-----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, HxYRvCcWUcE//8rEccxIg5+oSGtlgrErDKoHgNqy3SFjoBiRVDNtUOk0hwHaDzHM boEqdtKQgZeqmjz+Ok4uYA== 0000950114-98-000266.txt : 19980518 0000950114-98-000266.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950114-98-000266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 001-11792 FILM NUMBER: 98625196 BUSINESS ADDRESS: STREET 1: 7TH & WASHINGTON TRAM 19 1 STREET 2: ONE MERCANTILE CENTER STREET CITY: ST LOUIS STATE: MO ZIP: 63101-1643 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 10-Q 1 MERCANTILE BANCORPORATION INC. FORM 10-Q 1 =============================================================================== FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 1998 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) 418-2525 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, 133,225,523 SHARES OUTSTANDING AS OF THE CLOSE OF BUSINESS ON APRIL 30, 1998. =============================================================================== 2 INDEX PART I--FINANCIAL INFORMATION
PAGE NO. -------- Item 1--Financial Statements Consolidated Statement of Income (Unaudited) Three months ended March 31, 1998 and 1997 4 Consolidated Balance Sheet March 31, 1998 and 1997 (Unaudited), and December 31, 1997 5 Consolidated Statement of Changes in Shareholders' Equity (Unaudited) Three months ended March 31, 1998 and 1997 6 Consolidated Statement of Cash Flows (Unaudited) Three months ended March 31, 1998 and 1997 7 Notes to Consolidated Financial Statements 8 Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II--OTHER INFORMATION Item 4--Submission of Matters to a Vote of Security Holders 25 Item 6--Exhibits and Reports on Form 8-K 27 Signature 28 Exhibit Index
3 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31 1998 1997 ---- ---- INTEREST INCOME Interest and fees on loans and leases $394,119 $321,271 Investments in debt and equity securities Trading 2,060 1,164 Taxable 123,607 66,764 Tax-exempt 4,557 5,354 -------- -------- Total Investments in Debt and Equity Securities 130,224 73,282 Due from banks--interest bearing 2,886 1,236 Federal funds sold and repurchase agreements 3,102 2,673 -------- -------- Total Interest Income 530,331 398,462 INTEREST EXPENSE Interest bearing deposits 202,892 149,045 Foreign deposits 7,617 4,717 Short-term borrowings 49,545 22,872 Bank notes 2,323 2,540 Long-term debt and mandatorily redeemable preferred securities 27,649 7,327 -------- -------- Total Interest Expense 290,026 186,501 -------- -------- NET INTEREST INCOME 240,305 211,961 PROVISION FOR POSSIBLE LOAN LOSSES 6,606 18,443 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 233,699 193,518 OTHER INCOME Trust 25,886 22,801 Service charges 25,576 22,798 Investment banking and brokerage 10,146 7,982 Mortgage banking 4,919 2,778 Gain on sale of mortgage servicing rights 23,155 -- Credit card fees 3,284 5,399 Securitization revenue 4,523 7,292 Securities gains 4,263 1,049 Miscellaneous 25,441 18,001 -------- -------- Total Other Income 127,193 88,100 OTHER EXPENSE Salaries 91,638 78,140 Employee benefits 19,937 19,582 Net occupancy 14,481 12,712 Equipment 19,174 13,816 Intangible asset amortization 13,984 4,379 Miscellaneous 37,650 36,966 -------- -------- Total Other Expense 196,864 165,595 -------- -------- INCOME BEFORE INCOME TAXES 164,028 116,023 INCOME TAXES 60,136 41,028 -------- -------- NET INCOME $103,892 $ 74,995 ======== ======== PER SHARE DATA Basic earnings per share $.78 $.65 Diluted earnings per share .77 .64 Dividends declared .31 .287 The accompanying notes to consolidated financial statements are an integral part of these statements.
4 4 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS)
MARCH 31 MARCH 31 1998 DEC. 31 1997 (UNAUDITED) 1997 (UNAUDITED) ----------- ----------- ----------- ASSETS Cash and due from banks $ 1,193,064 $ 1,171,727 $ 941,549 Due from banks--interest bearing 269,342 240,578 112,905 Federal funds sold and repurchase agreements 258,295 292,384 200,011 Investments in debt and equity securities Trading 125,634 70,486 65,934 Available-for-sale (Amortized cost of $7,984,300, $7,192,818, and $4,253,823, respectively) 8,027,916 7,225,638 4,246,090 Held-to-maturity (Estimated fair value of $226,833, $252,135 and $533,648 respectively) 224,125 249,434 534,994 ----------- ----------- ----------- Total Investments in Debt and Equity Securities 8,377,675 7,545,558 4,847,018 Loans held-for-sale 219,891 85,790 62,857 Loans and leases, net of unearned income 19,405,131 19,114,127 15,149,826 ----------- ----------- ----------- Total Loans and Leases 19,625,022 19,199,917 15,212,683 Reserve for possible loan losses (263,511) (254,983) (231,496) ----------- ----------- ----------- Net Loans and Leases 19,361,511 18,944,934 14,981,187 Bank premises and equipment 476,547 464,683 373,189 Intangible assets 792,626 807,666 198,142 Other assets 1,072,662 487,881 424,300 ----------- ----------- ----------- Total Assets $31,801,722 $29,955,411 $22,078,301 =========== =========== =========== LIABILITIES Deposits Non-interest bearing $ 3,487,875 $ 3,586,011 $ 2,896,268 Interest bearing 18,576,440 17,908,477 14,180,186 Foreign 463,426 585,439 277,560 ----------- ----------- ----------- Total Deposits 22,527,741 22,079,927 17,354,014 Federal funds purchased and repurchase agreements 2,019,705 1,991,289 1,675,864 Other short-term borrowings 1,577,210 1,474,533 197,905 Bank notes 25,000 175,000 175,000 Long-term Federal Home Loan Bank advances 1,413,497 539,491 21,484 Other long-term debt 779,564 779,662 280,498 Company-obligated mandatorily redeemable preferred securities of Mercantile Capital Trust I 150,000 150,000 150,000 Other liabilities 825,839 355,340 341,616 ----------- ----------- ----------- Total Liabilities 29,318,556 27,545,242 20,196,381 Commitments and contingent liabilities -- -- -- MARCH 31 DEC. 31 MARCH 31 1998 1997 1997 -------- ------- -------- 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 March 31, 1998 and Dec. 31, 1997, and $5.00 par value at March 31, 1997 Shares authorized 200,000 200,000 200,000 Shares issued 134,960 130,670 119,089 1,351 1,307 595,444 Capital surplus 986,393 940,197 34,903 Retained earnings 1,561,831 1,451,455 1,435,417 Accumulated other comprehensive income 30,850 23,215 (2,593) Treasury stock, at cost 1,845 162 5,066 (97,259) (6,005) (181,251) ----------- ----------- ----------- Total Shareholders' Equity 2,483,166 2,410,169 1,881,920 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $31,801,722 $29,955,411 $22,078,301 =========== =========== =========== The accompanying notes to consolidated financial statements are an integral part of these statements.
5 5 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) ($ IN THOUSANDS)
COMMON STOCK ---------------------- TOTAL OUTSTANDING CAPITAL RETAINED TREASURY SHAREHOLDERS' SHARES DOLLARS SURPLUS EARNINGS STOCK EQUITY ----------- ------- ------- ------------ -------- ------------- BALANCE AT DECEMBER 31, 1996 116,229,704 $594,107 $ 34,956 $1,400,789 $ (84,201) $1,945,651 Net income 74,995 74,995 Common dividends declared: Mercantile Bancorporation Inc.--$.287 per share (25,892) (25,892) Pooled companies prior to acquisition (5,895) (5,895) Issuance of common stock in acquisition of Regional Bancshares, Inc. 900,625 (474) 361 28,813 28,700 Issuance of common stock for: Employee incentive plans 148,870 300 (632) 2,596 2,264 Convertible notes 4,216 21 26 47 Other comprehensive income (11,812) (11,812) Purchase of treasury stock (3,463,549) (129,029) (129,029) Pre-merger transactions of pooled companies and other 203,300 1,016 1,027 278 570 2,891 ----------- -------- -------- ---------- --------- ---------- BALANCE AT MARCH 31, 1997 114,023,166 $595,444 $ 34,903 $1,432,824 $(181,251) $1,881,920 =========== ======== ======== ========== ========= ========== BALANCE AT DECEMBER 31, 1997 130,508,090 $ 1,307 $940,197 $1,474,670 $ (6,005) $2,410,169 Net income 103,892 103,892 Common dividends declared--$.31 per share (41,747) (41,747) Issuance of common stock in acquisitions of: HomeCorp, Inc. 854,760 9 6,727 13,792 20,528 Horizon Bancorp, Inc. 2,549,970 25 10,755 35,615 357 46,752 Issuance of common stock for: Employee incentive plans 944,685 9 28,628 2,193 30,830 Convertible notes 7,722 1 86 87 Other comprehensive income 6,459 6,459 Purchase of treasury stock (1,750,000) (93,804) (93,804) ----------- -------- -------- ---------- --------- ---------- BALANCE AT MARCH 31, 1998 133,115,227 $ 1,351 $986,393 $1,592,681 $ (97,259) $2,483,166 =========== ======== ======== ========== ========= ========== Includes accumulated other comprehensive income. The accompanying notes to consolidated financial statements are an integral part of these statements.
6 6 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (THOUSANDS)
THREE MONTHS ENDED MARCH 31 1998 1997 ---- ---- OPERATING ACTIVITIES Net income $ 103,892 $ 74,995 Adjustments to reconcile net income to net cash provided (used) by operating activities Provision for possible loan losses 6,606 18,443 Depreciation and amortization 16,455 12,020 Provision for deferred income taxes (credits) (2,305) 719 Net change in loans held-for-sale (128,027) 3,516 Net change in trading securities 13,571 (34,409) Net change in accrued interest receivable 13,206 3,682 Net change in accrued interest payable 8,278 1,330 Other, net (44,137) 14,678 ----------- ----------- Net Cash Provided (Used) by Operating Activities (12,461) 94,974 INVESTING ACTIVITIES Investments in debt and equity securities, other than trading securities Purchases (1,896,874) (601,357) Proceeds from maturities 733,144 464,866 Proceeds from sales of available-for-sale securities 595,170 167,779 Net change in loans and leases 202,023 (256,495) Purchases of loans and leases (127,651) (33,686) Proceeds from sales of loans and leases 205,105 39,806 Proceeds from sale of mortgage servicing rights 26,330 -- Purchases of premises and equipment (19,120) (14,534) Proceeds from sales of premises and equipment 3,610 1,444 Proceeds from sales of foreclosed property 9,255 7,322 Cash and cash equivalents from acquisitions, net of cash paid 34,448 (8,132) Sale of banking offices, net (3,524) -- Other, net 5,588 (3,899) ----------- ----------- Net Cash Used by Investing Activities (232,496) (236,886) FINANCING ACTIVITIES Net change in time certificates of deposit under $100,000 (285,402) (91,306) Net change in time certificates of deposit $100,000 and over 57,097 87,832 Net change in other time deposits 23,224 (68,066) Net change in foreign deposits (122,013) 25,673 Net change in other deposits (61,710) (72,524) Net change in short-term borrowings 73,251 (122,950) Principal payments on bank notes (150,000) -- Issuance of long-term FHLB advances and other long-term debt 851,500 -- Issuance of company-obligated mandatorily redeemable preferred securities -- 150,000 Principal payments on long-term debt (146) (2,802) Cash dividends paid (39,339) (31,787) Net proceeds from issuance of common stock from employee incentive plans and pre-merger transactions of pooled companies 8,311 1,934 Purchase of treasury stock (93,804) (140,804) Other, net -- 3,174 ----------- ----------- Net Cash Provided (Used) by Financing Activities 260,969 (261,626) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,012 (403,538) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,704,689 1,658,003 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,720,701 $ 1,254,465 =========== =========== The accompanying notes to consolidated financial statements are an integral part of these statements.
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. NOTE B NEW ACCOUNTING STANDARDS Financial Accounting Standard ("FAS") 128, "Earnings per Share," was issued in February 1997. This statement was effective in the fourth quarter of 1997 and required additional reporting of earnings per share which gives effect to dilutive common share equivalents such as stock options or convertible notes. The Corporation's disclosure under FAS 128 is included in Note C to the Consolidated Financial Statements. FAS 130, "Reporting Comprehensive Income," was issued in June 1997. Comprehensive income is defined as net income plus certain items that are recorded directly to shareholders' equity, such as unrealized gains and losses on available-for-sale securities. Components of the Corporation's comprehensive income are included in Note E. FAS 131, "Disclosures about Segments of an Enterprise and Related Information," is effective for financial statements for periods beginning after December 15, 1997, but interim period reporting is not required in 1998. An operating segment is defined under FAS 131 as a component of an enterprise that engages in business activities that generate revenue and expense for which operating results are reviewed by the chief operating decision maker in the determination of resource allocation and performance. Mercantile is currently evaluating the impact of FAS 131 on future financial statement disclosures. FAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," addresses disclosure of such benefit plans and is effective for fiscal years beginning after December 31, 1997 (i.e., in the Corporation's 1998 Annual Report). The Corporation does not anticipate a significant impact when making these new disclosures. NOTE C EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to both the increase in the average shares outstanding that would have resulted from both the exercise of dilutive stock options and the conversion of the entire balance of outstanding convertible notes. Net income is increased in the diluted earnings per share computation by interest expense that would not be incurred on notes if 8 8 they converted, net of taxes. The components of basic and diluted earnings per share as prescribed by FAS 128, "Earnings per Share," are as follows:
(THOUSANDS EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31 1998 1997 ---- ---- BASIC Net income $103,892 $74,995 Weighted average shares outstanding 132,778,433 114,862,128 BASIC EARNINGS PER SHARE $.78 $.65 DILUTED Net income $103,892 $74,995 Interest on convertible notes, net of taxes 12 24 -------- ------- Diluted Net Income $103,904 $75,019 ======== ======= Weighted average common shares outstanding 132,778,433 114,862,128 Employee incentive plans 2,373,710 1,789,400 Convertible notes 98,140 180,192 ----------- ----------- Diluted Average Shares Outstanding 135,250,283 116,831,720 =========== =========== DILUTED EARNINGS PER SHARE $.77 $.64
All per share amounts and average shares outstanding have been restated to give effect to a three-for-two stock split distributed on October 1, 1997. Per share data for 1997 gives effect to the computational and reporting requirements of FAS 128. NOTE D ACQUISITIONS 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 as of or for the three months ending March 31, 1997 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 largely to finance the Roosevelt acquisition, offset by interest earned on funds not utilized in the acquisition.
(THOUSANDS EXCEPT PER SHARE DATA) AS OF OR FOR THE THREE MONTHS ENDED MARCH 31 1997 -------- Total assets $29,830,652 Net interest income 248,064 Other income 100,452 Net income 78,521 Basic earnings per share .63
As of March 31, 1998, the Corporation had acquisitions pending with CBT Corporation ("CBT") of Paducah, Kentucky, and Firstbank of Illinois Co. ("Firstbank"), headquartered in Springfield, Illinois. The CBT and Firstbank acquisitions are expected to close in the third quarter of 1998 and will be accounted for under the pooling-of-interests method. Unaudited 9 9 pro forma combined consolidated financial data including the Corporation, CBT and Firstbank for the three months ending March 31, 1998 and 1997 is listed below:
AS OF OR FOR THE THREE MONTHS ENDED MARCH 31 (THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 ---- ---- Total assets $34,652,438 $24,941,289 Net interest income 272,621 241,383 Other income 136,760 96,011 Net income 114,076 84,528 Basic earnings per share .76 .65
The Corporation has also announced plans to merge with Financial Services Corporation of the Midwest, based in Rock Island, Illinois, and Iowa City based First Financial Bancorporation. These acquisitions, to be accounted for as poolings-of-interests, are expected to close in the third quarter of 1998. NOTE E COMPREHENSIVE INCOME Comprehensive income as defined by FAS 130 is as follows:
THREE MONTHS ENDED MARCH 31 (THOUSANDS) 1998 1997 ---- ---- Net income $103,892 $ 74,995 Other comprehensive income, net of tax: Holding gains (losses) on available-for-sale securities 9,230 (11,130) Less: Reclassification adjustment for securities gains included in net income above (2,771) (682) -------- -------- Other Comprehensive Income 6,459 (11,812) -------- -------- COMPREHENSIVE INCOME $110,351 $ 63,183 ======== ========
NOTE F COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED 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. 10 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. - --------------------------------------------------------------------------------------- EXHIBIT 1 HIGHLIGHTS
FIRST QUARTER 1998 1997 CHANGE - --------------------------------------------------------------------------------------- PER SHARE DATA Diluted earnings per share $ .77 $ .64 20.3% Basic earnings per share .78 .65 20.0 Dividends declared .31 .287 8.0 Book value at March 31 18.65 16.50 13.0 Market price at March 31 54 13/16 35 5/16 55.2 - --------------------------------------------------------------------------------------- OPERATING RESULTS (THOUSANDS) Taxable-equivalent net interest income $243,706 $215,818 12.9% Tax-equivalent adjustment 3,401 3,857 (11.8) Net interest income 240,305 211,961 13.4 Provision for possible loan losses 6,606 18,443 (64.2) Other income 127,193 88,100 44.4 Other expense 196,864 165,595 18.9 Income taxes 60,136 41,028 46.6 Net income 103,892 74,995 38.5 - --------------------------------------------------------------------------------------- SELECTED RATIOS AND DATA Return on assets 1.35% 1.38% Return on equity 16.57 15.63 Efficiency ratio 53.08 54.49 Other expense to average assets 2.57 3.04 Net interest rate margin 3.54 4.36 Tangible equity to tangible assets 5.45 7.70 Equity to assets 7.81 8.52 Tier I capital to risk-adjusted assets 8.60 11.29 Total capital to risk-adjusted assets 11.64 13.92 Leverage 6.23 8.48 Reserve for possible loan losses to outstanding loans 1.34 1.52 Reserve for possible loan losses to non-performing loans 231.39 273.18 Non-performing loans to outstanding loans .58 .56 Banks 19 31 Banking offices 557 511 Full-time equivalent employees 9,770 8,992 - --------------------------------------------------------------------------------------- AVERAGE BALANCES (MILLIONS) Total assets $30,700 $21,761 41.1% Earning assets 27,913 20,073 39.1 Loans and leases 19,433 14,992 29.6 Deposits 22,186 17,151 29.4 Shareholders' equity 2,509 1,920 30.7 - ---------------------------------------------------------------------------------------
11 11 PERFORMANCE SUMMARY Net income for Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") in the first quarter of 1998 was $103,892,000 compared with the $74,995,000 earned in the same period a year ago. Basic earnings per share was $.78 compared with $.65 in the first quarter of 1997 and diluted earnings per share was $.77 compared with $.64 in the first quarter of 1997. The Corporation recorded a gain on the sale of mortgage servicing rights in the first quarter of 1998 which totaled $23,155,000 on a pre-tax basis. This gain increased basic and diluted earnings per share by $.11. Return on average assets was 1.35% in 1998 compared with 1.38% in 1997, while return on average equity improved to 16.57% from 15.63% last year. The Corporation believes it is important to also disclose cash based earnings, which excludes intangible asset amortization, because it is more indicative of cash flows, and thus, the Corporation's ability to support growth and pay dividends. On July 1, 1997, Mercantile added $608 million of goodwill to its balance sheet in conjunction with the purchase of Roosevelt Financial Group, Inc. ("Roosevelt"). In 1998, first quarter cash based diluted earnings per share was $.87, up 27.9% from the $.68 earned in 1997. See Exhibit 3 for other cash based performance ratios and the related favorable comparisons to 1997. Exhibit 2 details acquisitions completed during 1997 and 1998 as well as four pending acquisitions. On February 2, 1998, the Corporation completed its acquisition of Horizon Bancorp, Inc. ("Horizon"), a $537 million-asset bank holding company in Arkadelphia, Arkansas. One month later, Mercantile completed the acquisition of HomeCorp, Inc. ("HomeCorp"), a $335 million-asset thrift holding company based in Rockford, Illinois. The Horizon and HomeCorp acquisitions met the requirements for treatment as poolings-of-interests; however, due to the immateriality of their financial condition and results of operations to that of Mercantile, the historical financial statements of the Corporation were not restated. The Corporation announced on January 12, 1998 that it had entered into an agreement to acquire CBT Corporation ("CBT") of Paducah, Kentucky, a bank holding company with assets totaling $1.0 billion. Additionally, on February 2, 1998, Mercantile announced plans to merge with Firstbank of Illinois Co. ("Firstbank"), a $2.3 billion-asset bank holding company headquartered in Springfield, Illinois. It is expected that Firstbank will divest of its two Missouri banks due to certain restrictions on deposit concentration. These banks had total assets of approximately $300 million. A gain is expected to be recorded in connection with the sales, but the amount of such gain is not known at this time. The CBT and Firstbank acquisitions are expected to close on July 1, 1998 and will be accounted for under the pooling-of-interests method. The Corporation expects to record one-time charges in the third quarter of 1998 related to both the CBT and ------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 2 ACQUISITIONS ($ IN THOUSANDS)
CONSIDERATION ------------------- GROSS ACCOUNTING DATE ASSETS DEPOSITS CASH SHARES METHOD ---- ------ -------- ---- ------ ---------- ACQUISITIONS COMPLETED HomeCorp, Inc. Mar. 2, 1998 $ 335,137 $ 309,157 $ 14 854,760 Pooling Horizon Bancorp, Inc. Feb. 2, 1998 536,507 454,230 2 2,549,970 Pooling Roosevelt Financial Group, Inc. July 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase 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 ACQUISITIONS PENDING CBT Corporation 3rd Qtr. 1998 1,030,132 714,686 -- 5,400,000 Pooling Firstbank of Illinois Co. 3rd Qtr. 1998 2,283,670 2,000,539 -- 13,800,000 Pooling Financial Services Corporation of the Midwest 3rd Qtr. 1998 518,046 408,995 -- 2,077,000 Pooling First Financial Bancorporation 3rd Qtr. 1998 568,442 480,461 -- 3,194,844 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 number of shares to be issued in acquisition. -------------------------------------------------------------------------------------------------------------------------------
12 12 - ---------------------------------------------------------------------- EXHIBIT 3 CASH BASED EARNINGS ($ IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31 1998 1997 CHANGE ---- ---- ------ Net income $103,892 $74,995 38.5% Add back: Goodwill amortization 13,386 2,965 -- Other intangible asset amortization 598 1,414 (57.7) -------- ------- Total Intangible Asset Amortization 13,984 4,379 -- Less: Tax effect (214) (496) (56.9) -------- ------- CASH BASED NET INCOME $117,662 $78,878 49.2 ======== ======= PER SHARE DATA Cash based diluted earnings per share $.87 $.68 27.9% Cash based basic earnings per share .89 .69 29.0 CASH BASED PERFORMANCE RATIOS Return on tangible assets 1.57% 1.46% Return on tangible equity 27.55 18.23 Efficiency ratio 49.31 53.05 Other expense to average tangible assets 2.45 2.99 - ----------------------------------------------------------------------
Firstbank acquisitions which will reduce pre-tax income between $40,000,000 and $65,000,000 when finally quantified. The pre-tax charges for HomeCorp and Horizon are estimated to be between $12,000,000 and $15,000,000 and they too will be recorded in the third quarter of 1998. The Roosevelt transaction was accounted for as a purchase; thus, historical financial statements were not restated and its results of operations are included with Mercantile's from July 1, 1997 forward. On November 14, 1997, the assets and liabilities of Roosevelt Bank were merged into nine Mercantile subsidiary banks based on geographic area. Due to both of these factors, comparisons of 1998 financial information with 1997 is complex. Net interest income for the first quarter of 1998 was $240,305,000 compared with $211,961,000 in the year-earlier period, an increase of 13.4%. The net interest rate margin, however, was 3.54% compared with 3.58% in the fourth quarter of 1997 and 4.36% last year. The third quarter 1997 acquisition of Roosevelt and the sale of portions of the credit card portfolio in the third quarter of 1997 and the first quarter of 1998 significantly impacted the Corporation's mix of earning assets and costing sources of funds. Average earning assets for 1998 of $27.9 billion grew by $7.8 billion or 39.1% from the $20.1 billion in the first quarter of 1997. The Roosevelt acquisition added approximately $6.8 billion to average earning assets, largely in residential mortgage loans and mortgage-backed investment securities. Other income was $127,193,000 in the first quarter of 1998, an increase of 44.4% from a year ago. The first quarter of 1998 was favorably influenced by a $23,155,000 pre-tax gain on the sale of mortgage servicing. Fee growth in core businesses, gains recognized on the sale of non-strategic businesses and the impact of the Roosevelt acquisition on service charges and mortgage banking revenue largely accounted for the remainder of the increase. Non-interest expenses in 1998 were $196,864,000, 18.9% higher than in 1997. The efficiency ratio improved to 53.08% compared with 54.49% last year, and the expense to average assets ratio improved to 2.57% compared with 3.04% in the first quarter of 1997. Year 2000 project costs for the first quarter of 1998 were $3,985,000 versus minimal amounts expensed in 1997. In 1998, these costs will be funded by the previously mentioned gain from the sale of the Corporation's mortgage servicing. The provision for possible loan losses for the quarter was $6,606,000 compared with $18,443,000 in 1997. Net charge-offs for 1998 and 1997 were $5,917,000 and $18,934,000, respectively, and on an annualized basis declined to .12% of average loans this quarter compared with .51% last year. The lower provision and charge-offs were due largely to the decrease in average credit card loans caused by the sale of $405 million in credit card receivables in the third quarter of 1997. At March 31, 1998, the reserve for possible loan losses was $263,511,000, and covered 231.39% of non-performing loans compared with 249.51% at year-end 1997 and 273.18% last March 31. Non-performing loans (i.e., non-accrual and renegotiated loans) as of March 31, 1998 were $113,884,000 or .58% of total loans compared with the year-end 1997 figures of $102,192,000 or .53% and $84,741,000 or .56% at March 31, 1997. Certain investment securities, primarily acquired in the Roosevelt transaction, incurred a change in value that is considered an 13 13 "other than temporary" impairment. These securities totaled $77,943,000 at March 31, 1998. Foreclosed assets were $19,723,000 at March 31, 1998 versus $18,115,000 at March 31, 1997. Consolidated assets of $31.8 billion were up 44.0% from last March 31. On a pro forma basis after all announced acquisitions are closed, consolidated assets of Mercantile will approximate $34 billion. Core deposits increased by 29.7% to $20.4 billion, loans were up 29.0% to $19.6 billion, and shareholders' equity of $2.5 billion was 31.9% higher than at March 31, 1997. All measures of capital adequacy remained adequate. Tier I capital to risk-adjusted assets was 8.60% while Total capital to risk-adjusted assets at March 31, 1998 was 11.64%. The ratio of tangible equity to tangible assets was 5.45% at March 31, 1998. The following financial commentary presents a more thorough discussion and analysis of the results of operations and financial condition of the Corporation for the first quarter of 1998. NET INTEREST INCOME Net interest income for the first quarter of 1998 was $240,305,000, a 13.4% increase from the $211,961,000 earned last year. The net interest rate margin was 3.54% compared with 4.36% in 1997. The acquisition of Roosevelt caused a significant shift in the mix of earning assets and funding sources. These shifts, coupled with the cost of debt issued to acquire Roosevelt, resulted in an estimated 60-basis-point decline in the net interest rate margin during the second half of 1997. The first quarter 1998 net interest rate margin also dropped slightly due to competitive pressures on commercial loan pricing, an increase in the refinancing of adjustable-rate residential mortgages, the continuation of relatively high rates paid on certificates of deposit and a decline in core deposits as a percentage of total funding sources. - --------------------------------------------------------------------- EXHIBIT 4 LOANS AND LEASES ($ IN MILLIONS)
MARCH 31 1998 1997 CHANGE ---- ---- ------ Commercial $ 4,926 $ 4,393 12.1% Real estate--commercial 2,999 2,902 3.3 Real estate--construction 738 586 25.9 Real estate--residential mortgage 8,195 4,323 89.6 Real estate--home equity credit loans 486 385 26.4 Consumer 2,145 1,884 13.9 Credit card loans managed 536 1,140 (53.0) Securitized credit card loans (400) (400) -- ------- ------- Total Loans and Leases $19,625 $15,213 29.0 ======= ======= - ---------------------------------------------------------------------
Average earning assets in 1998 grew by $7.8 billion or 39.1% when compared with 1997, and average loans grew by $4.4 billion or 29.6%. This growth was funded by an increase of $4.5 billion or 29.2% in average core deposits, a $497 million increase in purchased deposits, a $1.9 billion increase in short-term borrowed funds and $650 million of long-term debt issued in 1997. The net result of these funding changes likewise lowered the rate margin. Investment securities averaged $8.1 billion in the first quarter of 1998, and increased by 67.9% from 1997. The Roosevelt acquisition increased investment securities by approximately $2.7 billion over 1997. The portfolio also grew as some of the proceeds from the credit card sale were reinvested. The held-to-maturity and available-for-sale portfolio at March 31, 1998 consisted of 63.42% in U.S. and other Government agency securities, including 33.33% in mortgage-related issues, 4.90% in state and municipal securities, and 31.68% of other miscellaneous securities. The comparable distribution at March 31, 1997 was 84.93%, 32.60%, 10.54% and 4.53%, respectively. The change in the mix of the investment portfolio was primarily attributable to the Roosevelt acquisition. Roosevelt owned a higher concentration of government and privately issued mortgage-backed securities and collateralized mortgage obligations. The privately issued collateralized mortgage obligations are included in miscellaneous securities. When compared with the first quarter of 1997, average commercial loans grew by $443 million or 10.4%. Commercial loan growth occurred on a system-wide basis. Average commercial real estate mortgage loans increased by $113 million or 4.0%, while construction loans grew by $148 million or 25.4%, reflecting both the impact of the Roosevelt acquisition and the strength of the Midwest economy. 14 14 Average residential real estate mortgage loans increased by $4.0 billion or 93.6%. The Roosevelt acquisition added approximately $3.9 billion in volume on July 1, 1997, thereby largely accounting for the growth in this loan category. Average residential mortgage loans as a percentage of earning assets increased from 21.20% in the first quarter of 1997 to 29.52% in 1998. Home equity credit loans averaged $495 million in the first quarter of 1998, a 28.8% increase over the prior year. Average credit card loans were down $574 million or 69.9% in 1998. The largest part of the decline was due to the sale of $405 million in co-branded cards on September 25, 1997. Prior to that date, the Corporation had managed to a $224 million decline due to more aggressive risk-based pricing of the cards, as well as transferring $123 million of loans to the investment portfolio as required by FAS 125. Partially offsetting the sale, the managed decline and the transfer was the addition of $112 million in Roosevelt credit card loans on July 1, 1997; the out-of-territory Roosevelt credit card loans were sold in March 1998 at a gain. Average core deposits increased by $4.5 billion or 29.2% in the first quarter of 1998. At March 31, 1998, Mercantile was substantially core funded at 90.41% of total deposits and 71.86% of earning assets. The Roosevelt acquisition added an estimated $5.0 billion to average core deposits. Mercantile has experienced run-off from Roosevelt depositors, but to date approximates what was anticipated. Changes in average core deposits for the past five quarters are shown in the Consolidated Quarterly Average Balance Sheet on page 23 of this report. Average non-interest bearing deposits increased by $654 million or 23.8% from 1997. Some of the growth occurred due to the Roosevelt acquisition and a part of the remaining growth came from the U.S. Government, a significant cash management customer of Mercantile Bank N.A. that pays for services rendered via compensating balances. These average balances have increased from $583 million in the first quarter of 1997 to $681 million in 1998. Partially offsetting this increase was growth of $159 million in cash and due from banks that has been minimized by both float and reserve reduction efforts. Average interest bearing demand, savings, money market accounts and consumer time certificates under $100,000 increased by 7.7%, 29.9%, 28.0% and 41.9%, respectively, largely due to Roosevelt as previously stated. Roosevelt had a greater percentage of consumer time certificates in its total core deposits, and as a result, Mercantile's average of consumer time certificates to total core deposits increased to 43.72% from 39.83% in 1997. Average short-term borrowings doubled in the first quarter of 1998, due largely to the addition of Roosevelt's short-term FHLB advances and an increase in federal funds purchased at Mercantile Bank N.A. Roosevelt used FHLB advances to fund a significant part of its investment portfolio. Mercantile's reliance on other short-term borrowings also increased as funding was needed to replace core deposit run-off and to fund earning asset growth. Roosevelt's short-term borrowings increased the year-to-date average by approximately $1.2 billion. Bank note borrowings declined from $175 million at March 31, 1997 to $25 million at March 31, 1998. Long-term debt grew on average from $398 million in 1997 to $1.8 billion in 1998. The increase was due to long-term FHLB advances acquired in the Roosevelt transaction and debt incurred by the Corporation in the first half of 1997 to fund the July 1, 1997 acquisition. The factors discussed previously are consistent with Mercantile's overall corporate policy relative to rate sensitivity and liquidity, which is to produce the optimal yield and maturity mix consistent with interest rate expectations and projected liquidity needs. The Consolidated Quarterly Average Balance Sheet, with rates earned and paid, is summarized by quarter on page 23. 15 15 OTHER INCOME Non-interest income increased by 44.4% during the first quarter of 1998 to $127,193,000. The Corporation sold mortgage servicing in 1998 at a gain of $23,155,000. Excluding this gain and the estimate of non-interest income from the Roosevelt transaction, other income grew by approximately 6%. Trust fees were the largest source of non-interest income in 1998, and were $25,886,000 compared with $22,801,000 during the first quarter of 1997, an increase of 13.5%. Personal trust fees earned by Mercantile Trust Company N.A. were the largest source of trust revenue and increased 26.4% from last year. Trust income from Mississippi Valley Advisors Inc., the investment management subsidiary of Mercantile, rose by 32.2%. Mississippi Valley Advisors Inc. manages the 17 Mercantile proprietary mutual funds--the ARCH funds. These funds had assets of $4.1 billion at March 31, 1998 compared with $2.9 billion on March 31, 1997. Increases in the value of assets managed and successful new business development efforts accounted for the growth in trust fees. - -------------------------------------------------------------------------------------- EXHIBIT 5 OTHER INCOME ($ IN THOUSANDS)
FIRST QUARTER 1998 1997 CHANGE ---- ---- ------ Trust $25,886 $22,801 13.5% Service charges 25,576 22,798 12.2 Investment banking and brokerage 10,146 7,982 27.1 Mortgage banking 4,919 2,778 77.1 Gain on sale of mortgage servicing rights 23,155 -- -- Credit card fees 3,284 5,399 (39.2) Securitization revenue 4,523 7,292 (38.0) Securities gains 4,263 1,049 -- Miscellaneous 25,441 18,001 41.3 -------- -------- Total Other Income $127,193 $88,100 44.4 ======== ======== - --------------------------------------------------------------------------------------
Service charge income totaled $25,576,000 in the first quarter of 1998, which represented an increase of $2,778,000 or 12.2% over 1997. The increase was caused by additional deposits and fees from the Roosevelt acquisition, partially offset by the expected attrition of acquired deposit customers. In January 1998, the Corporation sold $1.9 billion in loan servicing which reduced originated mortgage servicing assets by approximately $3.2 million. This sale was consistent with the Corporation's goals to "right size" the servicing portfolio as all Mercantile servicing operations are consolidated in Nevada, Missouri, during mid-1998. The sale will lower the prepayment risk associated with the servicing portfolio, and the gain is expected to fund the Corporation's systems cost to become Year 2000 compliant by the end of 1998. Thus, total mortgage banking income was $28,074,000 in the first quarter of 1998 versus $2,778,000 the prior year. Mortgages serviced totaled $10.9 billion at March 31, 1998 compared with $5.9 billion at March 31, 1997. Total originated and purchased mortgage servicing assets on the balance sheet at March 31, 1998 were $48 million. The associated risk for impairment was not considered to be material, although the current rate environment could accelerate refinancing activity and cause quicker amortization. Investment banking and brokerage fees were $10,146,000 compared with $7,982,000 last year, an increase of 27.1%. This income is largely volume-driven and is derived from transaction fees for services performed for both individual and corporate customers, including sales of annuities and mutual funds, profits earned on limited trading positions and foreign exchange revenue. Roosevelt's customer base likewise had a positive impact on this source of revenue. Credit card fee income was $3,284,000 for the first quarter of 1998 compared with $5,399,000 last year. Credit card income primarily represents interchange fees received on transactions of Mercantile cardholders and cardholders' miscellaneous fees. Transaction-based rebates paid to co-branded and MercRewards VISA(R) cardholders were netted against credit card fee income in 1997; these rebates totaled $1,403,000 last year. The two portfolio sales accounted for the decrease in credit card income. Securitization revenue was $4,523,000 in the first quarter of 1998 versus $7,292,000 in 1997, and represents amounts accruing to Mercantile on the $400 million in credit card loans securitized in the Mercantile Credit Card Master Trust during May 1995, as well as $2,200,000 recognized in 1997 under FAS 125 for investor certificate loans that were sold and 16 16 reclassified to the investment portfolio. Excluding that one-time accounting gain, securitization revenue declined slightly. For securitized loans, amounts that would previously have been reported as interest income, interest expense, credit card fees and provision for loan losses are instead netted in non-interest income as securitization revenue. Because credit losses are absorbed against credit card servicing income over the life of these transactions, such income may vary depending upon the credit performance of the securitized loans. 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. Miscellaneous income of $25,441,000 was 41.3% higher than in 1997. The corporate trust business of Mark Twain was sold in the first quarter of 1998 at a $2,002,000 gain. Mercantile had sold the corporate trust business it operated prior to the Mark Twain acquisition during 1996. The Corporation also divested the Roosevelt credit card portfolio in the first quarter of 1998 at a gain of $2,658,000. Excluding the 1998 gains on the sales of Roosevelt credit card loans and Mark Twain's corporate trust, and the 1997 gain of $2,300,000 on the sale of Mark Twain's merchant credit card processing business, year-to-date miscellaneous income increased by 32.4% over 1997. There were increases in income from credit life and other insurance product sales, operating lease fees, ATM charges and debit card fees. Securities gains of $4,263,000 were realized on the first quarter's restructuring of the available-for-sale investment portfolio during 1998 compared with $1,049,000 in gains last year. OTHER EXPENSE Expenses other than interest expense and the provision for possible loan losses for the first quarter of 1998 totaled $196,864,000, an increase of $31,269,000 or 18.9% from 1997. The efficiency ratio, defined as operating expenses as a percentage of taxable-equivalent net interest income and other income, was 53.08% versus 54.49% last year, and the ratio of other expense to average assets was 2.57%, 47 basis points lower than in 1997. Operating expense from the Roosevelt acquisition and from other 1997 and 1998 acquisitions accounted for as purchases or poolings without restatement increased the Corporation's expenses by approximately $18,000,000. If such expenses from acquired entities and Year 2000 expense are excluded, non-interest expense for 1998 was approximately 6% higher than last year, and the increase in customers and transactions accounted for most of that increase. - ------------------------------------------------------------------------------------ EXHIBIT 6 OTHER EXPENSE ($ IN THOUSANDS)
FIRST QUARTER 1998 1997 CHANGE ---- ---- ------ Salaries $ 91,638 $ 78,140 17.3% Employee benefits 19,937 19,582 1.8 -------- -------- Total Personnel Expense 111,575 97,722 14.2 Net occupancy 14,481 12,712 13.9 Equipment 19,174 13,816 38.8 Intangible asset amortization 13,984 4,379 -- Postage and freight 6,617 6,206 6.6 Marketing/business development 3,636 3,288 10.6 Office supplies 3,841 3,272 17.4 Communications 3,893 3,193 21.9 Data processing 4,068 4,408 (7.7) Legal and professional 2,786 2,804 (.6) Credit card 1,274 2,451 (48.0) FDIC insurance 1,270 769 65.1 Foreclosed property expense 70 78 (10.3) Miscellaneous 10,195 10,497 (2.9) -------- -------- Total Other Expense $196,864 $165,595 18.9 ======== ======== - ------------------------------------------------------------------------------------
Salary expense increased by $13,498,000 or 17.3% during the first quarter. Benefit costs grew by 1.8%. The impact of Roosevelt on salaries for the first quarter of 1998 was estimated to be $6,000,000. Temporary help salaries rose by $6,977,000 and were primarily incurred in operations, mortgage banking and in the Year 2000 effort. There is no benefit cost associated with temporary salaries, which partially accounts for the lower percentage increase in benefit costs in comparison to the salary increase. Occupancy and equipment costs increased by 26.9% in the first quarter, reflecting the addition of Roosevelt's expense, the costs of maintaining 46 additional offices since March 31, 1997, and a consistent program of investing in new technology to improve customer service and enhance employee efficiency. A new deposit system that had been installed throughout most of the Corporation also increased equipment expense. Exhibit 6 details the composition of all other operating expenses. Marketing and business development expense in 1998 was $3,636,000, which was $348,000 or 10.6% more 17 17 than in the same period of 1997. A corporate-wide image advertising program initiated in the third quarter of 1997 continues. Credit card fees declined by $1,177,000 or 48.0%, due primarily to the absence of the costs associated with the co-branded credit cards that were sold in late 1997. Mercantile contributed $1,600,000 to its charitable foundation in the first quarter of 1998, which also increased miscellaneous expense. Intangible asset amortization was $13,984,000 in the first quarter of 1998 compared with $4,379,000 in 1997. The increase was caused by additional amortization on goodwill recorded in purchase acquisitions since 1996 that are being amortized using the straight-line method over 15 years. The Roosevelt purchase acquisition increased goodwill by $608 million. During the last three quarters of 1997, Mercantile recorded adjustments related to the acquisitions of Roosevelt, Mark Twain and Regional Bancshares, Inc. The other expense adjustments totaled $121,393,000 and was originally recorded as an accrued liability. Of that original liability, $87,956,000 has been utilized at March 31, 1998 and $33,437,000 remains to absorb future acquisition-related payments. In 1996, Mercantile organized a formal program to address the operating implications of the Year 2000. Mercantile has completed the assessment, analysis and planning phases and is well into the execution phase of the project. It is the goal of the program to have all mission critical systems "2000 compliant" by January 1, 1999. Year-to-date total expense in 1998 of $3,985,000 was incurred to ensure that systems are ready for the date transition, and it is expected that the Corporation will expend a total between $15,000,000 and $20,000,000 in 1998 to substantially complete this project. Including expenses incurred throughout 1997, $30,000,000 is currently the best total cost estimate of the Year 2000 project at Mercantile. The previously mentioned gain on the sale of mortgage servicing in the first quarter of 1998 will be used to fund the 1998 expense. All such costs are expensed as incurred. Approximately 61% of business and system applications are in compliance and have been reintroduced to production or are in testing at March 31, 1998. An additional 27% of the Corporation's applications are considered compliant and are awaiting testing and installation. Mercantile believes that the largest risk associated with this effort is vendor compliance. All critical vendor application systems are promised to be delivered in time to meet the date goal of January 1, 1999. For the quarter ended March 31, 1998, the Corporation recorded income tax expense of $60,136,000 compared with 1997 expense of $41,028,000. The effective tax rate increased to 36.66% from 35.36% in 1997. This higher effective tax rate was primarily caused by the lack of tax deductibility of the goodwill from the Roosevelt acquisition, partially offset by a reduction in state and local taxes. RESERVE FOR POSSIBLE LOAN LOSSES The reserve for possible loan losses was $263,511,000 or 1.34% of loans outstanding at March 31, 1998, compared with $254,983,000 or 1.33% at year's end and $231,496,000 or 1.52% at March 31, 1997. The reserve coverage of non-performing loans was 231.39% compared with 249.51% at year-end and 273.18% last year. Over 40% of the Corporation's current loan portfolio is invested in residential real estate loans for which the loan loss experience averaged only .03% for the past three years. If these residential mortgages and its allocated reserve are excluded, the remaining reserve for possible loan losses represents 2.12% of loans outstanding at March 31, 1998. The provision for possible loan losses for the first quarter of 1998 was $6,606,000 compared with $18,443,000 last year. The annualized ratio of net charge-offs to average loans for the first quarter declined to .12% compared with .51% last year, while the corresponding net charge-off figures were $5,917,000 and $18,934,000, respectively. The lower provision and charge-offs were due largely to the decrease in average credit card loans caused by the sale of $405 million in credit card receivables in the third quarter of 1997. 18 18 - --------------------------------------------------------------------------------- EXHIBIT 7 RESERVE FOR POSSIBLE LOAN LOSSES ($ IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 1998 1997 ---- ---- BEGINNING BALANCE $254,983 $230,372 PROVISION 6,606 18,443 Charge-offs (11,372) (24,797) Recoveries 5,455 5,863 -------- -------- NET CHARGE-OFFS (5,917) (18,934) Acquired reserves 7,839 1,615 -------- -------- ENDING BALANCE $263,511 $231,496 ======== ======== LOANS AND LEASES March 31 balance $19,625,022 $15,212,683 =========== =========== Average balance $19,432,183 $14,992,436 =========== =========== RATIOS Reserve balance to outstanding loans 1.34% 1.52% Reserve balance to non-performing loans 231.39 273.18 Net charge-offs to average loans .12 .51 - ---------------------------------------------------------------------------------
Excluding securitized credit cards, net credit card charge-offs were $3,224,000 in 1998 versus $16,886,000 last year, which represented 5.23% of average credit card loans for this quarter compared with 8.24% in 1997. Net charge-offs on the Roosevelt portfolio that was sold late in the first quarter of 1998 totaled $2,316,000. On the managed portfolio, the ratio of net charge-offs to average loans was 7.63% versus 8.42% in the first quarter of 1997. By credit policy, losses are taken on credit card loans after six cycles of nonpayment, or within 15 days of receipt of personal bankruptcy notice, if earlier. Approximately 49% of the 1998 year-to-date losses were a result of bankruptcy claims. Excluding credit card net charge-offs, net charge-offs were only $2,693,000 or .06% of average loans for the first quarter of 1998. Mercantile evaluates the reserve for loan losses on a quarterly basis to ensure the timely charge-off of loans and to determine the adequacy of the reserve. Management believes the consolidated reserve of 1.34% of loans and 231.39% of non-performing loans as of March 31, 1998 was adequate based on the risks identified at such date in the portfolio. NON-PERFORMING ASSETS Non-performing assets consist of non-accrual loans, renegotiated loans, foreclosed property and investment securities with an impairment in value that is considered other than temporary. A summary of these assets is presented in Exhibit 8. Non-performing loans (non-accrual and renegotiated loans) were $113,884,000 or .58% of total loans at March 31, 1998, compared with $102,192,000 or .53% at December 31, 1997 and $84,741,000 or .56% at March 31, 1997. 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 Loans," as amended by FAS 118. Impaired loans totaled $65,700,000 at March 31, 1998 and averaged $67,405,000 in the first quarter of 1998. Foreclosed assets were $19,723,000 at March 31, 1998 compared with $17,373,000 at year's end and $18,115,000 last year. Non-accrual loans increased by $10,498,000 from December 31, 1997. The increase resulted from the addition of several commercial credits in Kansas City and St. Louis, and $2,767,000 added from the Horizon and HomeCorp acquisitions. As of March 31, 1998, Mercantile had only four non-accrual loans with balances in excess of $2,000,000. As significant, the Corporation held only one foreclosed property with a book value in excess of $1,000,000. All loans classified as renegotiated were paying in accordance with their modified terms at March 31, 1998. Loans past due 90 days and still accruing interest consisted largely of credit card loans, consumer loans and residential real estate mortgage loans. The Corporation's impaired investment securities were primarily acquired in the Roosevelt transaction, and have declined by $7,944,000 from December 31, 1997 due to paydowns. Roosevelt owned pools of privately issued mortgage- backed securities. The loan pools affecting some of these securities have been affected by high delinquency and foreclosure rates and higher than anticipated losses on foreclosed property sales. The current net book value on these mortgage-backed 19 19 securities of $76,822,000 is net of write-downs in 1995 and 1997. The current yield on the net book value of these impaired securities is 8.62% at March 31, 1998. - --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT 8 NON-PERFORMING ASSETS ($ IN THOUSANDS)
MARCH 31 DEC. 31 MARCH 31 1998 1997 1997 -------- ------- -------- NON-ACCRUAL LOANS Commercial $ 36,566 $ 32,360 $ 26,815 Real estate--commercial 24,848 15,895 19,163 Real estate--construction 1,923 1,948 1,588 Real estate--residential 37,061 40,860 24,237 Real estate--home equity credit loans 454 228 76 Consumer 7,560 6,623 7,666 -------- -------- -------- TOTAL NON-ACCRUAL LOANS 108,412 97,914 79,545 RENEGOTIATED LOANS 5,472 4,278 5,196 -------- -------- -------- TOTAL NON-PERFORMING LOANS 113,884 102,192 84,741 FORECLOSED ASSETS Foreclosed real estate 16,921 14,881 15,913 Other foreclosed assets 2,802 2,492 2,202 -------- -------- -------- TOTAL FORECLOSED ASSETS 19,723 17,373 18,115 -------- -------- -------- TOTAL NON-PERFORMING LOANS AND FORECLOSED ASSETS 133,607 119,565 102,856 IMPAIRED INVESTMENT SECURITIES 77,943 85,887 1,240 -------- -------- -------- TOTAL NON-PERFORMING ASSETS $211,550 $205,452 $104,096 ======== ======== ======== PAST-DUE LOANS (90 DAYS OR MORE) Commercial $ 4,979 $ 4,846 $ 2,971 Real estate--commercial 692 296 1,935 Real estate--construction -- -- 59 Real estate--residential mortgage 11,584 3,187 2,994 Real estate--home equity credit loans 1,785 1,856 121 Consumer 5,626 4,699 2,430 Credit card 1,982 5,411 21,346 -------- -------- -------- TOTAL PAST-DUE LOANS $ 26,648 $ 20,295 $ 31,856 ======== ======== ======== RATIOS Non-performing loans to outstanding loans .58% .53% .56% Non-performing loans and foreclosed assets to outstanding loans and foreclosed assets .68 .62 .68 Non-performing assets to total assets .67 .69 .47 Excludes insured FHA and government-guaranteed VA loans that were acquired primarily in the Roosevelt transaction and are contractually past due more than 90 days. Since these loans are fully insured or guaranteed for the payment of both principal and interest by the U.S. Government, the Corporation does not consider these loans to be non-performing assets, consistent with Roosevelt's past disclosure for these loans. The total of such insured or guaranteed loans was $34,130,000 at March 31, 1998 and $37,677,000 at December 31, 1997. Past-due loans 90 days or more are not included in non-performing asset totals or ratios. - ---------------------------------------------------------------------------------------------------------------------------------
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 regulatory capital requirements. At March 31, 1998, shareholders' equity was $2.5 billion, an increase of 31.9% from March 31, 1997. This increase was primarily derived from retained earnings, the Roosevelt, Horizon and HomeCorp acquisitions, and a favorable FAS 115 adjustment, partially offset by dividends and share repurchases. 20 20 In the first quarter of 1998, the Corporation repurchased 1,750,000 shares of its common stock via designated broker-dealers at an average cost of $53.60 per share. These repurchases occurred through an accelerated stock repurchase program and the shares will be reissued for the 1994 Stock Incentive Plan, the Mercantile Bancorporation Inc. Shareholder Investment Plan, and the pending acquisitions of CBT and Firstbank. 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 128.61% at March 31, 1998 compared with 110.57% last year. Intangible assets, which consisted largely of goodwill, totaled $793 million at March 31, 1998 compared with $198 million a year ago. - ------------------------------------------------------------------- EXHIBIT 9 RISK-BASED CAPITAL ($ IN MILLIONS)
MARCH 31 DEC. 31 MARCH 31 1998 1997 1997 -------- ------- -------- Capital Tier I $ 1,863 $1,785 $ 1,860 Total 2,522 2,432 2,293 Risk-adjusted assets 21,655 20,187 16,468 Tier I capital to risk-adjusted assets 8.60% 8.84% 11.29% Total capital to risk-adjusted assets 11.64 12.05 13.92 Leverage 6.23 6.15 8.48 Tangible equity to tangible assets 5.45 5.50 7.70 Double leverage 128.61 127.88 110.57 - -------------------------------------------------------------------
The tangible equity to tangible assets ratio declined to 5.45% at March 31, 1998 from 7.70% a year ago, reflecting the impact of the Roosevelt goodwill and nonrecurring expense adjustments recorded in the last three-quarters of 1997, and common share repurchases. It is the plan of the Corporation to raise that ratio to exceed 6.00% by year-end 1998 largely via retained earnings. The Corporation recorded a favorable adjustment to equity of $6,459,000 on available-for-sale investment securities through March 31, 1998. As of March 31, 1998, the balance of the valuation on available-for-sale securities totaled $31 million. Book value per share was $18.65 at March 31, 1998 compared with $16.50 a year earlier, an increase of 13.0%. Exhibit 9 details significant capital ratios. Public debt ratings of the Corporation and Mercantile Bank N.A. are shown in Exhibit 10. -------------------------------------------------------------------------------------------------------------------- EXHIBIT 10 DEBT RATINGS
MARCH 31, 1998 ----------------------------------------------------------------------- FITCH THOMSON STANDARD MOODY'S IBCA BANKWATCH & POOR'S ------- ----- --------- -------- MERCANTILE BANCORPORATION INC. Issuer rating B Commercial paper F1 TBW-1 6.800% senior notes, due 2001 A2 BBB+ 7.050% senior notes, due 2004 A2 BBB+ 7.625% subordinated notes, due 2002 A3 BBB+ BBB 7.300% subordinated notes, due 2007 A3 BBB Floating rate capital trust pass-through securities(SM) a2 BBB- MERCANTILE BANK N.A. Bank notes (long-term/short-term) A1/P-1 A A-/A-2 6.375% subordinated notes, due 2004 A2 A A- BBB+ 9.000% mortgage-backed notes, due 1999 Aaa Certificates of deposit (long-term/short-term) TBW-1 A-/A-2 Letters of credit TBW-1 A-/A-2 --------------------------------------------------------------------------------------------------------------------
21 21 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME ($ IN THOUSANDS EXCEPT PER SHARE DATA)
1997 1998 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. -------- -------- -------- -------- -------- INTEREST INCOME Interest and fees on loans and leases $321,271 $331,688 $415,068 $396,817 $394,119 Investments in debt and equity securities 73,282 73,985 119,464 122,148 130,224 Short-term investments 3,909 5,490 8,030 7,042 5,988 -------- -------- -------- -------- -------- Total Interest Income 398,462 411,163 542,562 526,007 530,331 Tax-equivalent adjustment 3,857 4,014 3,741 3,474 3,401 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INTEREST INCOME 402,319 415,177 546,303 529,481 533,732 INTEREST EXPENSE Deposits 153,762 155,597 218,671 213,028 210,509 Borrowed funds 32,739 40,003 71,757 72,133 79,517 -------- -------- -------- -------- -------- Total Interest Expense 186,501 195,600 290,428 285,161 290,026 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT NET INTEREST INCOME 215,818 219,577 255,875 244,320 243,706 PROVISION FOR POSSIBLE LOAN LOSSES 18,443 27,695 27,478 5,693 6,606 OTHER INCOME Trust 22,801 24,022 24,865 24,367 25,886 Service charges 22,798 22,591 27,236 26,108 25,576 Investment banking and brokerage 7,982 7,760 10,086 9,242 10,146 Mortgage banking 2,778 2,728 7,378 10,788 4,919 Gain on sale of mortgage servicing rights -- -- -- -- 23,155 Credit card fees 5,399 5,373 5,649 4,059 3,284 Securitization revenue 7,292 4,725 3,357 3,030 4,523 Securities gains 1,049 1,818 2,034 2,084 4,263 Other 18,001 18,910 22,631 19,743 25,441 -------- -------- -------- -------- -------- Total Other Income 88,100 87,927 103,236 99,421 127,193 OTHER EXPENSE Personnel expense 97,722 98,252 111,376 107,532 111,575 Net occupancy and equipment 26,528 27,439 32,064 32,727 33,655 Other 41,345 94,784 172,894 52,117 51,634 -------- -------- -------- -------- -------- Total Other Expense 165,595 220,475 316,334 192,376 196,864 -------- -------- -------- -------- -------- TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES 119,880 59,334 15,299 145,672 167,429 INCOME TAXES Income taxes 41,028 23,141 8,902 47,435 60,136 Tax-equivalent adjustment 3,857 4,014 3,741 3,474 3,401 -------- -------- -------- -------- -------- Adjusted Income Taxes 44,885 27,155 12,643 50,909 63,537 -------- -------- -------- -------- -------- NET INCOME $ 74,995 $ 32,179 $ 2,656 $ 94,763 $103,892 ======== ======== ======== ======== ======== PER SHARE DATA Basic earnings per share $.65 $.29 $.02 $.73 $.78 Diluted earnings per share .64 .28 .02 .71 .77 SIGNIFICANT RATIOS Return on assets 1.38% .58% .04% 1.27% 1.35% Return on equity 15.63 7.07 .44 15.85 16.57
22 22 MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET ($ IN MILLIONS)
1997 1998 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. --------------- --------------- --------------- --------------- --------------- VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE VOLUME RATE ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ASSETS Earning Assets Loans and leases, net of unearned income Commercial $ 4,246 8.41% $ 4,438 8.56% $ 4,431 8.45% $ 4,445 8.34% $ 4,689 8.33% Real estate-- commercial 2,853 8.63 2,893 8.78 2,972 8.74 2,943 8.71 2,966 8.57 Real estate-- construction 581 8.89 639 8.93 683 8.82 735 8.84 729 8.86 Real estate-- residential mortgage 4,257 7.93 4,336 7.94 8,248 7.80 8,258 7.70 8,240 7.63 Real estate-- home equity credit loans 384 9.62 384 9.96 495 9.78 506 9.77 495 9.71 Consumer 1,851 8.83 1,896 8.88 1,983 8.93 2,009 8.89 2,067 8.96 Credit card 820 13.31 703 13.33 738 12.83 285 9.97 247 9.30 ------- ------- ------- ------- ------- Total Loans and Leases 14,992 8.60 15,289 8.72 19,550 8.52 19,181 8.30 19,433 8.14 Investments in debt and equity securities Trading 69 6.81 93 7.00 101 6.41 155 6.66 125 6.65 Taxable 4,330 6.17 4,327 6.22 6,827 6.62 6,968 6.59 7,604 6.50 Tax-exempt 398 7.95 383 8.00 368 7.98 352 7.98 325 8.34 ------- ------- ------- ------- ------- Total Investment in Debt and Equity Securities 4,797 6.33 4,803 6.38 7,296 6.68 7,475 6.66 8,054 6.58 Short-term investments 284 5.50 385 5.64 482 6.52 457 6.03 426 5.62 ------- ------- ------- ------- ------- Total Earning Assets 20,073 8.13 20,477 8.13 27,328 7.93 27,113 7.75 27,913 7.75 Non-earning Assets 1,688 1,892 2,606 2,681 2,787 ------- ------- ------- ------- ------- Total Assets $21,761 $22,369 $29,934 $29,794 $30,700 ======= ======= ======= ======= ======= LIABILITIES Acquired Funds Deposits Non-interest bearing $ 2,748 $ 3,082 $ 3,192 $ 3,284 $ 3,403 Interest bearing demand 2,551 2.14 2,528 2.09 2,593 1.96 2,616 1.89 2,746 1.98 Money market accounts 2,792 3.89 2,784 3.95 3,577 4.02 3,573 3.97 3,575 4.06 Savings 1,092 2.27 1,103 2.27 1,407 2.43 1,351 2.48 1,419 2.53 Consumer time certificates under $100,000 6,182 5.48 6,114 5.48 9,278 5.55 8,953 5.56 8,769 5.59 Other time 155 4.71 161 4.25 161 3.63 154 4.16 146 5.91 ------- ------- ------- ------- ------- Total Core Deposits 15,520 4.18 15,772 4.18 20,208 4.41 19,931 4.38 20,058 4.41 Time certificates $100,000 and over 1,287 5.49 1,220 5.52 1,534 5.69 1,558 5.69 1,587 5.58 Foreign 344 5.48 469 5.67 529 5.70 486 5.66 541 5.63 ------- ------- ------- ------- ------- Total Purchased Deposits 1,631 5.50 1,689 5.58 2,063 5.71 2,044 5.70 2,128 5.62 ------- ------- ------- ------- ------- Total Deposits 17,151 4.33 17,461 4.34 22,271 4.55 21,975 4.52 22,186 4.55 Short-term borrowings 1,810 5.05 2,102 5.25 3,528 5.63 3,526 5.33 3,664 5.41 Bank notes 175 5.81 175 5.95 175 6.01 175 5.99 152 6.13 Long-term debt 398 7.36 530 7.07 1,120 6.41 1,306 6.41 1,779 6.22 ------- ------- ------- ------- ------- Total Acquired Funds 19,534 4.51 20,268 4.57 27,094 4.82 26,982 4.77 27,781 4.82 Other liabilities 307 280 413 420 410 SHAREHOLDERS' EQUITY 1,920 1,821 2,427 2,392 2,509 ------- ------- ------- ------- ------- Total Liabilities and Shareholders' Equity $21,761 $22,369 $29,934 $29,794 $30,700 ======= ======= ======= ======= ======= SIGNIFICANT RATIOS Net interest rate spread 3.62% 3.56% 3.11% 2.98% 2.93% Net interest rate margin 4.36 4.30 3.71 3.58 3.54 Taxable-equivalent basis. Includes company-obligated mandatorily redeemable preferred securities of Mercantile Capital Trust I.
23 23 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. These forward looking statements involve certain risks and uncertainties. For example, by accepting deposits at fixed rates, at different times and for different terms, and lending funds at fixed rates for fixed periods, a bank accepts the risk that the cost of funds may rise and the use of the funds may be at a fixed rate. Similarly, the cost of funds may fall, but a bank may have committed by virtue of the term of a deposit to pay what becomes an above-market rate. Investments may decline in value in a rising interest rate environment. Because the business of banking is highly regulated, decisions of governmental authorities, such as the rate of deposit insurance, can have a major effect on operating results. Unanticipated events associated with Year 2000 compliance, relating to work on developments or modifications to computer systems and to software, including work performed by suppliers or vendors, could affect Mercantile's future financial condition and operating results. Actual charges associated with pending and completed acquisitions may prove to be greater than current estimates. In addition, management's objectives with respect to the Corporation's capital base and equity levels may not reach the targeted objectives within the targeted periods due to numerous factors, including those previously mentioned. All of these uncertainties, as well as others, are present in a banking operation and shareholders are cautioned that management's view of the future on which it prices it products, evaluates collateral, sets loan reserves and estimates costs of operation and regulation may prove to be other than as anticipated. Actual strategies and results in future periods may differ materially from those currently expected. 24 24 PART II--OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders of Registrant was held on April 23, 1998. Of 133,748,539 shares issued, outstanding and eligible to be voted at the meeting, 115,268,969 shares, constituting a quorum, were represented in person or by proxy at the meeting. Two (2) matters were submitted to a vote of the security-holders at the meeting. 1. ELECTION OF CLASS I DIRECTORS. The first matter submitted was the election of four Class I director nominees to the Board of Directors, each to continue in office until the year 2001. The Restated Articles of Incorporation of the Registrant allow cumulative voting in all director elections and all shareholders were accordingly allowed to cumulate their votes for directors if they so desired. Upon tabulation of the votes cast, it was determined that all four director nominees had been elected. The voting results are set forth below:
NAME FOR WITHHELD ---- --- -------- Harry M. Cornell, Jr. 114,435,480 1,182,745 Frank Lyon, Jr. 114,812,880 1,182,745 Harvey Saligman 114,345,122 1,182,745 John A. Wright 114,495,981 1,182,745
Because Registrant has a staggered Board, the term of office of the following named Class II and Class III directors, who were not up for election at the 1998 annual meeting, continued after the meeting: Class II (to continue in office until 1999) William A. Hall Robert W. Murray Craig D. Schnuck Dr. Henry Givens, Jr. Class III (to continue in office until 2000) Richard E. Beumer Alvin J. Siteman Thomas H. Jacobsen Patrick T. Stokes 2. PROPOSAL TO ADOPT AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK. The second matter, a proposal to Amend the Articles of Incorporation of the Registrant to increase the number of authorized shares of common stock of the Registrant from 200,000,000 shares to 400,000,000 shares, was approved by a majority of the 133,748,539 shares of the Registrant's Common Stock which were issued, outstanding and eligible to vote. The voting results on this matter were as follows: For 109,573,658 Against 5,345,361 Abstain 786,091 Broker Non-Votes 0 25 25 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.1(a) Restated Articles of Incorporation of the Registrant, as amended and currently in effect 27.1 Financial Data Schedule (March 31, 1998) 27.2 Restated Financial Data Schedule (March 31, 1997) 27.3 Restated Financial Data Schedule (December 31, 1996) 27.4 Restated Financial Data Schedule (December 31, 1995) (b) Reports on Form 8-K: Registrant filed two (2) Current Reports on Form 8-K. In the first Report, dated January 10, 1998, under Item 5, Registrant disclosed that on January 10, 1998, it had entered into, and briefly described certain of the terms of, an Agreement and Plan of Merger (the "CBT Merger Agreement") with CBT Corporation ("CBT"). Pursuant to the CBT Merger Agreement, CBT is to be merged with and into a wholly-owned subsidiary of Registrant, with the shareholders of CBT to receive 0.6513 of a share of Registrant common stock, par value $.01 per share, for each share of CBT common stock, no par value. The Current Report also briefly described the terms of a Stock Option Agreement between Registrant as grantee and CBT as issuer, and Voting Agreements between Registrant and certain directors and officers of CBT, who in the aggregate have voting power over approximately 13.4% of the outstanding shares of CBT common stock, all entered into simultaneously with execution of the Merger Agreement. The second Current Report on Form 8-K was dated January 30, 1998. In that Report, under Item 5, Registrant disclosed that on January 30, 1998, it had entered into, and briefly described certain of the terms of, an Agreement and Plan of Reorganization (the "Firstbank Merger Agreement") with Firstbank of Illinois Co. ("Firstbank"). Pursuant to the Firstbank Merger Agreement, Firstbank is to be merged with and into a wholly-owned subsidiary of Registrant, with the shareholders of Firstbank to receive 0.8308 of a share of Registrant common stock, par value $.01 per share, for each share of Firstbank common stock, par value $1.00 per share. The Current Report also briefly described the terms of a Stock Option Agreement between Registrant as grantee and Firstbank as issuer, and Voting Agreements between Registrant and certain directors and officers of Firstbank, who in the aggregate have voting power over approximately 7.2% of the outstanding shares of Firstbank common stock, all entered into simultaneously with execution of the Merger Agreement.
26 26 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCANTILE BANCORPORATION INC. (Registrant) Date May 15, 1998 /s/ JOHN Q. ARNOLD -------------------- ------------------------------ John Q. Arnold Chief Financial Officer 27 27 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION - ----------- ----------- -------- 3.1(a) Restated Articles of Incorporation of the Included Herein Registrant, as amended and currently in effect 27 Financial Data Schedule Included Herein
28 EX-3.1(A) 2 RESTATED ARTICLES OF INCORPORATION 1 MERCANTILE BANCORPORATION INC. ARTICLES OF INCORPORATION AS OF APRIL 23, 1998 2 MERCANTILE BANCORPORATION INC. ARTICLES OF INCORPORATION AS OF APRIL 23, 1998 ARTICLE 1 --------- The name of the Corporation is MERCANTILE BANCORPORATION INC. ARTICLE 2 --------- The address, including street and number of the Corporation's registered office in this state is Mercantile Tower, P.O. Box 524, St. Louis, Missouri 63166, and the name of its registered agent at such address is Ralph W. Babb, Jr. ARTICLE 3 --------- The Corporation shall have authority to issue the following shares: A. Common Stock 400,000,000 shares of voting Common Stock with a par value of $0.01 per share. B. Preferred Stock 5,000,000 shares of Preferred Stock with no par value which shall have (i) those voting rights required by law and (ii) voting rights equal to those of the shares of Common Stock except to the extent the voting rights of any series of Preferred Stock shall be denied or limited by the Board of Directors in an authorizing resolution as hereinafter provided. (a) The Board of Directors, by adoption of an authorizing resolution may cause Preferred Stock to be issued from time to time in one or more series. (b) The Board of Directors, by adoption of an authorizing resolution, may with regard to the shares of any series of Preferred Stock: (1) Fix the distinctive serial designation of the shares; (2) Fix the dividend rate, if any; (3) Fix the date from which dividends on shares issued before the date for payment of the first dividend shall be cumulative, if any; (4) Fix the redemption price and terms of redemption, if any; 3 (5) Fix the amounts payable per share in the event of dissolution or liquidation of the corporation if any; (6) Fix the terms and amounts of any sinking fund to be used for the purchase or redemption of shares, if any; (7) Fix the terms and conditions under which the shares may be converted, if any; (8) Deny or limit the voting rights of such Preferred Stock not required by law; and (9) Fix such other preferences, qualifications, limitations, restrictions and special or relative rights not required by law. ARTICLE 4 --------- The number and class of shares that were issued before the Corporation commenced business, the consideration that was paid therefor and the capital with which the Corporation commenced business were as follows:
Consideration Number of Shares Class To Be Paid Par Value ---------------- ----- ------------- --------- 100 Common $500 $5
The Corporation did not commence business until consideration of the value of at least $500 had been received for the issuance of shares. ARTICLE 5 --------- The name and place or residence of the incorporator was as follows: Name Street City - ---- ------ ---- Donald E. Lasater 17 Southmoor Clayton, MO 63105 ARTICLE 6 --------- A. Board of Directors. The number of Directors to constitute the ------------------ Board of Directors shall be eighteen (18); provided, however, that such number may be fixed, from time to time, at not less than twelve (12) nor more than twenty-four (24), by, or in the manner provided in, the By-laws of the Corporation, and any such change shall be reported to the Secretary of State of the State of Missouri within thirty (30) calendar days of such change. The Directors shall be divided into three classes: Class I, Class II and Class III; and the number of Directors in such classes shall be as nearly equal as possible. The term of office of the initial Class I Directors shall expire at the annual meeting of shareholders of the Corporation in 1986; the term of office of the initial Class II Directors shall expire at the annual meeting of shareholders of the Corporation in 1987; and the term of office of the -2- 4 initial Class III Directors shall expire at the annual meeting of shareholders of the Corporation in 1988; or in each case until their respective successors are duly elected and qualified. At each annual election held after 1985 the Directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the Directors they succeed and shall be elected for a term of three (3) years expiring at the third succeeding annual meeting or thereafter until their respective successors are duly elected and qualified. If the number of Directors is changed, any increase or decrease in the number of Directors shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible. Any Director elected to fill a vacancy in any class (whether such vacancy is caused by death, resignation, or removal, or by an increase in the number of Directors in such class) shall hold office for a term which shall expire with the term of the Directors in such class. At a meeting called expressly for that purpose, the entire Board of Directors, or any individual Director or Directors, may be removed without cause, only upon the affirmative vote of the holders of at least seventy-five percent (75%) of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled; provided, however, that, if less than the entire Board of Directors is to be so removed without cause, no individual Director may be so removed if the votes cast against such Director's removal would be sufficient to elect such Director if then cumulatively voted at an election of the class of Directors of which such Director is a part. At a meeting called expressly for that purpose, any Director may be removed by the shareholders for cause by the affirmative vote of the holders of a majority of the shares entitled to vote upon his election. B. Vote Required for Amendment. In addition to any affirmative vote --------------------------- required by law or otherwise, any amendment, alteration, change or repeal of the provisions of this Article 6 shall require the affirmative vote of the holders of at least seventy-five percent (75%) of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled, unless such amendment, alteration, change or repeal has previously been expressly approved by the Board of Directors of the Corporation by the affirmative, vote or consent of at least sixty-six and two-thirds percent (66 2/3%) of the number of Directors then authorized by, or in the manner provided in, the By-laws, in which case the shareholder vote required by this Section B of Article 6 shall not apply. ARTICLE 7 --------- The duration of the Corporation is perpetual. ARTICLE 8 --------- The Corporation is formed for the following purposes: (1) To undertake, conduct, manage, assist, promote, operate and to engage or participate in every kind of commercial, industrial, electronic, manufacturing, agricultural, -3- 5 scientific or other enterprise, business, undertaking, venture, corporation, co-partnership, association or operation of every kind and description; (2) To acquire by purchase, exchange, lease, devise or otherwise and to hold, maintain, manage, improve, develop and operate and to sell, transfer, convey, lease, mortgage, exchange or otherwise dispose of or deal in or with real property wheresoever situated, either within or without the State of Missouri, and any and all rights, interests or privileges therein; and to erect, construct, make, improve and operate or aid or subscribe toward the erection, construction, making improvement and operation of offices, warehouses, plants, mills, stores, laboratories, studios, workshops, buildings and other establishments and installations or improvements on any real estate or any right, interest or privilege therein; (3) To acquire by purchase, exchange, lease, bequest or otherwise, to import, export, manufacture, produce, hold, own, use, manage, improve, alter, develop and to mortgage, pledge, sell, assign, transfer, lease, exchange or otherwise dispose of or deal in or with goods, commodities, wares, automobiles, aircraft, machinery, equipment, supplies, merchandise and all other personal property of every kind, nature and description, tangible or intangible, wheresoever situated, either within or without the State of Missouri and any and all other rights, interests or privileges therein; (4) To adopt, apply for, obtain, register, purchase, lease, take assignment or licenses of or otherwise acquire or obtain the use of, to hold, protect, own, use, develop and introduce, and to sell, assign, lease, grant licenses or other rights in respect to, make contracts concerning or otherwise deal with, dispose of or turn to account any copyrights, trademarks, trade names, brands, labels, patent rights, letters patent and patent applications of the United States of America or of any other country, government or authority, and any inventions, improvements, processes, formulae, mechanical and other combinations, licenses and privileges, whether in connection with or secured under letters patent or otherwise; and to carry on any business, whether manufacturing or otherwise, which is or shall be necessary, convenient, advisable or adaptable for the utilization by this corporation in any way, directly or indirectly, of such copyrights, trademarks, trade names, brands, labels, patent rights, letters patent, patent applications, inventions, improvements, processes, formulae, mechanical and other combinations, licenses and privileges; (5) To acquire by purchase, exchange, gift, bequest, subscription, or by acting as an original incorporator or otherwise, and to own, hold, invest in, sell, assign, transfer, exchange, pledge, hypothecate, deal in and otherwise dispose of stocks (preferred as well as common), bonds, notes, debentures, mortgages or other evidences of indebtedness and obligations and securities of, and shares of other interests in or created or issued by any corporation, trust companies or banks (whether incorporated under the laws of Missouri, or other states or under the laws of the United States or any other country), company or joint stock association, persons, firms, associations, copartnerships, domestic or foreign, or of any domestic or foreign state, government, or governmental authority or of any political or administrative subdivision or department thereof, and certificates or receipts of any kind -4- 6 representing or evidencing any interest in any such stocks, bonds, shares of stock, notes, debentures, mortgages or other evidences of indebtedness, obligations or securities including, but not limited to, electronic, commercial, manufacturing, agricultural, industrial, scientific and insurance companies, corporations or agencies, trust companies or banks, whether incorporated under the laws of Missouri or of the United States or of foreign states or countries; to issue its own shares of stock, bonds, notes, debentures, or other evidences of indebtedness and obligations and securities for the acquisition of any such stocks, bonds, notes, debentures, mortgages or other evidences of indebtedness, obligations, securities, certificates or receipts purchased or otherwise acquired by it; and, while the owner or holder of any such stocks, bonds, notes, debentures, mortgages, evidences of indebtedness, obligations, securities, certificates or receipts to exercise all the rights, powers and privileges of ownership in respect thereof, including the right to vote thereon for any and all purposes; (6) To make loans or advances, to guarantee the obligations of, or purchase or acquire shares of stock of, or make contributions to capital or surplus, and to aid in any other manner by providing financial assistance to any corporation, association or copartnership, including, but not by way of limitation, any corporation all or substantially all of the shares of voting stock of which is owned by this Corporation and any affiliate or subsidiary of any such Corporation. Any such loan, advance or other assistance to be with or without interest, unsecured, or secured in any manner, and upon such other terms and conditions as the Board of Directors of this Corporation shall approve; (7) To form general or limited partnerships for any lawful purpose, irrespective of whether any such partnership is to engage in a business in which this Corporation would otherwise be authorized to engage under these Articles of Incorporation, such partnerships to be formed under any present or future laws of the State of Missouri or any other state, and to enter into and execute general or limited partnership agreements and certificates in reference to any such partnerships as either a general or limited partner or as both a general and limited partner, and otherwise to acquire the interests of a general or a limited partner in any such general or limited partnerships, and to act as a general or limited partner in any such general or limited partnerships, and, as such, to perform all obligations thereby imposed upon it by law or by contract including, but not by way of limitation, the use and delivery of the funds and other property of this Corporation to any such partnership as payment of this Corporation's contribution to such partnership or otherwise, all for such purposes and in such amount and subject to such terms and conditions as the Board of Directors of this Corporation deems to be in the best interests of the stockholders of this Corporation; (8) To borrow or raise moneys for any of the purposes of the Corporation, from time to time, without limit as to amount, with or without security, all as determined by the Board of Directors; to issue and sell or exchange its own securities, Common or Preference or other Stock or debt obligations, including but without limitation debentures, either nonconvertible or convertible into any class of stock authorized by the Articles, in such amounts, on such terms and conditions, for such purposes and at such prices as the Board of Directors may determine; to a like extent when deemed desirable, to secure such debt -5- 7 obligations by liens upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets, business, and good will of the Corporation, whether at the time owned or thereafter acquired; and, to a like extent, to purchase, acquire, hold, own, cancel, re-issue, sell, assign, transfer, exchange, or otherwise dispose of or deal in or with, its own securities (including shares of its stock, common or preferred) in any manner whatsoever; (9) To enter into, make and perform contracts of every sort and description with any person, firm, copartnership, association, corporation, public or private; (10) To carry out all or any part of the foregoing objects and purposes as principal, agent, partner, either limited or general, contractor, or otherwise, either alone or in conjunction with any other persons, firms, copartnerships, associations or corporations and in any part of the world, and in carrying on any of its business and for the attainment or furtherance of any of its objects and purposes to make and perform such agreements and contracts of any kind and description, and to do such acts and things and to exercise any and all such powers as a natural person could lawfully make, perform, do or exercise and, as aforesaid, to do anything and everything which is or may appear necessary, useful, convenient or appropriate for the attainment, furtherance or exercise of any of its purposes, objects or powers. The foregoing provisions of this Article shall be construed both as purposes and powers and each as an independent purpose and power in furtherance of, and not in limitation of, the powers which the Corporation may have under present or future laws of the State of Missouri, and the purposes and powers hereinbefore specified shall, except when otherwise provided in this Article 8 be in no wise limited, or restricted by reference to, or inference from the terms or any provisions of this or any other Article of these Articles of Incorporation; but such provisions shall not be construed to permit the Corporation to carry on any business, or to exercise any power, or to do any act which a corporation now or hereafter organized under The General and Business Corporation Law of Missouri may not at the time lawfully carry on, exercise, or do; and provided further that the Corporation shall not carry on any business or exercise any power in any state, territory, or country which under the laws thereof the Corporation may not lawfully carry on or exercise. ARTICLE 9 --------- The power to make, alter, amend or repeal the By-laws of the Corporation shall be vested in the Board of Directors. In addition to the powers which it has pursuant to law, the Board of Directors shall have all the powers herein contained which shall include the power: (i) from time to time to fix the compensation of its members for attending meetings of the Board of Directors, -6- 8 (ii) to adopt, amend, change and readjust any type of pension, retirement, profit sharing or bonus plan, contributing or non-contributing, covering any or all of the officers and employees of said Corporation. ARTICLE 10 ---------- Any person, upon becoming the owner or holder of any shares of stock or other securities issued by this Corporation, does thereby consent and agree that all rights, powers, privileges, obligations or restrictions pertaining to such person or such securities in any way may be altered, amended, restricted, enlarged or repealed by legislative enactments of the State of Missouri or of the United States hereinafter adopted which have reference to or affect corporations, such securities, or such persons in any way; and that the Corporation reserves the right to transact any business of the Corporation, to alter, amend or repeal these Articles of Incorporation, or to do any other act or things as authorized, permitted or allowed by such legislative enactments. ARTICLE 11 ---------- No holder of any share or shares of stock of any kind, series or class now or hereafter authorized shall be entitled as such as a matter of right to subscribe for or purchase any stock of any kind, series or class, whether now or hereafter authorized or outstanding, which may hereafter be issued or sold by this Corporation, or any securities including, but without limitation, debentures convertible into stock of any class, and whether issued or sold for cash, property, services or otherwise. ARTICLE 12 ---------- (1) This Corporation shall and does hereby indemnify any person who is or was a director or officer of the Corporation or any Subsidiary against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred by such person in connection with any civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a Subsidiary) by reason of the fact that such person is or was serving in such capacity; provided however, that no such person shall be entitled to any ---------------- indemnification pursuant to this subsection (l) on account of: (i) conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation. (2) This Corporation may, to the extent that the Board of Directors deems appropriate and as set forth in a bylaw or resolution, indemnify any person who is or was an employee or agent of this Corporation or any Subsidiary or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, banking association, partnership, joint venture, trust or other enterprise (including an -7- 9 employee benefit plan) against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred by such person in connection with any civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a Subsidiary) by reason of the fact that such person is or was serving in such capacity; provided however, that no such ---------------- person shall be entitled to any indemnification pursuant to this subsection (2) on account of: (i) conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation. (3) This Corporation may, to the extent that the Board of Directors deems appropriate, make advances of expenses, including attorneys' fees, incurred prior to the final disposition of a civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a Subsidiary) to any person to whom indemnification is or may be available under this Article 12; provided -------- however, that prior to making any advances, the Corporation shall receive a - ------- written undertaking by or on behalf of such person to repay such amounts advanced in the event that it shall be ultimately determined that such person is not entitled to such indemnification. (4) The indemnification and other rights provided by this Article 12 shall not be deemed exclusive of any other rights' to which a person to whom indemnification is or may be otherwise available under these Articles of Incorporation, the By-laws or any agreement, vote of shareholders or disinterested directors or otherwise. This Corporation is authorized to purchase and maintain insurance on behalf of the Corporation or any person to whom indemnification is or may be available against any liability asserted against such person in, or arising out of, such person's status as director, officer, employee or agent of this Corporation, any of its Subsidiaries or another corporation, banking association, partnership, joint venture, trust or other enterprise (including an employee benefit plan) which such person is serving at the request of the Corporation. (5) Each person to whom indemnification is granted under subsection (1) of this Article 12 is entitled to rely upon the indemnification and other rights granted hereby as a contract with this Corporation and such person and such person's heirs, executors, administrator and estate shall be entitled to enforce against this Corporation all indemnification and other rights granted to such person by subsections (1) and (3) and this subsection (5) of this Article 12. The indemnification and other rights granted by subsections (1) and (3) and this subsection (5) of this Article 12 shall survive amendment, modification or repeal of this Article, and no such amendment, modification or repeal shall act to reduce, terminate or otherwise adversely affect the rights to indemnification granted hereby, with respect to any expenses, judgments, fines and amounts paid in settlement incurred by a person to whom indemnification is granted under subsection (1) of this Article 12 with respect to an action, suit, proceeding or claim that arises out of acts or omissions of such person that occurred prior to the effective date of such amendment, modification or repeal. -8- 10 Any indemnification granted by the Board of Directors pursuant to subsection (2) of this Article 12, shall inure to the person to whom the indemnification is granted, and such person's heirs, executors, administrator and estate; provided however, that such indemnification may be changed, ---------------- modified or repealed, at any time or from time to time, at the discretion of the Board of Directors and the survival of such indemnification shall be in accordance with terms determined by the Board of Directors. (6) For the purposes of this Article 12, "Subsidiary" shall mean any corporation, banking association, partnership, joint venture, trust, or other enterprise of which a majority of the equity or ownership interest is directly or indirectly owned by this Corporation. ARTICLE 13 ---------- A. Vote Required for Business Combinations. In addition to any --------------------------------------- affirmative vote required by law, and except as otherwise expressly provided in Section B of this Article 13, a Business Combination (as hereinafter defined) may not be consummated or effected unless such transaction shall first have received the affirmative vote of the holders of at least seventy-five percent (75%) of the total votes to which all of the then outstanding shares of capital stock of the Corporation are entitled, voting together as a Single class (it being understood that for the purposes of this Article 13, each share of the voting stock shall be entitled to the number of votes granted to it by law or pursuant to Article 3 of these Articles of Incorporation) ("Voting Stock"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by or pursuant to law, these Articles of Incorporation, or any agreement. B. Exception. Section A of this Article 13 shall not be --------- applicable to a Business Combination, and such Business Combination shall require only the affirmative vote (if any) as required by law or otherwise, if the Business Combination shall have been expressly approved by the Board of Directors of the Corporation by the affirmative vote or consent of at least sixty-six and two-thirds percent (66 2/3%) of the number of directors of the Corporation as then authorized by, or in the manner provided in, the By-laws. In determining whether or not to approve any such Business Combination, the Board of Directors shall give due consideration to all factors the Board may consider relevant, including without limitation: (1) the legal and economic effects on the depositors and customers of the Corporation and its subsidiaries, on the communities and geographic areas in which the Corporation and its subsidiaries operate or are located, and on any of she businesses and properties of the Corporation and its subsidiaries, and (2) the adequacy of the consideration offered in relation not only to the current market price of the outstanding securities of the Corporation but also to the current value of the Corporation in a freely negotiated transaction and the Board -9- 11 of Directors' estimate of the future value of the Corporation (including the unrealized value of its properties and assets) as an independent going concern. C. Definitions. For the purposes of Article 13 of the Articles of ----------- Incorporation: (1) A "Business Combination" shall mean: (a) any merger, consolidation or exchange of shares of capital stock of the Corporation or any Subsidiary (as hereinafter defined) with or into any Interested Person (as hereinafter defined) or any other corporation or entity (whether or not it is an Interested Person) which is, or after such merger, consolidation or exchange of shares would be, an Interested Person or an Affiliate (as hereinafter defined) of an Interested Person, regardless of the surviving entity; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with an Interested Person or any Affiliate of any Interested Person (in a single transaction or a series of related transactions) other than in the ordinary course of business, of all or a substantial part of the assets of the Corporation or of any Subsidiary, or both; or (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with the Corporation or any Subsidiary (in a single transaction or a series of related transactions) other than in the ordinary course of business, of all or a substantial part of the assets of an Interested Person or any Affiliate of an Interested Person, or both; or (d) any issuance or transfer by the Corporation or any Subsidiary of any securities of the Corporation or any Subsidiary to an Interested Person or any Affiliate of an Interested Person (other than an issuance or transfer of securities which is effected on a pro rata basis to all shareholders of the Corporation); or (e) any acquisition by the Corporation or any Subsidiary, other than in the ordinary course of business, of: (i) any securities of an Interested Person or any Affiliate of an Interested Persons, or (ii) any securities of the Corporation which are owned by an Interested Person or an Affiliate of an Interested Person; or (f) any recapitalization or reclassification of shares of any class of capital stock of the Corporation or any Subsidiary, or any merger or consolidation of the Corporation with any Subsidiary (whether or not involving an Interested Person), which transaction would have the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of -10- 12 any class of capital stock of the Corporation (or any securities convertible into any class of such capital stock) with respect to which an Interested Person or an Affiliate of an Interested Person is the "Beneficial Owner" (as hereinafter defined); or (g) any merger or consolidation of the Corporation with any Subsidiary after which the provisions of this Article 13 shall not be contained in the articles of incorporation of the surviving entity; or (h) any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an interested Person or an Affiliate of an Interested Person; or (i) any agreement, contract, plan, proposal or other arrangement providing for any of the foregoing. (2) An "Interested Person" shall mean any individual, partnership, firm, corporation or other entity (other than the Corporation or any subsidiary) who or which, directly or indirectly, together with any of his or its Affiliates and Associates (as hereinafter defined), is, or at any time within the one-year period immediately prior to the date in question was, the Beneficial Owner of five percent (5%) or more of the voting power of the outstanding Voting Stock. (3) A "Subsidiary" shall mean any corporation, of which a majority of its capital stock is directly or indirectly owned by the Corporation. (4) The term "Beneficial Owner" shall have the meaning ascribed to such term by Rule l3d-3 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as in effect on February 1, 1985. (5) The term "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule l2b-2 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as in effect on February 1, 1985. D. Vote Required for Amendment. Any amendment, alteration, change --------------------------- or repeal of the provisions of this Article 13 shall, in addition to any affirmative vote required by law or otherwise, require the affirmative vote of the holders of at least seventy-five percent (75%) of the Voting Stock of the Corporation, unless such amendment, alteration, change or repeal has previously been expressly approved by the Board of Directors of the Corporation by the affirmative vote or consent of at least sixty-six and two-thirds percent (66 2/3%) of the number of Directors then authorized by, or in the manner provided in, the By-laws, in which case the shareholder vote required by this Section D of Article 13 shall not apply. -11- EX-27.1 3 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1,193,064 269,342 258,295 125,634 8,027,916 224,125 226,833 19,625,022 263,511 31,801,722 22,527,741 3,596,915 825,839 2,343,061 0 0 1,351 2,481,815 31,801,722 394,119 130,224 5,988 530,331 210,509 290,026 240,305 6,606 4,263 196,864 164,028 103,892 0 0 103,892 .78 .77 3.54 108,412 26,648 5,472 0 254,983 11,372 5,455 263,511 263,511 0 0 Only reported at fiscal year-end date.
EX-27.2 4 ARTICLE 9 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 941,549 112,905 200,011 65,934 4,246,090 534,994 533,648 15,212,683 231,496 22,078,301 17,354,014 1,873,769 341,616 451,982 0 0 595,444 1,286,476 22,078,301 321,271 73,282 3,909 398,462 153,762 186,501 211,961 18,443 1,049 165,595 116,023 74,995 0 0 74,995 .65 .64 4.36 79,545 31,856 5,196 0 230,372 24,797 5,863 231,496 231,496 0 0 Only reported at fiscal year-end date.
EX-27.3 5 ARTICLE 9 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1,296,053 96,453 265,498 31,272 4,149,674 565,045 567,152 14,952,630 230,372 22,030,379 17,336,451 1,987,264 281,182 304,831 0 0 594,107 1,351,544 22,030,379 1,229,656 306,342 16,865 1,552,863 603,989 724,910 827,953 73,015 (83) 718,668 373,570 245,215 0 0 245,215 2.11 2.08 4.34 66,959 33,960 5,260 33,368 232,288 104,589 19,852 230,372 230,372 0 51,338
EX-27.4 6 ARTICLE 9 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1,268,295 51,056 278,998 67,256 4,652,887 244,094 245,355 13,702,826 232,288 20,883,399 16,171,652 1,929,467 272,690 344,097 0 12,153 594,430 1,308,910 20,883,399 1,201,046 293,432 21,678 1,516,156 580,868 715,466 800,690 41,533 4,338 640,519 430,287 280,389 0 0 280,389 2.41 2.37 4.38 92,868 27,770 3,203 24,406 244,743 73,441 17,623 232,288 232,288 0 53,497
-----END PRIVACY-ENHANCED MESSAGE-----