,000 in the second quarter and six months ended June 30, 1997, and $10,851,000 in the six months ended June 30, 1996. ------------------------------------------------------------------------------
The year-to-date 1997 provision for possible loan losses was $46,138,000 compared with $45,301,000 last year. The second quarter of 1997 and the first quarter of 1996 included nonrecurring merger-related provisions of $6,540,000 and $10,851,000, respectively, which were 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 partially offset an $11,000,000 charge-off of a credit to a St. Louis-based specialty retailer that declared bankruptcy in late 1995. The annualized ratio of net charge-offs to average loans for the first six months of 1997 was .57% compared with .62% last year, while the corresponding net charge-off figures were $43,441,000 and $42,842,000, respectively. The $11,000,000 charge-off in 1996 mentioned above increased the annualized ratio of net charge-offs to average loans by 16 basis points. Excluding securitized credit cards, net credit card charge-offs were $32,098,000 in 1997 versus $27,859,000 last year, and represented 8.44% of average credit card loans compared with 6.71% in 1996. Approximately 39% of the 1997 credit card losses were a result of bankruptcy claims. On the managed portfolio, the ratio of net charge-offs to average loans was 8.60% versus 7.53% in the first six months of 1996. By credit policy, losses are taken on credit card loans after six cycles of 17 17 nonpayment, or within 15 days of receipt of personal bankruptcy notice, if earlier. Excluding those related to credit card loans, net charge-offs were $11,343,000, or .16% of average loans for the first six months of 1997. Mercantile evaluates the reserves of all banks on a quarterly basis to ensure the timely charge-off of loans and to determine the adequacy of those reserves. Management believes the consolidated reserve of 1.52% of total loans and 285.57% of non-performing loans as of June 30, 1997 was adequate based on the risks identified at such date in the respective portfolios. NON-PERFORMING ASSETS Non-performing loans (non-accrual and renegotiated loans) were $82,182,000 or .53% of total loans outstanding at June 30, 1997 compared with $84,741,000 or .56% at March 31, 1997 and $72,368,000 or .52% at June 30, 1996. By the Corporation's definition, all non-accrual and renegotiated commercial-related loans are considered impaired as defined by FAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by FAS 118. Impaired loans totaled $51,047,000 at June 30, 1997 and averaged $47,716,000 during the first six months of 1997. Foreclosed assets at June 30, 1997 were $13,497,000 compared with $18,115,000 at March 31, 1997 and $12,307,000 last year. The ratio of non-performing assets to outstanding loans and foreclosed assets was .62% at June 30, 1997 compared with .68% at March 31, 1997 and .61% last year. - ---------------------------------------------------------------------------------- EXHIBIT 8 NON-PERFORMING ASSETS ($ IN THOUSANDS)
JUNE 30 DEC. 31 JUNE 30 1997 1996 1996 ------- ------- ------- NON-ACCRUAL LOANS Commercial $24,465 $21,577 $18,771 Real estate--commercial 20,923 15,739 19,366 Real estate--construction 3,018 1,346 1,001 Real estate--residential 23,103 23,286 23,084 Consumer 5,634 5,011 4,179 ------- ------- ------- TOTAL NON-ACCRUAL LOANS 77,143 66,959 66,401 RENEGOTIATED LOANS 5,039 5,260 5,967 ------- ------- ------- TOTAL NON-PERFORMING LOANS $82,182 $72,219 $72,368 ======= ======= ======= FORECLOSED ASSETS Foreclosed real estate $11,696 $13,942 $10,320 Other foreclosed assets 1,801 2,829 1,987 ------- ------- ------- TOTAL FORECLOSED ASSETS $13,497 $16,771 $12,307 ======= ======= ======= TOTAL NON-PERFORMING ASSETS $95,679 $88,990 $84,675 ======= ======= ======= PAST-DUE LOANS (90 DAYS OR MORE) Commercial $ 4,508 $ 2,406 $ 1,942 Real estate--commercial 1,391 643 4,152 Real estate--construction 58 147 327 Real estate--residential 3,300 3,669 4,457 Consumer 2,108 5,487 3,221 Credit card 19,140 21,608 18,082 ------- ------- ------- TOTAL PAST-DUE LOANS $30,505 $33,960 $32,181 ======= ======= ======= RATIOS Non-performing loans to outstanding loans .53% .48% .52% Non-performing assets to outstanding loans and foreclosed assets .62 .59 .61 Non-performing assets to total assets .42 .40 .40 Past-due loans 90 days or more are not included in non-performing asset totals or ratios. - ----------------------------------------------------------------------------------
Non-accrual loans declined by $2,402,000 from the March 31, 1997 level. Foreclosed property declined by $4,618,000 since March 31, 1997, due to the sale of foreclosed commercial real estate at gains as previously mentioned. As of June 30, 1997, Mercantile had only seven non-accrual loans with balances in excess of $1,000,000, the largest totaling $5,400,000. As significant, the Corporation held only two foreclosed assets with a book value in excess of $1,000,000 with a cumulative book value of less than $3,000,000. All loans classified as renegotiated were paying in accordance with their modified terms at June 30, 1997. Loans past due 90 days and still accruing interest consisted largely of credit card loans, consumer loans and residential real estate mortgage loans. Exhibit 8 details the composition of loans past due 90 days and over. CAPITAL RESOURCES Mercantile maintains a capital base which provides a foundation for anticipated future asset growth and promotes depositor and investor confidence. Capital management is a continuous process at Mercantile, and is focused on ensuring that adequate capital is provided for both current needs and anticipated growth. This strategy has enabled Mercantile to profitably expand its balance sheet, while maintaining capital ratios that exceed minimum capital requirements. 18 18 - ----------------------------------------------------------------------- EXHIBIT 9 RISK-BASED CAPITAL ($ IN THOUSANDS)
JUNE 30 DEC. 31 JUNE 30 1997 1996 1996 ------- ------- ------- Capital Tier I $ 1,730,337 $ 1,749,466 $ 1,760,999 Total 2,363,965 2,175,712 2,176,326 Risk-adjusted assets 16,664,157 15,905,622 14,906,255 Tier I capital to risk-adjusted assets 10.38% 11.00% 11.81% Total capital to risk-adjusted assets 14.19 13.68 14.60 Leverage 7.80 8.12 8.30 Tangible equity to tangible assets 7.00 8.05 8.45 Double leverage 114.69 104.57 105.93 - -----------------------------------------------------------------------
At June 30, 1997, shareholders' equity was $1.8 billion, a managed decline of 6.4% from June 30, 1996. Since December 31, 1996, the Corporation repurchased 6.7 million shares of its common stock via designated broker-dealers at an average cost of $38.52 per share. A small portion of that stock was held for reissuance in conjunction with the 1994 Stock Incentive Plan, while the remainder was reissued in the Roosevelt transaction in July 1997. As of July 1, 1997, the Corporation held no tainted treasury shares. To fund announced treasury share repurchases and to finance the Roosevelt acquisition, 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 considered part of Tier I capital. Senior and subordinated debt securities in the amount of $500 million were issued in June 1997, for the same purposes. The Parent Company's double leverage ratio, which measures the extent to which the equity capital of its subsidiaries is supported by Parent Company debt rather than equity, was 114.69% at June 30, 1997 compared with 104.57% at year-end 1996. Exhibit 9 details significant capital ratios and intangible assets. On July 16, 1997, the Board of Directors declared a three-for-two stock split, in the form of a dividend, payable October 1, 1997 to shareholders of record as of September 10, 1997. The Board of Directors also declared a cash dividend of $.287 per common share, which will be paid October 1, 1997. Book value per common share was $15.85 at June 30, 1997 compared with $16.08 a year earlier, a decrease of 1.4%. Public debt ratings of the Corporation and Mercantile Bank N.A. are shown in Exhibit 10. Moody's Investor Service raised ratings on Mercantile's capital trust securities, senior notes and subordinated notes on July 31, 1997. --------------------------------------------------------------------------------------------------------------------- EXHIBIT 10 DEBT RATINGS
THOMSON STANDARD MOODY'S FITCH BANKWATCH & POOR'S ------- ----- --------- -------- MERCANTILE BANCORPORATION INC. Issuer Rating B Commercial Paper F1 TBW-1 6.800% Senior Notes, due 2001 A2 BBB+ 7.050% Senior Notes, due 2004 A2 BBB+ 7.625% Subordinated Notes, due 2002 A3 BBB+ BBB 7.300% Subordinated Notes, due 2007 A3 BBB Floating Rate Capital Trust Pass-Through Securities(SM) a2 BBB- MERCANTILE BANK N.A. Bank Notes A1/P-1 A 6.375% Subordinated Notes, due 2004 A2 A A- BBB+ 9.000% Mortgage-backed Notes, due 1999 AAA Certificates of Deposit TBW-1 A-/A-2 Letters of Credit TBW-1 A-/A-2 ---------------------------------------------------------------------------------------------------------------------
19 19 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME ($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA)
1996 1997 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. -------- -------- -------- -------- -------- -------- INTEREST INCOME Interest and fees on loans and leases $301,389 $303,073 $307,512 $317,682 $321,271 $331,688 Investments in debt and equity securities 75,883 78,334 77,342 74,783 73,282 73,985 Short-term investments 4,651 4,502 3,637 4,075 3,909 5,490 -------- -------- -------- -------- -------- -------- Total Interest Income 381,923 385,909 388,491 396,540 398,462 411,163 Tax-equivalent adjustment 4,179 4,061 4,023 4,090 3,857 4,014 -------- -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 386,102 389,970 392,514 400,630 402,319 415,177 INTEREST EXPENSE Deposits 153,725 149,603 148,472 152,189 153,762 155,597 Borrowed funds 27,660 28,748 33,402 31,111 32,739 40,003 -------- -------- -------- -------- -------- -------- Total Interest Expense 181,385 178,351 181,874 183,300 186,501 195,600 TAXABLE-EQUIVALENT NET INTEREST INCOME 204,717 211,619 210,640 217,330 215,818 219,577 PROVISION FOR POSSIBLE LOAN LOSSES 34,149 11,152 12,614 15,100 18,443 27,695 OTHER INCOME Trust 21,059 22,347 21,058 22,152 22,801 24,022 Service charges 21,214 21,967 22,372 23,363 22,798 22,591 Investment banking and brokerage 8,567 7,631 7,971 8,075 7,982 7,760 Credit card fees 1,561 8,322 9,427 8,652 5,399 5,373 Securitization revenue 4,502 3,325 4,198 3,983 7,292 4,725 Mortgage banking 3,168 2,293 2,458 2,788 2,778 2,728 Securities gains (losses) (2,722) 98 15 2,526 1,049 1,818 Other 12,446 21,733 17,055 23,876 18,001 18,910 -------- -------- -------- -------- -------- -------- Total Other Income 69,795 87,716 84,554 95,415 88,100 87,927 OTHER EXPENSE Personnel expense 92,260 91,073 91,303 91,093 97,722 98,252 Net occupancy and equipment 24,428 24,929 26,114 28,244 26,528 27,439 Other 87,008 46,843 58,003 57,370 41,345 94,784 -------- -------- -------- -------- -------- -------- Total Other Expense 203,696 162,845 175,420 176,707 165,595 220,475 -------- -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 36,667 125,338 107,160 120,938 119,880 59,334 INCOME TAXES Income taxes 15,403 43,216 33,995 35,921 41,028 23,141 Tax-equivalent adjustment 4,179 4,061 4,023 4,090 3,857 4,014 -------- -------- -------- -------- -------- -------- Adjusted Income Taxes 19,582 47,277 38,018 40,011 44,885 27,155 -------- -------- -------- -------- -------- -------- NET INCOME $ 17,085 $ 78,061 $ 69,142 $ 80,927 $ 74,995 $ 32,179 ======== ======== ======== ======== ======== ======== NET INCOME PER COMMON SHARE $.14 $.67 $.61 $.70 $.65 $.29 SIGNIFICANT RATIOS Return on assets .33% 1.48% 1.32% 1.51% 1.38% .58% Return on equity 3.50 16.57 15.06 17.05 15.63 7.07
20 20 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET ($ IN THOUSANDS)
1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR> -------------------- ----------------- ----------------- ---------------- VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 3,809,367 8.52% $ 3,889,805 8.42% $ 3,913,530 8.39% $ 4,071,583 8.38% Real estate--commercial 2,788,474 8.79 2,783,201 8.68 2,769,282 8.67 2,780,313 8.61 Real estate--construction 517,735 9.15 493,196 9.40 504,516 9.11 565,702 9.17 Real estate--residential 4,097,276 8.20 4,121,151 8.26 4,291,098 8.24 4,518,685 8.18 Consumer 1,741,215 8.93 1,744,060 8.93 1,745,806 8.88 1,815,552 8.78 Credit card 832,807 12.77 828,728 13.30 852,651 12.69 873,195 12.69 ----------- ----------- ----------- ----------- Total Loans and Leases 13,786,874 8.78 13,860,141 8.78 14,076,883 8.78 14,625,030 8.73 Investments in debt and equity securities Trading 80,820 6.36 46,224 6.14 36,909 6.09 61,987 6.62 Taxable 4,549,195 6.04 4,741,940 6.08 4,637,674 6.15 4,457,449 6.13 Tax-exempt 438,975 8.02 419,012 7.94 407,746 8.03 408,634 7.85 ----------- ----------- ----------- ----------- Total Investments in Debt and Equity Securities 5,068,990 6.22 5,207,176 6.23 5,082,329 6.30 4,928,070 6.28 Short-term investments 318,456 5.78 316,621 5.63 251,366 5.66 283,689 5.62 ----------- ----------- ----------- ----------- Total Earning Assets 19,174,320 8.10 19,383,938 8.09 19,410,578 8.04 19,836,789 8.03 Non-earning assets 1,629,100 1,723,196 1,541,955 1,560,218 ----------- ----------- ----------- ----------- Total Assets $20,803,420 $21,107,134 $20,952,533 $21,397,007 =========== =========== =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,436,622 $ 3,127,700 $ 3,049,048 $ 2,811,011 Interest bearing demand 2,466,330 2.18 2,463,727 2.12 2,404,524 2.11 2,488,966 2.12 Money market accounts 2,576,809 3.87 2,665,609 3.80 2,690,505 3.84 2,752,013 3.85 Savings 1,137,417 2.33 1,141,065 2.29 1,115,226 2.28 1,097,718 2.28 Consumer time certificates under $100,000 6,224,647 5.64 6,132,446 5.55 6,027,972 5.49 6,141,077 5.47 Other time 41,415 19.18 237,030 3.35 235,903 3.31 229,722 3.25 ----------- ----------- ----------- ----------- Total Core Deposits 14,883,240 4.33 15,767,577 4.18 15,523,178 4.15 15,520,507 4.15 Time certificates $100,000 and over 1,221,758 5.63 1,182,028 5.52 1,127,078 5.49 1,194,693 5.48 Foreign 174,667 5.66 152,075 5.52 189,295 5.53 220,239 5.69 ----------- ----------- ----------- ----------- Total Purchased Deposits 1,396,425 5.65 1,334,103 5.53 1,316,373 5.51 1,414,932 5.53 ----------- ----------- ----------- ----------- Total Deposits 16,279,665 4.47 17,101,680 4.31 16,839,551 4.28 16,935,439 4.29 Short-term borrowings 1,683,491 4.06 1,275,348 5.82 1,415,786 6.47 1,703,705 5.05 Bank notes 265,385 5.92 275,000 5.66 275,000 5.79 227,174 5.78 Long-term debt 337,317 7.54 325,583 7.36 312,379 7.42 305,211 7.41 ----------- ----------- ----------- ----------- Total Acquired Funds 18,565,858 4.52 18,977,611 4.53 18,842,716 4.58 19,171,529 4.46 Other liabilities 283,148 245,315 273,117 326,991 SHAREHOLDERS' EQUITY 1,954,414 1,884,208 1,836,700 1,898,487 ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $20,803,420 $21,107,134 $20,952,533 $21,397,007 =========== =========== =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.58% 3.56% 3.46% 3.57% Net interest rate margin 4.29 4.39 4.32 4.36 Taxable-equivalent basis.
21 21 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET ($ IN THOUSANDS)
1997 1996 1997 1ST QTR. 2ND QTR. SIX MONTHS SIX MONTHS ------------------- ------------------- ------------------- ----------------- VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 4,245,981 8.41% $ 4,438,250 8.56% $ 3,849,584 8.47% $ 4,342,641 8.48% Real estate--commercial 2,853,272 8.63 2,893,046 8.78 2,785,836 8.73 2,873,268 8.70 Real estate--construction 580,920 8.89 638,771 8.93 505,468 9.27 610,005 8.91 Real estate--residential 4,640,759 8.06 4,720,701 8.10 4,109,216 8.23 4,680,949 8.08 Consumer 1,851,364 8.83 1,895,587 8.88 1,742,637 8.93 1,873,600 8.85 Credit card 820,140 13.31 702,617 13.33 830,768 13.03 761,052 13.32 ----------- ----------- ----------- ----------- Total Loans and Leases 14,992,436 8.60 15,288,972 8.72 13,823,509 8.78 15,141,515 8.66 Investments in debt and equity securities Trading 68,823 6.81 93,156 7.00 63,522 6.28 81,057 6.92 Taxable 4,330,115 6.17 4,326,163 6.22 4,645,575 6.06 4,328,128 6.19 Tax-exempt 397,502 7.95 383,181 8.00 428,990 7.98 390,302 7.98 ----------- ----------- ----------- ----------- Total Investments in Debt and Equity Securities 4,796,440 6.33 4,802,500 6.38 5,138,087 6.22 4,799,487 6.35 Short-term investments 284,131 5.50 385,227 5.64 317,534 5.70 334,962 5.58 ----------- ----------- ----------- ----------- Total Earning Assets 20,073,007 8.13 20,476,699 8.13 19,279,130 8.10 20,275,964 8.13 Non-earning assets 1,687,833 1,892,478 1,676,149 1,790,722 ----------- ----------- ----------- ----------- Total Assets $21,760,840 $22,369,177 $20,955,279 $22,066,686 =========== =========== =========== =========== LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,748,108 $ 3,082,060 $ 2,782,164 $ 2,916,000 Interest bearing demand 2,550,948 2.14 2,528,212 2.09 2,465,034 2.15 2,539,516 2.12 Money market accounts 2,791,936 3.89 2,783,727 3.95 2,621,211 3.84 2,787,812 3.92 Savings 1,091,994 2.27 1,103,230 2.27 1,139,235 2.31 1,097,645 2.27 Consumer time certificates under $100,000 6,181,763 5.48 6,113,801 5.48 6,178,540 5.60 6,147,595 5.48 Other time 155,230 4.71 160,942 4.25 139,223 5.71 158,102 4.47 ----------- ----------- ----------- ----------- Total Core Deposits 15,519,979 4.18 15,771,972 4.18 15,325,407 4.25 15,646,670 4.18 Time certificates $100,000 and over 1,286,701 5.49 1,219,901 5.52 1,201,892 5.58 1,253,116 5.50 Foreign 344,388 5.48 468,671 5.67 163,371 5.60 406,873 5.59 ----------- ----------- ----------- ----------- Total Purchased Deposits 1,631,089 5.50 1,688,572 5.58 1,365,263 5.59 1,659,989 5.54 ----------- ----------- ----------- ----------- Total Deposits 17,151,068 4.33 17,460,544 4.34 16,690,670 4.39 17,306,659 4.34 Short-term borrowings 1,810,192 5.05 2,101,845 5.25 1,479,420 4.82 1,956,826 5.16 Bank notes 175,000 5.81 175,000 5.95 270,192 5.79 175,000 5.88 Long-term debt 398,052 7.36 530,593 7.07 331,452 7.45 464,689 7.19 ----------- ----------- ----------- ----------- Total Acquired Funds 19,534,312 4.51 20,267,982 4.57 18,771,734 4.52 19,903,174 4.54 Other liabilities 306,844 279,784 264,235 293,241 SHAREHOLDERS' EQUITY 1,919,684 1,821,411 1,919,310 1,870,271 ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $21,760,840 $22,369,177 $20,955,279 $22,066,686 =========== =========== =========== =========== SIGNIFICANT RATIOS Net interest rate spread 3.62% 3.56% 3.58% 3.59% Net interest rate margin 4.36 4.30 4.34 4.33 Taxable-equivalent basis.
22 22 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 4.1 Supplemental Indenture of First Supplemental Indenture dated May 22, 1997, between Mercantile, as Issuer, and The Chase Manhattan Bank, as Trustee, filed as Exhibit 4.12 to Amendment No. 1 to Registrant's Registration Statement on Form S-4 (No. 333-25131), is incorporated herein by reference. 4.2 Form of Indenture Regarding Senior Debt Securities, filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference. 4.3 Form of Indenture Regarding Subordinated Debt Securities, filed as Exhibit 4.2 to Registrant's Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference. 10 Employment Agreement for Stanley J. Bradshaw dated December 22, 1996. 27 Financial Data Schedule (b) Reports on Form 8-K: During the quarter ended June 30, 1997, Registrant filed two (2) Current Reports on Form 8-K and one (1) Current Report on Form 8-K/A. In its Current Report on Form 8-K, dated May 2, 1997, under Item 2, Registrant disclosed that it had, effective April 25, 1997, consummated its acquisition of Mark Twain Bancshares, Inc. ("Mark Twain") through the merger of Mark Twain with and into a wholly owned subsidiary of Registrant, with the shareholders of Mark Twain to receive an aggregate of approximately 24,088,713 shares of Registrant's common stock in exchange for their Mark Twain shares. In its Current Report on Form 8-K, dated May 13, 1997, under Item 5 and in connection with Registrant's acquisition of Mark Twain, Registrant filed Audited Supplemental Consolidated Financial Statements restating the Registrant's historical consolidated financial statements as of and for the years ended December 31, 1996, 1995 and 1994 to reflect the Mark Twain transaction. In addition, Registrant also filed Unaudited Interim Consolidated Financial Statements restating the Registrant's historical consolidated financial statements as of and for the three-month periods ended March 31, 1997 and 1996 to reflect the Mark Twain transaction. In its Current Report on Form 8-K/A, dated May 22, 1997, under Items 5 and 7 and in connection with Registrant's acquisition of Mark Twain, Registrant incorporated by reference the following audited financial statements of Mark Twain from Mark Twain's Annual Report on Form 10-K for the fiscal year ended December 31, 1996: 1. Independent Auditors' Report; 2. Consolidated Balance Sheets as of December 31, 1996 and 1995; 3. Consolidated Statements of Income for the Three Years Ended December 31, 1996, 1995 and 1994; 4. Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996, 1995 and 1994; and 5. Notes to Consolidated Financial Statements. 23 23 The following unaudited financial statements of Mark Twain and its subsidiaries were incorporated by reference into Registrant's Form 8-K/A from Mark Twain's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997: 1. Condensed Consolidated Balance Sheets as of March 31, 1997 and 1996, and December 31, 1996; 2. Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996; 3. Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996; and 4. Notes to Condensed Consolidated Financial Statements. The following unaudited pro forma combined consolidated financial statements of Registrant reflecting the merger with Mark Twain were incorporated by reference into the Registrant's Form 8-K/A from Registrant's Registration Statement on Form S-4 filed May 19, 1997: 1. Pro Forma Combined Consolidated Balance Sheet as of March 31, 1997; 2. Pro Forma Combined Consolidated Income Statements for the Three Years Ended December 31, 1996, 1995 and 1994 and the Three Months Ended March 31, 1997 and 1996; and 3. Notes to Pro Forma Combined Consolidated Financial Statements.
24 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCANTILE BANCORPORATION INC. (Registrant) Date August 14, 1997 /s/ JOHN Q. ARNOLD --------------------------- --------------------------------- John Q. Arnold Chief Financial Officer 25 25 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION LOCATION - ---------- ----------- -------- 10 Employment Agreement for Stanley J. Bradshaw dated December 22, 1996 Included herein 27 Financial Data Schedule Included herein 26 EX-10 2 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of this 22 day of December, 1996, by and between Roosevelt Financial Group, Inc. (the "Company"), Mercantile Bancorporation, Inc. ("Mercantile") and Stanley J. Bradshaw (the "Employee"). WHEREAS, the Company has entered into an Agreement and Plan of Reorganization of even date herewith (the "Definitive Agreement") with Mercantile, pursuant to which Mercantile will acquire (the "Acquisition") the Company and its wholly-owned subsidiary, Roosevelt Bank (the "Bank"); WHEREAS, the Acquisition represents a significant acquisition for Mercantile; WHEREAS, Mercantile has expressed a desire to retain the Employee as a member of its Management Executive Committee and a belief that it is essential for Mercantile to retain the Employee for the future management and growth of the assets acquired in the Acquisition, and Mercantile has expressed the intention that the Employee shall have a key role with respect to Mercantile's strategic activities in the future; WHEREAS, it is a condition of Mercantile's entering into the Definitive Agreement that Mercantile be assured that the Employee will be available for long term service with Mercantile after the Acquisition. WHEREAS, it is appropriate to provide the Employee with a material inducement to enter into this Agreement by which he will undergo a change in status and undertake both to continue his chief executive responsibilities with respect to the Bank and expanded duties with respect to Mercantile's banking operations in the St. Louis, Missouri, area; and WHEREAS, the board of directors of the Company and the Executive Committee of the board of directors of Mercantile have approved and authorized the execution of this Agreement with the Employee; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows: 1. Definitions. ----------- (a) The term "Consolidated Subsidiaries" means any subsidiary or subsidiaries of the Company (or its successors) that are part of the consolidated group of the Company (or its successors) for federal income tax reporting. (b) The term "Date of Termination" means the date upon which the Employee's employment with the Bank ceases, as specified in a notice of termination pursuant to Section 8 of this Agreement. 2 (c) The term "Effective Time" means immediately prior to the consummation of the Acquisition as provided in the Definitive Agreement. (d) The term "Effective Date" means the date on which the Acquisition is consummated as provided in the Definitive Agreement. (e) The term "Involuntarily Termination" means the termination of the employment of Employee (i) by the Bank without his express written consent; or (ii) by the Employee by reason of material diminution of or interference with his duties, responsibilities or benefits, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a requirement that the Employee be based at any place other than Chesterfield, Missouri, or within 50 miles thereof, except for reasonable travel on Company or Bank business; (2) a material demotion of the Employee; or (3) a reduction in the Employee's salary or a material adverse change in the Employee's perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to death or permanent disability, or suspension or temporary or permanent prohibition from participation in the conduct of the affairs of a depository institution under Section 8 of the Federal Deposit Insurance Act. (f) The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee with the Bank because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform material stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or (except as provided below) material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. 2. Term. The term of this Agreement shall be a period of three years ---- commencing on the Effective Time, subject to earlier termination as provided herein (the "Employment Period"). 3. Employment. The Employee is currently employed as Chief Executive ---------- Officer of the Bank. From and after the Effective Date, during the Employment Period, the Employee shall serve as President and Chief Executive Officer of the Bank, pending integration of the Bank with and into Mercantile's banking and/or other affiliates, and thereafter as head of Mercantile's St. Louis-based mortgage banking operations. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties as the Chief Executive Officer of Mercantile may prescribe from time to time. The Employee shall also serve as a member of the Management Executive Committee of Mercantile. The Employee shall report solely to the chief executive officer of Mercantile. The Employee shall devote his best efforts and reasonable time and attention to the business and affairs of the Bank and/or other Consolidated Subsidiaries to the extent necessary to discharge his responsibilities hereunder. The Employee may (i) serve on 2 3 corporate or charitable boards or committees, and (ii) manage personal investments, so long as such activities do not interfere with performance of his responsibilities hereunder. 4. Cash Compensation. ----------------- (a) Salary. Mercantile agrees to pay, or cause the Bank or ------ appropriate other Consolidated Subsidiaries to pay, the Employee during the term of this Agreement a base salary (the "Annual Base Salary") the annualized amount of which shall be not less than FOUR HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($425,000). The Annual Base Salary shall be paid no less frequently than monthly and shall be subject to customary tax withholding. (b) Annual Bonus. During the Employment Period, in addition ------------ to Annual Base Salary, the Employee will be eligible to receive, (I) for each fiscal year of Mercantile during which the Employee is employed, an annual bonus (the "Annual Bonus") in an amount to be determined by Mercantile's board of directors, but in no event shall the amount of the Annual Bonus during the first fiscal year during which the Employee 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 Mercantile other than the First Fiscal Year during which the Employee is employed for less than twelve full months, an amount equal to the product of (x) the Annual Bonus paid to the Employee during the Employment Period, and (y) a fraction, the numerator of which is the number of days in such fiscal year during which the Employee is employed by Mercantile, 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 Mercantile's customary practices with respect to other peer employees of Mercantile. (c) Expenses. The Employee shall be entitled to receive -------- prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of Mercantile, provided that the -------- ---- Employee accounts for such expenses as required under such policies and procedures. 5. Benefits. -------- (a) Participation in Benefit Plans. The Employee shall be ------------------------------ entitled to participate, to the same extent as executive officers of Mercantile and the Consolidated Subsidiaries generally, in all qualified and nonqualified plans of Mercantile and the Consolidated Subsidiaries relating to pension, retirement, thrift, profit-sharing, savings, group or other life insurance, hospitalization, medical and dental coverage, travel and accident insurance, education, and other retirement or employee benefits or combinations thereof. In addition, the Employee shall be entitled to be considered for benefits under all of the stock and stock option related plans in which the executive officers of Mercantile are eligible or become eligible to participate. (b) Fringe Benefits. The Employee shall be eligible to --------------- participate in, and receive benefits under, any other fringe benefit plans or perquisites which are or may become generally available to the executive officers Mercantile, including but not limited to supplemental retirement, incentive compensation, supplemental medical or life insurance plans, physical examinations, and tax preparation services. 3 4 (c) Restricted Stock. At the Effective Time, the Company shall ---------------- grant to the Employee 100,000 shares of restricted stock of the Company, which shares shall vest annually in equal portions over a period of three years following the Effective Date, provided that vesting shall accelerate so that ------------- all shares vest immediately in the event that the Employee dies or becomes permanently disabled during such period but vesting shall not accelerate in the event of a change in control of Mercantile. (d) Credit for Prior Service. Following the Acquisition, the ------------------------ Employee shall receive full credit for prior service with the Company and the Bank under employee benefit plans of Mercantile, all as more fully set out in Section 5.08 of the Definitive Agreements for all purposes other than determining the amount of benefit accruals under any defined benefit plans of Mercantile. 6. Vacations; Leave. The Employee shall be entitled to annual paid ---------------- vacation in accordance with the policies established by the board of directors of Mercantile and the board of directors of the Bank for executive officers, and to voluntary leaves of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion. 7. Termination of Employment. ------------------------- (a) Involuntary Termination. If the Employee experiences an ----------------------- Involuntary Termination at any time, (i) Mercantile shall pay to the Employee: A. The sum of (1) the Employee'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 of Mercantile consisting of less than twelve full months or during which the Employee 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 Mercantile 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 Mercantile 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 Employee's Annual Base Salary and (y) the Annual Bonus paid or payable (but not less than the Minimum Bonus) for the most recently completed fiscal year of Mercantile 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 Employee's Annual Base Salary and (y) the Recent Annual Bonus, payable, in each case, in 24 equal semi-monthly installments (the "Termination Payment"); and 4 5 (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"), Mercantile shall after the Employee's Date of Termination continue benefits to the Employee at least equal to those which would have been provided to him in accordance with the plans, programs, practices and policies described in Section 5(a) of this Agreement if the Employee's employment had not been terminated; provided, --------- however, that if the Employee become 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 Employee for retiree benefits pursuant to such plans, practices, programs, and policies, the Employee shall be considered to have remained employed during the Benefit Continuation Period and to have returned on the last day of such period; and (iii) The Employee shall be deemed to be a continuing employee of Mercantile for purposes of the vesting of the restricted stock referred to in Section 5(d) of this Agreement until the third anniversary of the Effective Date. (b) Termination for Cause. In the event of Termination for --------------------- Cause, Mercantile shall have no further obligation to the Employee under this Agreement after the Date of Termination. In the event of a simultaneous Termination for Cause and voluntary termination of employment or resignation by the Employee, the Employee shall be considered to have been Terminated for Cause. (c) Voluntary Termination. The Employee may terminate his --------------------- employment voluntarily at any time by a notice pursuant to Section 8 of this Agreement. In the event that the Employee voluntarily terminates his employment, Mercantile shall be obligated to the Employee for the amount of his Annual Base Salary and benefits only through the Date of Termination, at the time such payments are due, and Mercantile shall have no further obligation to the Employee. (d) Death. In the event of the death of the Employee while ----- employed under this Agreement and prior to any termination of employment, Mercantile shall pay to the Employee's estate, or such person as the Employee may have previously designated in writing, an amount of cash equal to the product of SIX HUNDRED FIFTY-EIGHT THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($658,750) multiplied by a fraction with a numerator equal to the number of days elapsed prior to the date of death during the calendar year in which death occurs and a denominator of 365, reduced by (ii) the amount of Annual Base Salary and bonus paid to the Employee prior to the date of death during such calendar year. 8. Notice of Termination. In the event that Mercantile desires to --------------------- terminate the employment of the Employee during the term of this Agreement, Mercantile shall deliver to the Employee a written notice of termination, stating whether such termination constitutes Termination for Cause or Involuntary Termination, setting forth in reasonable detail the facts and circumstances that are the basis for the termination, and specifying the date upon which 5 6 employment shall terminate, which date shall be at least 30 days after the date upon which the notice is delivered, except in the case of Termination for Cause. In the event that the Employee determines in good faith that he has experienced an Involuntary Termination of his employment, he shall send a written notice to Mercantile stating the circumstances that constitute such Involuntary Termination and the date upon which his employment shall have ceased due to such Involuntary Termination. In the event that the Employee desires to effect a Voluntary Termination, he shall deliver a written notice to Mercantile, stating the date upon which employment shall terminate, which date shall be at least 30 days after the date upon which the notice is delivered, unless the parties agree to a date sooner. 9. Attorneys Fees. From and after the Effective Date during the -------------- Employment Period, Mercantile shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) when and as incurred by the Employee as a result of (i) the Employee's contesting or disputing any termination of employment, or (ii) the Employee's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by Mercantile under which the Employee is or may be entitled to receive benefits; provided that Mercantile's obligation to pay such -------- ---- fees and expenses is subject to the Employee's prevailing with respect to the matters in dispute in any action initiated by the Employee or the Employee's having been determined to have acted reasonably and in good faith with respect to any action initiated by Mercantile. 10. No Assignments; Mercantile as Successor. --------------------------------------- (a) This Agreement is personal to each of the parties hereto, and neither party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that Mercantile shall require any successor or assignee - ----------------------- (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Mercantile would have been required to perform it if no such succession or assignment had taken place. Failure of Mercantile to obtain such an assumption agreement prior to the effectiveness of any succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation and benefits from Mercantile in the same amount and on the same terms as the compensation pursuant to Section 7(b) hereof. For purposes of implementing the provisions of this Section 10(a), the date on which any such succession becomes effective shall be deemed the Date of Termination. (b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. (c) Upon the consummation of the Acquisition, for all purposes under this Agreement, the Company shall be deemed to be Mercantile and the Consolidated Subsidiaries shall be those of Mercantile. 6 7 11. Certain Reduction of Payments by Mercantile. ------------------------------------------- (a) For purposes of this Section 11, (i) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of the Employee, 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 Employee 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 Employee'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 Employee 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 Employee (the "Accounting Firm") shall determine that receipt of all Payments would subject the Employee 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 Mercantile. (c) If the Accounting Firm determines that aggregate Separation Payments should be reduced to the Reduced Amount, Mercantile shall promptly give the Employee notice to that effect and a copy of the detailed calculation thereof, and the Employee may then elect, in his sole discretion, which and how much of the Separation Payments shall be eliminated or reduced (as long as after election the Present Value of the aggregate Separation Payments equals the Reduced Amount), and shall advise Mercantile in writing of his election within ten days of his receipt of notice. If no such election is made by the Employee within such ten-day period, Mercantile 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 Employee promptly of such election. All determinations made by the Accounting Firm under this Section 11 shall be binding upon Mercantile and the Employee and shall be made within 60 days of a termination of employment of the Employee. As promptly as practicable following such determination, Mercantile shall pay to or distribute for the benefit of the Employee such Separation Payments as are then due to the Employee under this Agreement and shall promptly pay to or distribute for the benefit of the Employee in the future such Separation Payments as become due to the Employee under this Agreement. (d) While it is the intention of Mercantile to reduce the amounts payable or distributable to the Employee hereunder only if the aggregate Net After Tax Receipts to an Employee 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 Mercantile to or for 7 8 the benefit of the Employee 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 Mercantile to or for the benefit of the Employee 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 Mercantile or the Employee 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 Mercantile to or for the benefit of the Employee shall be treated for all purposes as a loan to the Employee which the Employee shall repay to Mercantile 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 Employee to Mercantile if and to the extent such deemed loan and payment would not either reduce the amount on which the Employee 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 Mercantile to or for the benefit of the Employee together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. 12. Confidential Information. The Employee shall hold in a fiduciary ------------------------ capacity for the benefit of Mercantile and the Bank all secret or confidential information, knowledge or data ("Confidential Information") relating to Mercantile or the Bank or any of their affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by Mercantile or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment, the Employee shall not, without the prior written consent of Mercantile or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Mercantile 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 Employee under this Agreement. Confidential information shall not include information, knowledge or data which (i) is in the Employee's possession at the date of this Agreement which she has no reason to believe is subject to any confidentiality agreement or other obligation of confidentiality to Mercantile or another party, (ii) is or becomes generally available to the public other than as a result of unauthorized disclosure by Mercantile or a Consolidated Subsidiary thereof, or representative of either, (iii) is or becomes available to Mercantile from a source other than Mercantile, provided that the Employee ------------- does not know or have reason to believe that such source is bound by a confidentiality agreement or other obligation of confidentiality to Mercantile, (iv) is independently developed by the Employee without reference to any information obtained from Mercantile, or (v) is required to disclosed by law. 13. Covenant Not To Engage in Competitive or Other Detrimental ---------------------------------------------------------- Activities. ---------- (a) The Employee covenants that from and after the Effective Date he will not compete with Mercantile, the Bank and/or their affiliates and further covenants that he will not take any action which is detrimental to Mercantile, the Bank and/or the affiliated companies 8 9 (i) during the Employment Period, and (ii) if the Employee's employment terminates for any reason (other than the Employee's death) or no reason during the Employment Period, until the later of (i) the third anniversary of the Effective Date or (ii) the first anniversary of the Date of Termination. (b) For purposes of paragraph (a) of this Section 13, the Employee shall be deemed to be competing with Mercantile, Bank and/or their affiliated companies at any time if the Employee accepts employment with, or serves as an agent, employee, or director of, or a consultant to, a competitor of Mercantile, Bank and/or their affiliated companies, or during such time the Employee acquires or has an interest (direct or indirect) in any firm, corporation or enterprise engaged in a business which is in competition with Mercantile, Bank and/or their affiliated companies, or at any time, either during employment or thereafter, the Employee divulges any information concerning Mercantile, Bank and/or their affiliated companies 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 Mercantile, Bank and/or their affiliated companies, and which conducts business in any locations encompassed within the areas circumscribed by circles, of which the radii are 50 miles and the mid-points are the geographic centers of any community in which Mercantile and/or its affiliated companies conduct business operations shall be deemed to be a competitor. (c) Should Mercantile reasonably and in good faith believe that the Employee has violated any of the foregoing provisions, it shall give the Employee written notice to such effect, stating the reasons(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. Mercantile shall, in an expeditious manner, determine from all information available to it whether the Employee violated any of the foregoing covenants, and if Mercantile in good faith concludes that the Employee has violated this Agreement, the Employee shall not be entitled to any further payment hereunder. (d) The Employee 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 Employee from earning a livelihood, (ii) that Mercantile and Bank do not have an adequate remedy at law for a breach or threatened breach by the Employee 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 Mercantile, 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, 9 10 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. 14. Notice. For the purposes of this Agreement, notices and all other ------ communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Company at its home office, to the attention of the Board of Directors with a copy to the Secretary of Mercantile, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to Mercantile. 15. Amendments. No amendments or additions to this Agreement shall be ---------- binding unless in writing and signed by both parties, except as herein otherwise provided. 16. Headings. The headings used in this Agreement are included solely -------- for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. 17. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 18. Governing Law. This Agreement shall be governed by the laws of the ------------- State of Missouri. 19. Arbitration. Any dispute or controversy arising under or in ----------- connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 10 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. Attest: Roosevelt Financial Group, Inc. /s/Mark Ellebrecht /s/Gary W. Douglass - --------------------------- -------------------------------- Secretary By: Its: Attest: Mercantile Bancorporation, Inc. /s/Jon W. Bilstrom /s/Thomas H. Jacobsen - --------------------------- -------------------------------- Secretary By: Its: Employee /s/Stanley J. Bradshaw -------------------------------- Stanley J. Bradshaw 11 EX-27 3 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1,053,338 180,445 420,988 73,429 4,336,067 303,214 305,797 15,421,311 234,684 22,579,609 16,954,445 2,449,526 294,337 796,049 0 0 1,179 1,759,073 22,579,609 652,959 147,267 9,399 809,625 309,359 382,101 427,524 46,138 2,867 386,070 171,343 171,343 0 0 107,174 .94 .94 4.33 77,143 30,505 5,039 0 230,372 55,126 11,685 234,684 234,684 0 0 This amount is only reported at fiscal year-end date.
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