<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-4543
MARK TWAIN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-0895344
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8820 Ladue Road, St. Louis, Missouri 63124
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 727-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, $1.25 par value
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. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. /X/.
Aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the closing price as of January 31, 1997:
$673,181,426.
Indicate the number of shares outstanding of each of the
registrants' classes of Common Stock, as of the latest practicable date.
Class Outstanding at February 14, 1997
- ------------------------------ --------------------------------
Common Stock, $1.25 par value 16,819,376
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders, expected to be mailed
to shareholders on or about March 15, 1997, are incorporated by reference
into Parts I, II and IV.
1
<PAGE> 2
PART I
ITEM 1. BUSINESS
Mark Twain Bancshares, Inc. ("Company" or "Registrant") is a Missouri
chartered multi-bank holding company which owns or controls substantially all
the capital stock of four banks: Mark Twain Bank, which operates 20
separate banking locations in the metropolitan St. Louis areas; Mark Twain
Kansas City Bank, which operates fifteen separate locations in the metropolitan
Kansas City bi-state area; Mark Twain Illinois Bank, which operates four
locations on the Illinois side of the St. Louis metropolitan area; and First
City National Bank, which operates three separate locations in the metropolitan
Springfield, Missouri area. The Company was organized in 1967.
The Company's subsidiaries encounter substantial competition in all of
their banking and related financial service activities from other banking
institutions and from an increasing number of non-banking financial
institutions in its primary market areas.
On October 27, 1996, the Company and Mercantile Bancorporation Inc.
("Mercantile"), entered into an Agreement and Plan of Reorganization,
pursuant to which the Company will be merged with Ameribanc, Inc. a wholly
owned subsidiary of Mercantile. See Part III, Item 12c of this Form 10-K for
further information.
Non-Banking Subsidiaries
The Company wholly owns the following: Mark Twain Properties, Inc., which
owns, holds under lease, or manages properties occupied by present banking
centers; Mark Twain Community Development Corporation, which provides
services and housing opportunities for low- to moderate-income persons;
Tarquad Corporation, which acts as trustee of deeds of trust of which Company
subsidiaries are the lenders and beneficiaries; and Mark Twain Asset
Recovery, Inc., which acts as purchaser of certain assets acquired by
subsidiary banks in the collection of loans.
Mark Twain Bank wholly owns Mark Twain Brokerage Services, Inc., a member
of the National Association of Securities Dealers, which provides customers
with complete brokerage services on all exchanges and provides the sale of
various insurance company products. Mark Twain Bank also wholly owns Mark
Twain St. Louis Investment Company which is a holding company for Mark Twain
St. Louis Real Estate Investment Trust. Mark Twain St. Louis Real Estate
Investment Trust was organized to invest solely in mortgage loans originated
by the Company's banking subsidiaries. Mark Twain Bank and Mark Twain Kansas
City Bank each wholly own a Mark Twain Real Estate Development Corporation
subsidiary and a Mark Twain Community Development Corporation subsidiary.
Supervision and Regulation
The Company is registered with and subject to regulation by the Board of
Governors of the Federal Reserve System and is subject to the Bank Holding
Company Act of 1956, as amended. All Company-owned non-bank subsidiaries are
subject to regulation by the Board of Governors of the Federal Reserve
System. The subsidiary state-chartered banks are subject to regulation and
supervision by the banking regulators of the states in which the banking
units are located and the states in which the bank is chartered. The
subsidiary national-chartered bank is subject to regulation and supervision
by the Office of the Comptroller of the Currency. All subsidiary banks are
subject to regulation by and are members of the Federal Deposit Insurance
Corporation.
The earnings of the subsidiary banks are affected not only by competing
financial institutions and general economic conditions, but also by the
policies of various governmental regulatory authorities, and state and
federal laws, particularly as they relate to powers authorized to banks and
bank holding companies. The Company and all subsidiary banks are subject to
the provisions of the Community Reinvestment Act. Mark Twain Brokerage
Services, Inc., is subject to supervision and regulation by the National
Association of
2
<PAGE> 3
Securities Dealers, Securities and Exchange Commission, Missouri Division of
Securities, Missouri Division of Insurance, and Missouri Division of Finance,
among others. The mortgage department is subject to supervision by
Department of Housing and Urban Development, Federal Housing Authority,
Veteran's Administration, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, and Government National Mortgage Association,
among others, concerning mortgage lending.
Further information called for by this item is contained on pages 2 to 14
and Note 2 "Acquisitions and Pending Affiliation" on page 21 of the Company's
1996 Annual Report to Shareholders and is incorporated by reference herein
and in Part III, Item 12c of this Form 10-K.
ITEM 2. PROPERTIES
The Company leases its principal executive office which is located at 8820
Ladue Road, Ladue, Missouri. As of December 31, 1996, the Company conducts
its business and operations out of 46 locations, which are either owned or
leased, in the St. Louis bi-state, Kansas City bi-state, Springfield,
Missouri and Chicago, Illinois metropolitan areas. The Company's physical
properties are in satisfactory condition and suitable and adequate for
present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to a number of lawsuits, most
of which are considered routine litigation incidental to doing business. The
Company, after consultation with legal counsel, does not expect the outcome
of any litigation to have a material effect on its consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
EXECUTIVE OFFICERS OF REGISTRANT
See Part III, Item 10 of this Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
On September 19, 1996, the Common Stock of the Company ($1.25 par value)
commenced trading on the New York Stock Exchange (ticker symbol - MTB).
Prior to September 19, 1996, the Common Stock of the Company was traded on
the Nasdaq Stock Market (symbol - MTWN). The following table presents the
range of high and low sales prices, as furnished by the New York Stock
Exchange and the Nasdaq Stock Market, Inc., as well as the quarterly
dividends declared and paid per share.
Common Stock Share Data High Low Dividends
- ----------------------------------------------------------------------
1996
Fourth Quarter $50.25 $41.87 $0.31
Third Quarter $42.63 $35.25 $0.31
Second Quarter $38.50 $36.00 $0.31
First Quarter $39.75 $36.50 $0.31
1995
Fourth Quarter $39.50 $32.75 $0.27
Third Quarter $35.75 $31.50 $0.27
Second Quarter $32.75 $29.63 $0.27
First Quarter $30.00 $26.00 $0.27
3
<PAGE> 4
At December 31, 1996, there were approximately 2,500 holders of record of
Common Stock. The information in Note 11, "Restrictions of Subsidiary
Dividends," on page 25 of the Company's 1996 Annual Report to Shareholders is
incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA
Information called for by this item is contained on page 1 of the Company's
1996 Annual Report to Shareholders and is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information called for by this item is contained on pages 2 to 14 of the
Company's 1996 Annual Report to Shareholders and is incorporated by reference
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is contained on pages 15 to 32 of the
Company's 1996 Annual Report to Shareholders and is incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a summary of information related to Directors and
Executive Officers of the Registrant.
<TABLE>
<CAPTION>
Position and Offices with Registrant and Prior Business
Name Age Experience (if not with Registrant During Past Five Years)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Directors:
Robert J. Baudendistel 64 Vice Chairman of Mark Twain Bancshares, Inc since 1979;
Director Mark Twain Bancshares, Inc. since 1967; Partner,
Fox Associates, a theatrical production company; consultant
and investor; former Chairman, St. Anthony's Hospital.
Peter F. Benoist 49 Director of Mark Twain Bancshares, Inc. since 1991; Executive
Vice President of Mark Twain Bancshares, Inc. since 1984;
Chairman of Mark Twain Bank from 1986 until June 1996; Director of
Mark Twain Bank since 1986; President of Mark Twain Bank from
1986 until 1989; Chairman of Mark Twain Kansas City Bank from
1992 until June 1996; Director of Mark Twain Kansas City Bank
since 1992; Director of First City National Bank since 1996;
Director of Earthgrains, Inc. since 1995; Director, President
and Executive Committee, Ecumenical Housing Production
Corp; Director and Vice Chairman, St. Louis Priory; Trustee,
Maryville University; Director, St. Louis Equity Fund.<F5>
Robert A. Bernstein 58 Director of Mark Twain Bancshares, Inc. since 1994; Director,
President, and Chief Executive Officer, Bernstein-Rein Advertising,
Inc., an advertising agency; Director, Mark Twain Kansas City Bank;
Steering Committee Member, COMBAT (Community Backed Anti-Drug Tax)
Community Action Coalition in Jackson County, Missouri; Director,
Kansas City Art Institute; President of the Board, Starlight
Theatre Association; Board of Governors, Jewish Community Center.
4
<PAGE> 5
Robert C. Butler 63 Director of Mark Twain Bancshares, Inc. since 1973; Executive Vice
President of Mark Twain Bancshares, Inc. since 1982; Senior Vice
President from 1974 to 1982; Vice President of Mark Twain Bancshares,
Inc. from 1970 to 1974; Chairman of the Board, Mark Twain South
County Bank, 1973-1978; President, Mark Twain State Bank, 1970-1974;
President, Mark Twain National Bank, 1976-1979.
Jack Deutsch 58 Director of Mark Twain Bancshares, Inc. sine 1990; President of Standard
Machine and Manufacturing Company since 1991, prior thereto Executive
Vice President since 1980, a manufacturer of refrigeration and industrial
valves; Executive Vice President of Dema Engineering Company since 1982,
manufacturer of automatic and hydraulic dispensing devices; Director,
Vice President, and Treasurer, Jewish Federation of St. Louis.
John Dubinsky 53 Director of Mark Twain Bancshares, Inc. since 1973; President and Chief
Executive Officer of Mark Twain Bancshares, Inc. since 1986, President
since 1975; Director, Barnes-Jewish Hospital; Co-Chairman, Barnes-Jewish
Hospital Foundation; Trustee, St. Louis Science Center; Director, BJC
Health System, Inc.; National Trustee, National Symphony Orchestra,
Washington, D.C.; Director and Vice Chairman, Regional Housing Alliance;
Director, Mark Twain Bank; Director, Mark Twain Kansas City Bank; Director of
First City National Bank since 1996.
Henry J. Givens, Jr., 64 Director of Mark Twain Bancshares, Inc. since 1992; President, Harris-Stowe
Ph.D. State College since 1979; Director, Laclede Gas Company; Director, Mark
Twain Bank St. Louis, a division of Mark Twain Bank; Director, Arts and
Education Council; Director, American Red Cross, St. Louis Bi-State
Chapter; Director, National Conference of Christians and Jews; Director,
Urban League of Metropolitan St. Louis; Director, Blue Cross/Blue Shield
of Missouri; Director, Automobile Club of Missouri.<F1>
B.D. Hunter 67 Director of Mark Twain Bancshares, Inc. since 1981; Chairman and Chief
Executive Officer of Huntco Inc., which owns and operates Steel Processing
Centers; Director, Service Corporation International; Director, Cash
America International, Inc.; Director, Celebrity Inc.<F2>
Michael M. McCarthy 58 Director of Mark Twain Bancshares, Inc. since 1981; Chairman of the Board
and Chief Executive Officer since 1977, McCarthy Building Companies, a
group of construction and building design consulting companies; Chairman
and Chief Executive Officer since 1976, McCarthy Brothers Company, a building
construction company; Director of Huntco Inc.<F3>
James J. Murphy, Jr. 53 Director of Mark Twain Bancshares, Inc. since 1992; President and Chief
Executive Officer, Murphy Company Mechanical Contractors and Engineers;
Director, Mark Twain Bank; Director, Mechanical Contractors Association
of America; Chair, Trustee, Maryville University; Director,
PRIDE; Director, St. Louis Priory.
Alvin Siteman 69 Director of Mark Twain Bancshares, Inc. since 1972; Chairman of the
Board of Mark Twain Bancshares, Inc. since 1986; Vice Chairman of the
Board of Mark Twain Bancshares, Inc. from 1979 to 1986; President and
Director, Flash Oil Corporation, a petroleum product distributor; President
and Director, The Siteman Organization, Inc., a real estate development
and management company; Director and President, Site Oil Company of Missouri;
Honorary Trustee, St. Louis Art Museum; Director, Barnes-Jewish Hospital;
Director, Insituform Technologies, Inc.<F4>
<CAPTION>
Non-Director Executive Officers:
<S> <C> <C>
Robert F. Borchert 52 Chairman and Chief Executive Officer, Mark Twain Bank,
June 1996; President and Chief Operating Officer, Mark Twain Bank
through June 1996; Director of Mark Twain Illinois Bank since 1996.
Sandra Friedman Burnham 46 Senior Vice President and Auditor, Mark Twain Bancshares, Inc.,
April 1996; Vice President, Audit of Mark Twain Bancshares, Inc.
through April 1996
Kevin J. Cody 36 Vice President, Treasurer/Assistant Secretary of Mark Twain
Bancshares, Inc., April 1995; Vice President, Accounting and Chief
Accounting Officer of Mark Twain Bancshares, Inc., May 1993; Staff
through Senior Manager, Ernst & Young LLP, June 1982 - May 1993.
Nancy E. Graves 44 Senior Vice President, Director of Retail Banking of Mark Twain
Bancshares, Inc., December 1994; Senior Vice President of Mark
Twain Bank, 1990 - December 1994.
Keith Miller 45 Executive Vice President, Finance and Chief Financial Officer
Mark Twain Bancshares, Inc., April 1996; Senior Vice President,
Finance and Chief Financial Officer of Mark Twain Bancshares, Inc.
through April 1996.
5
<PAGE> 6
Timothy C. Peterson 52 Senior Vice President, Corporate Development, Mark Twain Bancshares, Inc.,
April 1996; Senior Vice President, Compliance of Mark Twain
Bancshares, Inc., December 1994; President of Mark Twain Bank
Ladue, 1990 - December 1994; Director of First City National Bank
since 1996.
W. Thomas Reeves 42 Senior Vice President, Lending, Mark Twain Bancshares, Inc., June 1996;
Senior Vice President, Director of Loan Production, Mark Twain Bank through
June 1996; Director of Mark Twain Kansas City Bank since 1996.
Jack L. Sutherland 53 Chairman, President and Chief Executive Officer, Mark Twain Kansas
City Bank, April 1996; President and Chief Executive Officer, Mark
Twain Kansas City Bank through April 1996; Director of First City
National Bank since 1996.
Carl A. Wattenberg, Jr. 58 Senior Vice President, Secretary and General Counsel of Mark
Twain Bancshares, Inc.
Thomas R. Wickenhauser 49 Senior Vice President, Administration, Mark Twain Bancshares, Inc.,
April 1996; Vice President, Administration, Mark Twain Bancshares, Inc.
Frederick E. Zimmer 48 Senior Vice President of Mark Twain Bank, Director of Loan
Administration.
<FN>
- --------------
<F1>Dr. Givens is a director of Laclede Gas Company, the securities of which are registered pursuant to the Exchange Act.
<F2>Mr. Hunter is Chairman and Chief Executive Officer of Huntco Inc., a Director (and formerly Vice Chairman) of Service
Corporation International, and a Director of Cash America Investment, Inc., and Celebrity, Inc., the securities of each
of which are registered pursuant to the Exchange Act.
<F3>Mr. McCarthy is a Director of Huntco Inc., the securities of which are registered pursuant to the Exchange Act.
<F4>Mr. Siteman is a Director of Insituform Technologies, Inc., the securities of which are registered pursuant to the
Exchange Act.
<F5>Mr. Benoist is a Director of Earthgrains, Inc., the securities of which are registered pursuant to the Exchange Act.
</TABLE>
No family relationship exists among any of the Executive Officers of
Registrant.
Each officer of the Registrant is appointed to serve, at the pleasure of
its Board of Directors, for the annual period next following the Annual
Meeting of the Shareholders of the Registrant, and until his respective
successor shall have been appointed and qualified. Certain officers were
offered employment agreements; see Exhibit 10.9 below.
No officer of the Registrant was selected so to serve pursuant to any
arrangement or understanding between him and any person other than the
directors and one or more officers of Registrant acting solely in that
capacity.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by this item is contained in Exhibit 99 to this
Form 10-K and which is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - The only person who
is known to be the beneficial owner of more than 5% of its voting securities
is Alvin Siteman, who beneficially owns 2,304,234 shares (13.2%) of Common
Stock. This amount includes currently exercisable stock options to acquire
21,250 shares of Common Stock. Mr. Siteman is Chairman of Board of the
Company and can be contacted through the Company.
6
<PAGE> 7
(b) Security Ownership of Management - The following table sets forth
information concerning the beneficial ownership of the Company's Common
Stock as of January 31, 1997, for (a) each director; (b) each of the
executive officers named in the Summary Compensation Table not listed as a
director; and (c) directors and executive officers as a group. Except as
otherwise noted, the individuals have sole voting and investment power with
respect to such securities. Included are amounts of shares which may be
acquired on January 31, 1997 or within 60 days of January 31, 1997 pursuant
to exercisable employee stock options or through conversion of Mark Twain
Bancshares, Inc. 7% Convertible Subordinated Capital Notes due 1999
("Notes").
<TABLE>
Common Stock Ownership Table
<CAPTION>
Amount and Nature Percent
Name of Beneficial Ownership of Class
- ------------------------------ ----------------------- --------
<S> <C> <C>
(a)
Robert J. Baudendistel 52,500 <F1> .3%
Peter F. Benoist 120,805 <F2> .7%
Robert A. Bernstein 12,443 .1%
Robert C. Butler 96,633 <F3> .6%
Jack Deutsch 142,507 <F4> .8%
John Dubinsky 276,382 <F5> 1.6%
Henry J. Givens, Jr., Ph.D. 600 <F*>
B.D. Hunter 20,238 <F6> .1%
Michael M. McCarthy 180,028 <F7> 1.0%
James J. Murphy, Jr. 19,512 <F8> .1%
Alvin Siteman 2,304,234 <F9> 13.2%
(b)
Robert F. Borchert 110,744 <F10> .6%
W. Thomas Reeves 68,641 <F11> .4%
(c)
Directors and Executive Officers
as a Group (22 persons) 3,750,516 <F12> 21.5%
<FN>
- --------------
<F*>less than .1%
<F1> Includes 7,500 shares held by a partnership affiliate of Mr. Baudendistel.
<F2> Includes 44,000 shares subject to currently exercisable stock options.
<F3> Includes 8,652 shares subject to currently exercisable stock options.
<F4> Includes 85,642 shares held by Mr. Deutsch or his wife as Trustee or Custodian for their children
or other family members, and 4,500 shares owned by a company of which Mr. Deutsch is a shareholder
and President, the beneficial ownership of all of which is disclaimed.
<F5> Includes 311 shares owned by Mr. Dubinsky or his wife as custodian for their daughter, 33,000
shares held by three trusts of which Mr. Dubinsky is trustee and 800 shares owned by his wife, the
beneficial ownership of all of which is disclaimed. Also includes 3,146 shares available through
conversion of Notes and 58,000 shares subject to currently exercisable stock options.
<F6> Includes 8,488 shares held by an affiliate of Mr. Hunter.
<F7> Includes 2,103 shares held in a trust of which Mr. McCarthy is trustee, the beneficial ownership
of which is disclaimed, and 157,999 shares held by an affiliate of Mr. McCarthy.
<F8> Includes 1,873 shares owned by the wife of Mr. Murphy, the beneficial ownership of which is disclaimed.
<F9> Includes 193,208 shares owned by the wife of Mr. Siteman individually or by Mr. Siteman as trustee of
trust for daughters or other family members, the beneficial ownership of all of which is disclaimed and
423,325 shares held by two corporate affiliates of Mr. Siteman. Also includes 21,250 shares subject to
currently exercisable stock options.
<F10>Includes 28,025 shares subject to currently exercisable stock options.
<F11>Includes 45 shares held by Mr. Reeves as custodian for his children, the beneficial ownership of which is
disclaimed. Also includes 29,725 shares subject to currently exercisable stock options.
<F12> Includes 294,942 shares subject to currently exercisable stock options and 3,146 shares available through
conversion of Notes.
</TABLE>
7
<PAGE> 8
As required by the Securities and Exchange Commission rules under Section
16 of the Securities and Exchange Act of 1934, the Company believes, based
upon review and representations that during 1996 all Securities and Exchange
Commission filing requirements applicable to executive officers and directors
have been complied with.
(c) Changes in Control - On October 27, 1996, the Company and Mercantile
Bancorporation Inc. ("Mercantile"), entered into an Agreement and Plan of
Reorganization (the "Merger Agreement"), pursuant to which the Company will
be merged with Ameribanc, Inc., a wholly owned subsidiary of Mercantile (the
"Merger"). The Board of Directors of the Company and the Executive Committee
of the Board of Directors of Mercantile approved the Merger at their meetings
held on October 27 and October 23, 1996, respectively.
In accordance with the terms of the Merger Agreement, (i) each share of the
Company's common stock, par value $1.25 per share ("Bancshares Common
Stock"), outstanding immediately prior to the effective time of the Merger
(the "Effective Time") will be converted into the right to receive 0.952 of a
share (the "Exchange Ratio") of Mercantile common stock, par value $5.00 per
share ("Mercantile Common Stock"), and associated preferred share purchase
rights under Mercantile's Rights Agreement, dated May 23, 1988.
The Merger is intended to constitute a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and to be accounted for as a
pooling of interest.
Consummation of the Merger is subject to various conditions, including: (i)
receipt of approval by the shareholders of each of the Company, Mercantile,
and Ameribanc, Inc. of appropriate matters relating to the Merger Agreement
and the Merger; (ii) receipt of requisite regulatory approvals from the Board
of Governors of the Federal Reserve system and other federal and state
regulatory authorities as necessary; (iii) receipt of an opinion of counsel
as to the tax treatment of certain aspects of the Merger; (iv) registration
of the shares of Mercantile Common Stock to be issued in the Merger under the
Securities Act of 1933, as amended (the "1933 Act") and all applicable state
securities laws; and (v) satisfaction of certain other conditions. Certain
directors and officers of the Company, who in the aggregate have voting power
over approximately 14.9% of the outstanding shares of Bancshares Common
Stock, based upon 16,384,722 shares of Bancshares Common Stock outstanding as
of September 30, 1996, as represented by the Company, have agreed with
Mercantile to vote all such shares of Bancshares Common Stock to approve the
Merger and not to sell any of such shares other than pursuant to the Merger
without Mercantile's consent.
The Merger Agreement and the transactions contemplated thereby will be
submitted for approval at meetings of the shareholders of each of the Company
and Mercantile. Prior to such meetings, Mercantile will file a registration
statement with the Securities and Exchange Commission registering under the
1933 Act the Mercantile Common Stock to be issued in the Merger. Such shares
of Mercantile Common Stock will be offered to the Company's shareholders
pursuant to a prospectus that will also serve as a joint proxy statement for
the shareholders' meetings.
The preceding description of the Merger Agreement is qualified in its
entirety by reference to the copy of the Merger Agreement included as Exhibit
10.10 to this Form 10-K and which is hereby incorporated herein by reference.
In connection with the Merger Agreement, the Company and Mercantile entered
into a Stock Option Agreement, dated October 27, 1996 (the "Stock Option
Agreement"), pursuant to which Bancshares granted to Mercantile an
irrevocable option to purchase, under certain circumstances, up to 3,261,522
authorized and unissued shares of Bancshares Common Stock at a price, subject
to certain adjustments, of $42.375 per share (the "Mercantile Option"). The
Mercantile Option, if exercised, would equal, before giving effect to the
exercise of the Mercantile Option, 19.9% of the total number of shares of
Bancshares Common Stock outstanding. The Mercantile Option was granted by
the Company as a condition and inducement to Mercantile's willingness to
enter into the Merger Agreement. Under certain circumstances, the Company
may be required to repurchase the Mercantile Option or the shares acquired
pursuant to the exercise of the Mercantile Option.
8
<PAGE> 9
The preceding description of the Stock Option Agreement is qualified in its
entirety by reference to the copy of the Stock Option Agreement included as
Exhibit 10.11 to this Form 10-K and which is hereby incorporated herein by
reference
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, as in prior years, the Company's Subsidiary Banks made loans
to certain directors and executive officers of Mark Twain Bancshares, Inc.
and its principal subsidiaries, as well as to certain persons or
organizations related to directors and executive officers. All such loans
were made in the ordinary course of business, and on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time comparable loans to other persons, and non involved more than a normal
risk of collectibility or presented other unfavorable features.
During 1996, rental payment for certain premises of the Company and its
subsidiaries, aggregating approximately $75,700 were made to the Siteman
Organization, Inc., a real estate development and management company which is
an affiliate of Mr. Siteman. Management believes that all such rental
payments are comparable to fair market rates for such premises.
During 1996, the Company entered into a construction contract for
renovations to a facility to be opened in 1997 in Clayton, Missouri. Murphy
Company Mechanical Contractors and Engineers ("Murphy Co."), which is an
affiliate of Mr. Murphy, is a subcontractor for the renovation project.
Murphy Co. is engaged to designed and construct the HVAC system for the
renovated building. Payments to be made under the construction contract are
estimated to be approximately $498,000. In addition, during 1996, the
Company and its subsidiaries made payments aggregating approximately $32,700
to Murphy Co. for routine repairs and maintenance to the HVAC systems at
various facilities. Management believes that such contract and repair
amounts are comparable to fair market rates for such services.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements - The following consolidated financial
statements of Mark Twain Bancshares, Inc. and Subsidiaries and the
accountants' report thereon are incorporated by reference from the 1996
Annual Report to Shareholders of Mark Twain Bancshares, Inc.:
Consolidated Balance Sheet - December 31, 1996 and 1995
Consolidated Statement of Income - Years ended December 31,
1996, 1995 and 1994
Consolidated Statement of Changes in Shareholders' Equity -
Years ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows - Years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules - All schedules are omitted because
they are not applicable, or not required, or because the required
information is included in the financial statements or the notes
thereto.
9
<PAGE> 10
(a) (3) Exhibits
Exhibit 10 Material contracts:
<TABLE>
<C> <S>
Exhibit 10.1 - Mark Twain Bancshares, Inc. 1983 Incentive Stock Option Plan, as amended 4/4/84, 2/11/87, 3/1/90 and
2/28/95 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended
December 31, 1994).
Exhibit 10.2 - Mark Twain Bancshares, Inc. 1992 Stock Option Plan, as amended 2/28/95 (incorporated by reference
from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995).
Exhibit 10.3 - Mark Twain Bancshares, Inc. 1995 Stock Option Plan, as amended 1/12/96 (incorporated by reference
from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995).
Exhibit 10.4 - Mark Twain Bancshares, Inc. Executive Benefit Plan, as amended and restated 7/1/83 (incorporated by
reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994).
Exhibit 10.5 - First Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 8/4/92 (incorporated by
reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994).
Exhibit 10.6 - Second Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93 (incorporated
by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994).
Exhibit 10.7 - Third Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93 (incorporated by
reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994).
Exhibit 10.8 - Supplemental Executive Retirement Plan for Joseph N. Millard (incorporated by reference from exhibit
10 of the Registrant's Form 10-K for the year ended December 31, 1994).
Exhibit 10.9 - Form of Employment Agreements (incorporated by reference from exhibit 10 of the Registrant's Form
10-K for the year ended December 31, 1994):
The initial term of the Employment Agreements offered was for either 12, 18, or 24 months. The
initial terms of the Employment Agreements offered to Executive Officers named in Part I of this Form
were as follows:
Initial Term of 24 months - Alvin Siteman, John P. Dubinsky, Peter F. Benoist, Keith Miller, W.
Thomas Reeves, Frederick E. Zimmer, Robert F. Borchert and Jack L. Sutherland.
Initial Term of 18 months - Sandra Friedman Burnham, Nancy E. Graves, Timothy C. Peterson, Carl A.
Wattenberg, Jr. and Thomas R. Wickenhauser.
Initial Term of 12 months - Kevin J. Cody.
Exhibit 10.10 - Agreement and Plan of Reorganization, dated as of October 27, 1996, between Mercantile Bancorporation
Inc., Ameribanc, Inc., and Mark Twain Bancshares, Inc. (incorporated by reference from exhibit 2.1 of
the Registrant's Form 8-K filed November 6, 1996).
10
<PAGE> 11
Exhibit 10.11 - Stock Option Agreement, dated as of October 27, 1996, between Mercantile Bancorporation Inc., as
grantee, and Mark Twain Bancshares, Inc., as grantor (incorporated by reference from exhibit 2.2 of
the Registrant's Form 8-K filed November 6, 1996).
Exhibit 11 - Computation of Earnings Per Share.
Exhibit 13 - Mark Twain Bancshares, Inc.'s Annual Report to Shareholders for the year ended December 31, 1996.
Exhibit 21 - Subsidiaries of Mark Twain Bancshares, Inc.
Exhibit 23 - Consent of Independent Auditors.
Exhibit 27 - Financial Data Schedule.
Exhibit 99 - Executive Compensation
</TABLE>
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated October 10, 1996 announcing
earnings for the three and nine month periods ending September 30,
1996. The Company filed an 8-K on November 6, 1996 related to
entering into the Agreement and Plan of Reorganization with
Mercantile Bancorporation Inc. and entering into the Stock Option
Agreement with Mercantile Bancorporation Inc. The Company filed a
Form 8-K dated January 15, 1997 announcing earnings for the three
and twelve month periods ended December 31, 1996.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Bancshares has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the County of
St. Louis, and the State of Missouri, on the 20th day of February, 1997.
MARK TWAIN BANCSHARES, INC.
/s/ JOHN P. DUBINSKY
-------------------------------------
John P. Dubinsky
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
/s/ ALVIN J. SITEMAN Chairman of the Board February 20, 1997
- ------------------------------------ and Director
Alvin J. Siteman
/s/ JOHN P. DUBINSKY President and Chief Executive February 20, 1997
- ------------------------------------ Officer and Director
John P. Dubinsky (Principal Executive Officer)
/s/ KEITH MILLER Executive Vice President, Finance February 20, 1997
- ------------------------------------ and Chief Financial Officer
Keith Miller (Principal Financial Officer)
/s/ KEVIN J. CODY Vice President, Treasurer/ February 20, 1997
- ------------------------------------ Assistant Secretary
Kevin J. Cody (Principal Accounting Officer)
/s/ PETER F. BENOIST Executive Vice President and February 20, 1997
- ------------------------------------ Director
Peter F. Benoist
/s/ ROBERT J. BAUDENDISTEL Director February 20, 1997
- ------------------------------------
Robert J. Baudendistel
Director
- ------------------------------------
Robert A. Bernstein
/s/ ROBERT C. BUTLER Executive Vice President and February 20, 1997
- ------------------------------------ Director
Robert C. Butler
/s/ JACK DEUTSCH Director February 20, 1997
- ------------------------------------
Jack Deutsch
/s/ HENRY J. GIVENS, JR., PH.D. Director February 20, 1997
- ------------------------------------
Henry J. Givens, Jr., Ph.D
/S/ B.D. HUNTER Director February 20, 1997
- ------------------------------------
B.D. Hunter
/s/ MICHAEL M. MCCARTHY Director February 20, 1997
- ------------------------------------
Michael M. McCarthy
Director
- ------------------------------------
James J. Murphy, Jr.
</TABLE>
12
<PAGE> 13
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
NUMBER EXHIBIT
- ---------------------------------------------------------------------------------------------------
<C> <S>
10.1 Mark Twain Bancshares, Inc. 1983 Incentive Stock Option Plan, as amended 4/4/84, 2/11/87
3/1/90 and 2/28/95 (incorporated by reference from exhibit 10 of the Registrant's Form
10-K for the year ended December 31, 1994).
10.2 Mark Twain Bancshares, Inc. 1992 Stock Option Plan, as amended 2/28/95 (incorporated
by reference from exhibit 10 of the Registrant's Form 10-K for the year ended
December 31, 1995).
10.3 Mark Twain Bancshares, Inc. 1995 Stock Option Plan, as amended 1/12/96 (incorporated
by reference from exhibit 10 of the Registrant's Form 10-K for the year ended
December 31, 1995).
10.4 Mark Twain Bancshares, Inc. Executive Benefit Plan, as amended and restated 7/1/83
(incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year
ended December 31, 1994).
10.5 First Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 8/4/92
(incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year
ended December 31, 1994).
10.6 Second Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93
(incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year
ended December 31, 1994).
10.7 Third Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93
(incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year
ended December 31, 1994).
10.8 Supplemental Executive Retirement Plan for Joseph N. Millard (incorporated by reference
from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994).
10.9 Form of Employment Agreements (incorporated by reference from exhibit 10 of the
Registrant's Form 10-K for the year ended December 31, 1994):
The initial term of the Employment Agreements offered was for either 12, 18,
or 24 months. The initial terms of the Employment Agreements offered to
Executive Officers named in Part I of this Form were as follows:
Initial Term of 24 months - Alvin Siteman, John P. Dubinsky, Peter F. Benoist,
Keith Miller, W. Thomas Reeves, Frederick E. Zimmer, Robert F. Borchert, and
Jack L. Sutherland.
Initial Term of 18 months - Sandra Friedman Burnham, Nancy E. Graves, Timothy C.
Peterson, Carl A. Wattenberg, Jr. and Thomas R. Wickenhauser.
Initial Term of 12 months - Kevin J. Cody.
10.10 Agreement and Plan of Reorganization, dated as of October 27, 1996, between
Mercantile Bancorporation Inc., Ameribanc, Inc., and Mark Twain Bancshares,
Inc. (incorporated by reference from exhibit 2.1 of the Registrants Form 8-K
filed November 6, 1996).
10.11 Stock Option Agreement, dated as of October 27, 1996, between Mercantile Bancorporation
Inc., as grantee, and Mark Twain Bancshares, Inc., as grantor (incorporated by
reference from exhibit 2.2 of the Registrant's Form 8-K file November 6, 1996).
11 Computation of Earnings Per Share.
13 Mark Twain Bancshares, Inc.'s Annual Report to Shareholders for the year
ended December 31, 1996.
21 Subsidiaries of Mark Twain Bancshares, Inc.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
99 Executive Compensation
13
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 11
MARK TWAIN BANCSHARES, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
<CAPTION>
For the Years Ended
December 31,
(In thousands of dollars except per share data) 1996 1995 1994
---- ---- ----
<S>
PRIMARY <C> <C> <C>
Earnings:
Net income $53,268 $47,713 $40,982
======= ======= =======
Shares:
Weighted average number of common shares outstanding 16,168,262 16,056,927 15,887,699
Weighted average number of common share equivalents 304,928 231,912 215,410
---------- ---------- ----------
16,473,190 16,288,839 16,103,109
---------- ---------- ----------
Primary earnings per common share $3.23 $2.93 $2.54
===== ===== =====
ASSUMING FULL DILUTION
Earnings:
Net Income $53,268 $47,713 $40,982
After tax interest applicable to convertible notes 120 343 505
After tax amortization of capital note fees 63 51 62
------- ------- -------
Fully diluted net income $53,451 $48,107 $41,470
======= ======= =======
Shares:
Weighted average number of common shares outstanding 16,168,262 16,056,927 15,887,699
Assuming conversion of Convertible Notes and dilutive
stock options 644,803 847,186 828,164
---------- ---------- ----------
16,813,065 16,904,113 16,715,863
========== ========== ==========
Earnings per common share assuming full dilution $3.18 $2.85 $2.48
===== ===== =====
</TABLE>
<PAGE> 1
Annual Report 1996
Mark Twain Bancshares, Inc.
<PAGE> 2
<TABLE>
Operational Highlights
<CAPTION>
1996 1995 % Change
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Highlights
Net Income (in thousands) $ 53,268 $ 47,713 +11.6%
Net Interest Income (in thousands) $127,721 $128,241 - 0.4%
Return on Average Assets 1.79% 1.72% --
Return on Realized Shareholders' Equity 18.66% 18.41% --
Total Assets (in millions) $3,133.3 $2,968.2 + 5.6%
Loans (in millions) $2,177.9 $1,971.9 +10.4%
Total Deposits (in millions) $2,594.9 $2,457.4 + 5.6%
Total Shareholders' Equity (in millions) $ 311.6 $ 275.9 +12.9%
Per Share Data
Primary Earnings $ 3.23 $ 2.93 +10.2%
Fully Diluted Earnings $ 3.18 $ 2.85 +11.6%
Dividends Paid $ 1.24 $ 1.08 +14.8%
Book Value, Fully Diluted $ 18.66 $ 17.05 + 9.4%
Market Price December 31 $ 48.75 $ 38.75 +25.8%
</TABLE>
<TABLE>
What's inside
- ------------------------------------------------------------
<S> <C>
Financial Highlights 1
Management's Discussion & Analysis 2
Statement by Management and
Report of Independent Auditors 15
Consolidated Balance Sheet 16
Consolidated Statement of Income 17
Consolidated Statement of
Changes in Shareholders' Equity 18
Consolidated Statement of
Cash Flows 19
Notes to Consolidated
Financial Statements 20
Shareholder Interests,
Board of Directors and
Executive Officers 33
</TABLE>
<PAGE> 3
<TABLE>
Financial Highlights
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
(in thousands of dollars, except per share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income, fully tax equivalent<F1> $ 230,830 $ 224,361 $ 195,959 $ 177,079 $ 178,954
Interest expense 101,920 94,932 70,592 63,896 79,195
- ------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Net interest income, fully tax equivalent 128,910 129,429 125,367 113,183 99,759
Provision for loan losses 2,002 5,003 5,526 6,282 8,687
- ------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 126,908 124,426 119,841 106,901 91,072
Non-interest income 39,807 36,786 35,500 43,996 37,090
Non-interest expense 81,812 86,522 90,282 95,649 84,040
- ------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Income before taxes 84,903 74,690 65,059 55,248 44,122
Taxable equivalent adjustment<F1> 1,189 1,188 1,346 1,451 1,687
Applicable income taxes 30,446 25,789 22,731 18,694 14,092
- ------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Net income $ 53,268 $ 47,713 $ 40,982 $ 35,103 $ 28,343
- --------------------------------------------------------------========== ========== ========== ========== ==========
<FN>
<F1> The taxable equivalent adjustments are calculated using the federal
statutory tax rate of 35% for 1996, 1995, 1994 and 1993, and 34% for 1992.
Per Share Data
Primary earnings $ 3.23 $ 2.93 $ 2.54 $ 2.24 $ 1.91
Fully diluted earnings $ 3.18 $ 2.85 $ 2.48 $ 2.17 $ 1.84
Common dividends declared $ 1.24 $ 1.08 $ 0.96 $ 0.81 $ 0.68
Common dividend payout ratio 38.39% 36.86% 37.80% 36.17% 35.52%
Book value $ 18.68 $ 17.09 $ 14.65 $ 13.63 $ 12.20
Fully diluted book value $ 18.66 $ 17.05 $ 14.68 $ 13.71 $ 12.39
Averages for the Year
Total assets $2,971,225 $2,766,634 $2,645,508 $2,484,696 $2,341,473
Earning assets 2,784,222 2,571,745 2,460,554 2,289,298 2,168,834
Total loans 2,031,127 1,916,374 1,748,639 1,626,068 1,563,903
Total deposits 2,381,533 2,282,771 2,199,501 2,089,102 1,989,108
Long-term debt 5,175 19,666 23,144 26,358 28,613
Shareholders' equity 282,777 255,433 223,972 197,401 167,556
Net interest margin 4.63% 5.03% 5.10% 4.94% 4.60%
At December 31
Total assets $3,133,265 $2,968,231 $2,688,716 $2,595,451 $2,376,312
Earning assets 2,916,083 2,731,663 2,492,839 2,407,669 2,167,852
Total loans 2,177,915 1,971,939 1,860,155 1,716,394 1,541,083
Total deposits 2,594,912 2,457,392 2,272,057 2,191,913 2,034,404
Long-term debt 2,036 18,490 20,389 24,696 28,822
Shareholders' equity 311,624 275,906 234,049 214,994 179,046
Return on Average
Total assets 1.79% 1.72% 1.55% 1.41% 1.21%
Shareholders' equity 18.84% 18.68% 18.30% 17.78% 16.92%
Realized shareholders' equity 18.66% 18.41% 17.93% 17.78% 16.92%
Selected Ratios
Average shareholders' equity to:
Assets 9.52% 9.23% 8.47% 7.94% 7.16%
Loans 13.92% 13.33% 12.81% 12.14% 10.71%
Period-end shareholders' equity to:
Assets 9.95% 9.30% 8.70% 8.28% 7.53%
Loans 14.31% 13.99% 12.58% 12.53% 11.62%
Long-term debt to shareholders' equity 0.65% 6.70% 8.71% 11.49% 16.10%
Efficiency ratio 48.56% 52.15% 56.23% 61.19% 62.03%
</TABLE>
Annual Report 1996 1
<PAGE> 4
Management's Discussion & Analysis
Income Statement Analysis
- ------------------------------------------------------------------------------
Earnings Summary
Mark Twain Bancshares, Inc. reported record earnings for 1996 with
consolidated net income of $53.3 million, an increase of 11.6% over 1995
earnings of $47.7 million. Primary earnings per share were $3.23 compared to
$2.93 in 1995, an increase of 10.2%. Fully diluted earnings per share were
$3.18, an 11.6% increase over the $2.85 earned in 1995. Net income has grown
at a compound rate of 21.2% over the last five years. Fully diluted earnings
per share have grown 17.3% on a compound basis over the same period.
Return on assets for 1996 was 1.79% compared to 1.72% for 1995 and 1.55% for
1994. Return on realized shareholders' equity was 18.66% for the year
compared to 18.41% for 1995 and 17.93% for 1994.
Net interest income, on a fully tax equivalent basis, decreased to $128.9
million for 1996 compared to $129.4 million for 1995. Net interest margin for
the year was 4.63% compared to 5.03% for 1995 and 5.10% for 1994. Average
earning assets increased 8.3% in 1996 compared to increases of 4.5% in 1995
and 7.5% in 1994.
The provision for loan losses was less than the prior year due to lower net
charge-offs and consistent asset quality. The allowance for loan losses as a
percentage of loans was 1.55% at December 31, 1996, the same level of loans
as at year-end 1995 and 1994. Net charge-offs as a percentage of average
loans decreased to 0.06% in 1996 compared to 0.18% in 1995 and 0.21% in 1994.
The percentage of non-performing assets to loans plus foreclosed real estate
was 0.58% at December 31, 1996 compared to 1.00% at year-end 1995 and 0.95%
at year-end 1994.
Non-interest income increased 8.2% in 1996 following a 3.6% increase in 1995
and a decrease of 19.3% in 1994. The increase in 1996 resulted from a 17.1%
increase in service charges on deposit accounts and an increase of 10.7% in
revenues from the Company's fee income divisions. The increase for 1995 was
primarily due to increased revenue from the Company's Bond Division and
appreciation in the Company's proprietary trading account. This followed 1994
when the decrease in non-interest income was due to the Company's decision to
curtail its Mortgage Division as a line of business and Bond and Brokerage
revenues fell below expectations due to market conditions. See "Non-Interest
Income" for further discussion.
Non-interest expenses decreased 5.4% in 1996 following a decrease of 4.2% in
1995 and a decrease of 5.6% in 1994. The Company's efficiency ratio for 1996
was 48.56% compared to 52.15% in 1995 and 56.23% in 1994. Other operating
expenses decreased $6.2 million or 23.9% in 1996 compared to a decrease of
10.4% in 1995 and 14.6% in 1994. For 1996, the Company's FDIC insurance
premiums decreased $2.6 million following the $2.3 million decrease
experienced in 1995. In addition, charitable contributions decreased $2.0
million in 1996 due to a non-recurring charitable contribution of foreclosed
property made in the fourth quarter of 1995. While increasing non-interest
expense by $2.1 million in 1995, the effect of the transaction on net income
was zero due to a combination of tax credits and tax deductions associated
with the donation. The changes for 1994 primarily reflect expenses directly
associated with the change in revenues in the fee-based divisions. See
"Non-Interest Expense" for further discussion.
Net Interest Income
Tax equivalent net interest income declined $519 thousand or 0.4% in 1996
compared to increases of 3.2% in 1995 and 10.8% in 1994. Net interest margin
was 4.63% in 1996 compared to 5.03% in 1995 and 5.10% in 1994. The decrease
in net interest income and net interest margin was due to the
combined effect of a falling prime rate in late 1995 and early 1996, and the
change in the mix of deposits to higher rate time deposits. Net interest
margin declined steadily from 5.08% in the second quarter of 1995 to 4.85% in
the fourth quarter of that year. Net interest margin decreased to 4.62% in
the first quarter of 1996 and remained unchanged before rising to 4.67% in
the fourth quarter of 1996. Net interest margin stabilized as the prime rate
remained unchanged for the remainder of the year. Table 1 provides the
components of average assets and liabilities together with their respective
yields. Table 2 provides a reconciliation of the changes in net interest
income attributable to variations in balances and yields.
Average earning assets increased $212.5 million or 8.3% in 1996. The increase
in 1996 compares with increases of $111.2 million in 1995 and $171.3 million
in 1994. Average loans increased $114.8 million, or 6.0% in 1996, compared to
an increase of $167.7 million or 9.6% in 1995. Most of the growth in 1996
occurred in the first and second quarters of the year. The Company's
securities portfolio (held-to-maturity and available-for-sale securities)
increased on average by $94.9 million or 16.0% in 1996, compared with a
decrease in 1995 of 0.6%. Part of the increase in average securities is the
result of purchases made in the fourth quarter of 1995 and early 1996 to
reduce the Company's sensitivity to changing interest rates.
The Company's earning assets comprised 93.7% of average total assets in 1996,
compared to 93.0% in 1995 and 1994. The Company strives to maintain this
level at or above 92%.
Average interest bearing liabilities increased $168.8 million or 8.2% in 1996
compared to increases of 3.2% in 1995 and 5.8% in 1994. In 1996, interest
rates, competition and customer preferences continued to exert pressure on the
Company's core deposit mix. The composition of average interest bearing
liabilities continued to shift to time deposits from interest bearing checking
and savings and money market accounts. This shift represents the Company's
efforts to gather marginal funds at the lowest cost, given the interest rate
environment and customer preferences. Average time deposits increased $75.1
million or 7.7% versus an increase of $14.6 million or 1.6% for interest
bearing checking and savings and money market accounts combined.
2 Mark Twain Bancshares, Inc.
<PAGE> 5
Financial Review (continued)
<TABLE>
Table 1: Consolidated Average Balance Sheet and Net Interest Margin
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995 Year Ended December 31, 1994
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
(in thousands of dollars) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans<F1><F2> $2,031,127 $183,261 9.02% $1,916,374 $181,975 9.50% $1,748,639 $147,817 8.45%
Held-to-maturity securities:
Taxable 233,145 15,080 6.47% 331,174 22,207 6.71% 356,037 24,581 6.90%
Non-taxable<F1> 2,528 203 8.03% 3,161 266 8.42% 12,019 1,034 8.60%
Available-for-sale securities<F1> 451,222 28,128 6.23% 257,669 15,959 6.19% 227,591 15,070 6.62%
Trading account securities 53,099 3,425 6.45% 47,559 3,003 6.31% 64,466 4,197 6.51%
Mortgage loans held for resale -- -- -- -- -- -- 33,513 2,453 7.32%
Interest bearing
deposits with banks 988 33 3.34% -- -- -- 114 3 2.63%
Federal funds sold and
securities purchased
under resale agreements 12,113 700 5.78% 15,808 951 6.02% 18,175 804 4.42%
- ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest earning assets 2,784,222 230,830 8.29% 2,571,745 224,361 8.72% 2,460,554 195,959 7.96%
- ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ----
Cash and due from banks 107,362 107,551 115,279
Other assets 115,230 122,970 104,662
FASB No. 115 allowance (4,284) (5,938) (7,431)
Allowance for loan losses (31,305) (29,694) (27,556)
- ---------------------------------------------- ---------- ----------
Total $2,971,225 $2,766,634 $2,645,508
- ------------------------------------========== ========== ==========
Liabilities and Shareholders'
Equity
Interest bearing demand deposits $ 225,781 4,470 1.98% $ 225,609 4,833 2.14% $ 251,849 4,933 1.96%
Savings and money
market deposits 692,856 25,282 3.65% 678,466 25,950 3.82% 727,797 22,018 3.03%
Time deposits 1,052,659 59,450 5.65% 977,600 54,223 5.55% 821,545 35,528 4.32%
Short-term borrowings 249,610 12,370 4.96% 155,939 8,414 5.40% 169,715 6,337 3.73%
Long-term debt 5,175 348 6.72% 19,666 1,512 7.69% 23,144 1,776 7.67%
- ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest bearing liabilities 2,226,081 101,920 4.58% 2,057,280 94,932 4.61% 1,994,050 70,592 3.54%
- ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ----
Non-interest bearing deposits 410,237 401,096 398,310
Other liabilities 52,130 52,825 29,176
Shareholders' equity 282,777 255,433 223,972
- ---------------------------------------------- ---------- ----------
Total $2,971,225 $2,766,634 $2,645,508
- ------------------------------------========== ========== ==========
Net interest income $128,910 $129,429 $125,367
- -------------------------------------------------======== ======== ========
Net interest margin 4.63% 5.03% 5.10%
- -----------------------------------------------------------==== ==== ====
<FN>
<F1> Adjusted to a fully taxable basis using federal statutory rate of 35%.
<F2> Includes non-accrual loans.
</TABLE>
Average non-interest bearing deposits grew $9.1 million or 2.3% during 1996
compared to increases of 0.7% in 1995 and 7.1% in 1994. The increase in 1996
was a return to the trend of growth generated by the Company's commercial
operations, as previous years included fluctuations due to the Company's
mortgage servicing portfolio. Also the interest rate and economic environment
was partially responsible for the decreased growth rates in 1996 and 1995, as
businesses are able to maintain smaller balances in their accounts without
paying fees due to the higher earnings credit rates in effect for the
majority of 1995 and into early 1996.
Average short-term borrowings increased by $93.7 million or 60.1% in 1996,
representing the financing of securities purchased and the reduction of
long-term debt. Long-term debt decreased $11.6 million through the calling
for redemption of the Company's 8.5% debentures in the first quarter of 1996.
The Company's net interest spread declined 40 basis points from 4.11% in 1995
to 3.71% in 1996. This follows a decrease of 31 basis points in 1995. The
current year decline occurred from a decrease on the yields of earning assets
of 43 basis points with only a 3 basis point decline in rates paid on
interest-bearing liabilities. The decrease on the yields of earning assets of
43 basis points follows increases of 76 basis points and 22 basis points in 1995
and 1994, respectively. The decrease in 1996 is due in large part to the decline
in loan yields stemming from a decline in the Company's prime lending rate
charged on its variable rate loans. The Company's prime rate based loan
portfolio comprised 49.7% of the total portfolio and 36.2% of earning assets at
December 31, 1996. Amortized loan fees decreased $1.3 million from the previous
year as competitive pressure has limited the ability of the Company to charge
fees on commercial loan originations.
Annual Report 1996 3
<PAGE> 6
Management's Discussion & Analysis (continued)
<TABLE>
Table 2: Rate/Volume Analysis
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
--------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Attributable to Attributable to
Total Change in<F1> Total Change in<F1>
Increase ------------------- Increase -------------------
(in thousands of dollars) (Decrease) Volume Rate (Decrease) Volume Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $ 1,286 $10,600 $(9,314) $34,158 $14,944 $19,214
Held-to-maturity securities:
Taxable (7,127) (6,365) (762) (2,374) (1,682) (692)
Non-taxable (63) (51) (12) (768) (746) (22)
Available-for-sale securities 12,169 12,065 104 889 1,905 (1,016)
Trading account securities 422 356 66 (1,194) (1,071) (123)
Mortgage loans held for resale -- -- -- (2,453) (2,453) --
Interest bearing deposits with banks 33 33 -- (3) (3) --
Federal funds sold and securities purchased
under resale agreements (251) (215) (36) 147 (115) 262
- ------------------------------------------------------------------ ------- ------- ------- ------- -------
Total increase (decrease) in interest earned on assets 6,469 16,423 (9,954) 28,402 10,779 17,623
- ------------------------------------------------------------------ ------- ------- ------- ------- -------
Interest Expense
Interest bearing demand deposits (363) 4 (367) (100) (539) 439
Savings and money market deposits (668) 542 (1,210) 3,932 (1,573) 5,505
Time deposits 5,227 4,224 1,003 18,695 7,515 11,180
Short-term borrowings 3,956 4,691 (735) 2,077 (550) 2,627
Long-term debt (1,164) (1,164) -- (264) (267) 3
- ------------------------------------------------------------------ ------- ------- ------- ------- -------
Total increase (decrease) in interest paid on liabilities 6,988 8,297 (1,309) 24,340 4,586 19,754
- ------------------------------------------------------------------ ------- ------- ------- ------- -------
Total increase (decrease) in net interest income $ (519) $ 8,126 $(8,645) $ 4,062 $ 6,193 $(2,131)
- -----------------------------------------------------------======= ======= ======= ======= ======= =======
<FN>
<F1> For the purpose of this table, changes which are not due solely to volume
changes or rate changes are allocated to such categories based on the
respective percentage changes in average balances and average rates.
</TABLE>
This had the effect of decreasing the yield on the loan portfolio by 6 basis
points in 1996. Yields from the Company's securities portfolio declined by 17
basis points from the reinvestment of principal being made at rates
significantly below maturing rates and the yields on securities purchased in
late 1995 and early 1996 being below the rest of the portfolio.
The marginally lower rates paid on interest bearing liabilities of 3 basis
points compares with increases of 107 basis points in 1995 and 15 basis
points in 1994. The decrease represents the impact of lower short-term rates
paid on interest bearing checking and savings and money market deposit
accounts. The decrease in rates paid on these accounts was largely offset by
higher volumes and rates paid on the Company's time deposits.
Non-Interest Income
Non-interest income, excluding securities gains, increased 8.4% and totaled
$39.6 million in 1996. This followed a 3.7% increase in 1995 and an 18.3%
decrease in 1994. Non-interest income, excluding securities gains, has
increased at a five-year compound growth rate of 5.1% without adjusting for
the effects of Mortgage Division revenues.
Service charges on deposits increased $1.2 million or 17.1% in 1996. Service
charges on commercial and retail transaction accounts increased $612 thousand
and $593 thousand, respectively, as compared to 1995. The increase in service
charges on commercial transaction accounts was due to a reduction in the
earnings credit rate paid to commercial accounts in 1996 to offset the cost
of deposit services. The increase in service charges on retail accounts was
the result of increasing the charge for first presentment of items against
demand deposit accounts with insufficient balances. This increase in revenue
for 1996 followed a 4.7% decrease in 1995 and a 10.9% decrease in 1994.
Other income, as shown in Table 3, increased 6.4% or $1.9 million in 1996. This
followed a 5.9% increase in 1995 and a 20.2% decrease in 1994.
<TABLE>
Table 3: Other Income
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Division revenue $12,889 $11,903 $ 8,897
Brokerage revenue 4,799 4,215 5,174
Trust Division revenue 7,206 6,364 6,084
Mortgage Division revenue -- -- 2,178
Credit card income 955 676 764
International Division revenue 1,135 973 1,046
Net gains (losses) on foreclosed
property 785 (330) (85)
Other bank income 1,201 1,020 896
All other income 2,347 4,618 2,839
- ------------------------------------------------------------ ------- -------
Total $31,317 $29,439 $27,793
- -----------------------------------------------------======= ======= =======
</TABLE>
The Company's Bond Division gross revenues increased $986 thousand, or 8.3%,
compared to 1995. The Division's foreign exchange operation revenues
increased $1.3 million as compared to 1995 as investors continued to be
attracted to foreign fixed income markets compared to domestic fixed income
markets for value. This followed a 33.8% increase in revenues for 1995 compared
to 1994 when the foreign exchange operation grew revenues by $2.7 million.
4 Mark Twain Bancshares, Inc.
<PAGE> 7
The Brokerage operation reported a 13.9%, or $584 thousand, increase in gross
revenues for 1996. The increase in Brokerage revenues was indicative of the
general market conditions in 1996 where increases in sales volumes of equity
securities, annuities and mutual funds were experienced. In 1995, Brokerage
revenues decreased 18.5% compared to 1994, as a result of poor market conditions
and an adverse change in the product mix purchased by brokerage customers.
The Trust Division generated revenues of $7.2 million for 1996. This
represented an $842 thousand or 13.2% increase over the prior year. The
increase is attributed to growth in the market value of managed assets on
which some fees are based and fees resulting from increased sales of
proprietary mutual funds. Trust Division revenues have increased at a
five-year compound growth rate of 12.9%.
Net credit card income increased $279 thousand in 1996 compared to 1995. The
increase for 1996 was due to a $350 thousand fee received in the third
quarter from participation in a commission on the transfer of the Company's
credit card base to a new issuing bank. Excluding this item, net credit card
income decreased $71 thousand in 1996 following a $88 thousand decrease
experienced in 1995. These decreases in net revenues are primarily due to
third party expenses for processing merchant deposits increasing at a rate
greater than the fees paid by the merchants.
International Division revenues increased $162 thousand or 16.6% in 1996
compared to a decrease of $88 thousand for 1995. The changes in revenue are
due to changes in the volume of trade and standby letters of credit issued and
the related fees which are amortized into revenue over the commitment period of
the instruments.
Gains or losses on foreclosed property represent the net gain or loss on the
disposition of foreclosed assets. Additionally, losses are recorded when the
carrying values of existing foreclosed property are adjusted for declines in
market values. The Company attempts to take conservative positions by
periodically revaluing its foreclosed property. The net gains of $785
thousand for 1996 resulted from the sale of several parcels of foreclosed
property and the partial sale of another parcel. These sales are reflected in
the net $2.7 million reduction in the balance of foreclosed property during
1996.
Other bank income increased $181 thousand in 1996 over 1995 levels. This
follows an increase of $124 thousand experienced in 1995. The primary factor
leading to the growth in revenues was the increase in fees generated by use of
the Company's debit card and ATM products.
The all other income category decreased $2.3 million in 1996 compared to
1995. The primary reason for the decline of other income was a $1.4 million
decrease in the net realized and unrealized appreciation in the Company's
proprietary trading account for 1996. Net realized and unrealized
appreciation was $639 thousand for 1996 compared to $2.0 million for 1995.
During 1996, the majority of the securities held in the proprietary trading
account were sold as reflected in the balance of the account decreasing to $1.6
million at year-end 1996 compared to $21.0 million at year-end 1995. Other
factors affecting 1996 compared to 1995 were a $420 thousand decrease in the
rental income from a low-to-moderate-income housing project owned by one of the
Company's community development corporations which was sold in 1995, and a
$410 thousand gain on the sale of the aforementioned housing project recorded
in 1995. Partially offsetting these items was a $142 thousand gain recorded
on the sale of a parcel of land which was held for future expansion. The land
was owned by one of the banks acquired by the Company in 1994.
Non-Interest Expense
Total operating expenses decreased $4.7 million or 5.4% during 1996, compared
to a $3.8 million or 4.2% decrease in 1995 and a $5.4 million or 5.6%
decrease in 1994. In 1996, the variance was primarily attributed to the
Company's FDIC insurance premiums which decreased $2.6 million and a
$2.0 million decrease in charitable contribution expense due to a $2.1
million non-recurring charitable contribution of foreclosed property in 1995.
Looking at the past three years, the largest component of the reduction in
operating expenses was the decision to exit mortgage as a line of business in
1994. This decision, coupled with reduced volumes in early 1994, resulted in
approximately a $2.0 million decrease in operating expenses in 1995 and
approximately a $6.7 million reduction in operating expenses in 1994.
The Company's efficiency ratio, determined by dividing total operating
expenses by total tax-equivalent revenue excluding securities transactions,
was 48.56% in 1996, and reflected continued improvement over the 52.15% in
1995 (50.90% excluding the 1995 non-recurring item) and the 56.23% in 1994.
Total salaries and employee benefits increased $2.2 million or 4.6% for 1996
compared to decreases of $120 thousand or 0.3% during 1995 and $922 thousand
or 1.9% during 1994. Salary expense increased $1.3 million or 4.3% for 1996,
compared to decreases of $2.2 million or 6.9% for 1995 and 1.2% for 1994. The
number of full-time equivalent employees at December 31, 1996 was 1,091,
compared to 989 and 1,014 the previous two years. The average number of
full-time equivalent employees was 1,018 for 1996, 998 for 1995 and 1,066 for
1994. The increase for 1996 is attributed to the staff of acquired banks. The
decrease in the number of full-time equivalent employees for 1995 relates
primarily to the reduction in support staff in the Company's Mortgage
Division during 1994.
Bonuses increased $60 thousand or 2.2% for 1996 and $506 thousand or 22.6% for
1995, compared to a decrease of $151 thousand or 7.2% for 1994. The Company paid
a one-time bonus to all employees not already participating in a commission or
incentive-based program which accounted for approximately 50% of the increase in
1995. Excluding this
Annual Report 1996 5
<PAGE> 8
Management's Discussion & Analysis (continued)
item, incentive based bonuses increased approximately 12% in 1996 compared to
1995 due to a combination of normal salary increases, increased pay-out
percentages and the addition of personnel to the program. The Company continues
to emphasize incentive compensation based on achieving annual profitability
goals. The incentive compensation arrangements are reviewed annually by the
Compensation Committee of the Company's Board of Directors.
Commissions, which are directly related to the level of sales revenues
reported by the Company's fee divisions previously discussed, increased $608
thousand or 7.7% during 1996 compared to a 27.2% or $1.7 million increase for
1995. For 1994, commissions paid decreased $627 thousand or 9.2%.
Benefit expenses increased $209 thousand during 1996 compared to decreases of
$69 thousand and $55 thousand during 1995 and 1994, respectively. Employee
retirement expense increases of $158 thousand for 1996, $161 thousand for
1995 and $329 thousand for 1994 were associated with changes in actuarial
assumptions and higher wages. Employee insurance expense decreased $177
thousand following relatively level expenses for 1995 and 1994. The remaining
changes in benefit expense are directly related to the levels of compensation
expense discussed earlier. A summary of personnel costs is provided in Table 4.
<TABLE>
Table 4: Personnel Costs
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salary expense $31,705 $30,407 $32,645
Bonuses 2,809 2,749 2,243
Commissions 8,463 7,855 6,174
Employee benefits 6,729 6,520 6,589
- ------------------------------------------------------------ ------- -------
Total $49,706 $47,531 $47,651
- -----------------------------------------------------======= ======= =======
</TABLE>
Occupancy and furniture and equipment costs decreased $730 thousand or 5.5%
during 1996 and $648 thousand or 4.7% during 1995 compared to an increase of
3.6% in 1994. In June 1995, the Company sold a low-to-moderate income housing
project which it owned and operated. This resulted in reductions of expense
associated with the property of $373 thousand and $522 thousand for 1996 and
1995, respectively. Computer hardware which became fully depreciated in the
second quarter of 1995, coupled with a general decline in depreciation
expense, also contributed to the 1996 decrease. The expiration of a computer
equipment lease and subsequent equipment acquisition in late 1994 also
contributed to the decrease in 1995. Expenses for 1994 reflected increases in
real estate rental rates and equipment rental expenses associated with system
conversions.
Other expenses decreased $6.2 million or 23.9% during 1996, following
decreases of $3.0 million or 10.4% for 1995 and $4.9 million or 14.6% in
1994. Table 5 shows the major components of other expenses.
<TABLE>
Table 5: Other Expenses
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FDIC premiums $ 6 $ 2,558 $ 4,833
Charitable contributions 1,062 3,057 713
Data processing 4,776 4,461 4,764
Legal fees 643 1,003 1,287
Loan and collection 515 525 876
Marketing and advertising 1,246 1,665 1,928
Amortization 927 900 1,501
Postage and freight 1,519 1,474 1,482
Telecommunication 1,470 1,327 1,295
Insurance expense 512 850 1,132
Expenses on foreclosed property 217 426 616
Conventions and meetings 443 502 554
Stationery and supplies 588 710 756
Distribution expenses 641 681 666
Consulting services 252 744 605
Taxes other than income 423 525 430
Operating losses 548 629 1,063
All other expenses 3,826 3,732 4,260
- ------------------------------------------------------------ ------- -------
Total $19,614 $25,769 $28,761
- -----------------------------------------------------======= ======= =======
</TABLE>
FDIC insurance premiums decreased $2.6 million in 1996 compared to $2.3
million in 1995. In 1996, the premium charged to the Company's bank
subsidiaries was reduced to $2 thousand per charter per year. The Company did
not hold any deposits which were subject to the one-time SAIF assessment
charged in the third quarter of 1996. Effective June 1, 1995, the FDIC Board
of Directors voted to reduce deposit insurance premiums to $.04 from $.23 per
$100 of assessable deposits. The decrease of $49 thousand in 1994 resulted
from an increase in premiums due to increased deposit levels offset by a
decrease in the premium rate charged by the FDIC under its tiered premium
schedule.
Charitable contributions decreased $2.0 million in 1996 compared to a $2.3
million increase for 1995. The expense for 1995 includes $2.1 million related
to the donation of a parcel of foreclosed property as discussed earlier.
Excluding this non-recurring item, charitable contribution expense increased
$105 thousand in 1996, increased $244 thousand in 1995 and remained level in
1994.
Marketing and advertising expense decreased $419 thousand in 1996 following a
decrease of $263 thousand in 1995 and a $37 thousand increase in 1994.
Approximately 50% of the current year decrease was due to the Company
bringing in-house work previously performed by a third-party advertising
agency. The remainder in the decrease for 1996 and 1995 was due to the
curtailment of television advertising during 1995.
Amortization expense increased $27 thousand in 1996 following decreases of
$601 thousand during 1995 and $3.3 million during 1994. The reduction of 1995
expense is a result of curtailing mortgage operations as a line of business
in 1994. In 1994, proceeds received from the sale of the Company's mortgage
servicing portfolio approximated the remaining carrying value of purchased
mortgage servicing rights and excess servicing fees. This resulted in the
reduction of amortization expense in 1994.
6 Mark Twain Bancshares, Inc.
<PAGE> 9
Loan and collection expense for the year remained level following decreases
of $351 thousand and $1.6 million during 1995 and 1994, respectively. The
reduction in 1995 and 1994 expense was a result of the decision to exit
mortgage as a line of business. The decrease in 1994 was also attributable to
the loan servicing and loan origination volumes in the Company's Mortgage
Division. These expenses included such items as appraisal fees paid by the
Company for mortgage loan applications and curtailment payments associated
with prepayments of mortgage-backed securities serviced by the Company.
Data processing expenses increased $315 thousand in 1996 compared to 1995.
Data processing expenses decreased $303 thousand in 1995. In late 1995, a $355
thousand reduction of data processing expense was recorded related to a
settlement of a contract dispute with a systems vendor which essentially
reimbursed the Company for the difference between the contract rates and actual
expenses paid by the Company due to nonperformance under the contract. Excluding
the effect of the settlement, 1996 expense decreased $40 thousand compared to
1995 expense which had increased $52 thousand related to accrued conversion
costs. The increases in data processing expense of $685 thousand in 1994 was
primarily due to conversion costs and increased transactions volume resulting
from acquisitions.
Legal fees continued to decline, showing decreases of $360 thousand in 1996,
$284 thousand in 1995 and $866 thousand in 1994. Costs for 1994 included legal
fees incurred with respect to the U.S. Treasury Department settlement noted
below. In addition, the resolution of three specific lawsuits in 1993 accounted
for the reduction of legal expense in 1994 compared to 1993. The Company
believes that pending litigation will not result in any material losses.
Insurance expense decreased $338 thousand during 1996 compared to decreases
of $282 thousand in 1995 and $206 thousand in 1994. A change in insurance
carriers and renegotiated insurance contract terms in 1995 resulted in reduced
premiums. Increases in the cash surrender value of life insurance policies
offsetting the premium expense also contributed to the reduction in expense in
1996, 1995 and 1994. The Company purchased these life insurance policies
(Company as beneficiary) to partially finance benefits under the Company's
non-qualified non-contributory pension plan.
Consulting services decreased $492 thousand for 1996, following an increase
of $139 thousand in 1995. The decrease for 1996 was primarily due to
consulting engagements performed in 1995 targeted at increasing bank service
charge and other fee-based income. Similar engagements were not performed in
1996.
Expenses on foreclosed property decreased $209 thousand, $190 thousand and
$370 thousand in 1996, 1995 and 1994, respectively, and was related to the
reduction in the levels of foreclosed property over the past few years.
Foreclosed property was $3.4 million at year-end 1996 compared to $6.1
million at year-end 1995 and $10.5 million at year-end 1994.
Operating losses decreased $81 thousand in 1996 and $434 thousand in 1995, and
increased $788 thousand in 1994. For 1996 and 1995, there were no individually
significant items. Operating losses for 1994 included a $750 thousand settlement
agreement reached with the U.S. Treasury Department regarding compliance by a
subsidiary with record keeping and reporting requirements under the Currency and
Foreign Transactions Reporting Act.
Balance Sheet Analysis
- --------------------------------------------------------------------------------
Securities Portfolio
The Company's securities portfolio consists of securities classified as
held-to-maturity, available-for-sale and trading account securities. The
Company designates these securities upon purchase into one of these three
categories. As of December 31, 1996, held-to-maturity securities amounted
to $218.5 million and represent the securities the Company intends to hold to
maturity. Securities designated as available-for-sale totaled $458.2 million.
This account represents securities which the Company may sell to meet liquidity
needs or in response to significant changes in interest rates or prepayment
risks. Trading account securities totaled $30.8 million at December 31, 1996.
This account represents securities involved in the normal operations of the
Company's brokerage and bond businesses and approximately $1.6 million in the
Company's proprietary trading account.
For the purposes of the following discussion, the held-to-maturity and
available-for-sale portfolios will be described in the aggregate as the
securities portfolio. At December 31, 1996 the securities portfolio totaled
$676.6 million, a decrease of $13.3 million, or 1.9% from year-end 1995.
Excluding the $38.8 million security portfolios of banks acquired during the
year, the securities portfolio decreased $52.1 million or 7.7% from year-end
1995 levels. On average the securities portfolio increased $94.9 million or
16.0% compared to a decrease in 1995 of 0.6%. Securities represented, on
average, 24.7%, 23.0% and 24.2% of earning assets in 1996, 1995 and 1994,
respectively. The increase in average 1996 levels compared to average 1995
levels was due to the Company's decision to reduce its exposure to falling
interest rates by purchasing additional fixed rate securities beginning in the
fourth quarter of 1995 and first quarter of 1996. This follows the average
decrease in 1995 due in part to the Company's decision early in the year to fund
loan growth with maturing securities.
The Company continues to have a large percentage of its securities portfolio
in mortgage-backed securities. Mortgage-backed securities, including
Collateralized Mortgage Obligations (CMOs), totaled $472 million or 69.8% of
the securities portfolio at December 31, 1996. These securities are either
obligations of Government Standard Equivalent Agencies or otherwise carry
triple A ratings. Mortgage-backed securities offer the Company enhanced
yields for accepting prepayment risk associated with the underlying mortgages.
Annual Report 1996 7
<PAGE> 10
Management's Discussion & Analysis (continued)
<TABLE>
Table 6: Maturity Distribution at December 31, 1996<F1><F2>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
--------------- ----------------- ---------------- ---------------
(in thousands of dollars) Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasuries and agencies $ 58,933 6.40% $122,526 6.12% $ 5,052 5.49% $ -- --
Obligations of states and political subdivisions 279 7.68% 3,013 8.05% 1,644 8.17% 1,093 9.13%
Mortgage-backed securities 55,246 6.80% 276,397 6.23% 85,398 6.39% 52,343 6.13%
Other securities 8,607 6.19% 1,078 7.27% 1,094 7.16% 3,940 7.13%
- --------------------------------------------------------------- -------- ------- -------
Total $123,065 $403,014 $93,188 $57,376
- -------------------------------------------------------======== ======== ======= =======
<FN>
<F1> The carrying value of the securities portfolio at December 31, 1996, by
expected maturity, are shown above. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<F2> Weighted average yields on tax-exempt obligations have been computed on a
fully tax equivalent basis using a tax rate of 35%, and mortgage-backed
securities have been presented based on the expected final maturity dates,
rather than contractual maturity dates.
</TABLE>
The Company manages the prepayment risk by having 65.1% of the mortgage-backed
securities in CMOs, such as Planned Amortization Class tranches, which
can limit the prepayment risk of the portfolio. The Company utilizes
analytical systems to monitor the prepayment risk of the portfolio and
estimate principal prepayments. Table 7 summarizes the composition of the
Company's securities portfolio. The maturity distribution for the securities
portfolio, together with the weighted average yields for each maturity range
is provided in Table 6.
<TABLE>
Table 7: Held-to-Maturity and Available-for-Sale Securities
<CAPTION>
December 31,
----------------------------------------------------
(in millions of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Treasuries and agencies $187 $164 $125
Obligations of states and
political subdivisions 6 5 12
Mortgage-backed securities 469 513 437
Other securities 15 8 8
- ------------------------------------------------------------ ---- ----
Total $677 $690 $582
- --------------------------------------------------------==== ==== ====
</TABLE>
Loan Portfolio
The loan portfolio totaled $2,177.9 million at December 31, 1996, an increase
of $206.0 million or 10.4% from December 31, 1995. This follows an increase
of 6.0% in 1995 and 8.4% in 1994. The loan portfolios of banks acquired
during 1996 totaled $93.3 million as of the respective acquisition dates.
Average total loan outstandings for 1996 were $2,031.2 million, a 6.0% increase
over 1995 average outstandings. Loan outstandings have grown at a five-year
compound annual growth rate of 4.8% based on average outstandings and 6.7% based
on year-end outstandings. Refer to Table 8 for an expanded categorization of the
loan portfolio to provide a greater understanding of the Company's loan
portfolio.
Commercial and industrial loans increased $88.3 million or 10.2% for the year
and represented 44% of the total loan portfolio. Of the increase for 1996,
approximately $41.3 million represented the commercial and industrial loan
portfolios of the banks acquired during the year. Excluding these loans, the
commercial and industrial loan portfolio increased 5.4% for the year,
following a 3.1% increase in 1995. The growth rate over the last two years
reflects the effects of increased competition for middle-market commercial
loans. Both components of the commercial and industrial loan classification
involve a diverse mix of middle-market borrowers and owner/operators in the
manufacturing, wholesaling, retail, and service industries, with no
concentration in any one segment. Real estate is often a material component
of collateral on the commercial and industrial loans even though operating
cash flows are unrelated to the real estate. This real estate provides the
Company with additional collateral protection. Essentially all of the loans
were generated within the Company's primary market areas. The Company has no
highly leveraged transactions or foreign credits, and has an insignificant
amount of participations purchased.
Real estate construction loans have increased $73.0 million or 26.7% from the
previous year. This follows an increase of $42.2 million in 1995. Banks acquired
in 1996 accounted for $11.8 million of the current year increase. This growth
can be attributed to the continued economic growth in the Company's primary
markets. Commercial construction loans increased $51.0 million while residential
construction and development loans increased $22.0 million. Commercial
construction loans now comprises 40.3% of the total real estate construction
loan category as compared to 32.4% in 1995 and 25.0% in 1994. The growth is
reflected by a diversified number of construction projects, with no
concentration in any large individual commercial construction and development
projects. Residential construction loans still remain an important part of the
construction portfolio. Both commercial and residential construction loans cover
a diverse number of builders and developers within the Company's primary market
areas. The majority of residential construction loans are origi-nated after the
builder has received a signed purchase contract. The majority of commercial
construction loans are originated once minimum pre-leasing levels are
achieved. The majority of commercial development loans are originated based
on the equity position of the developer in the project. The Company monitors
construction disbursements and controls the number of display and inventory
homes by builder and location.
Real estate mortgage loans represent 33% of the total loan portfolio and are
split 72% commercial and 28% residential. The commercial mortgage loan category
has increased $18.5 million or 3.6% from year-end 1995. The residential mortgage
loan category has increased $23.0 million or 13.0% during the same period. The
growth in real estate mortgage loans is also a byproduct of the continued
economic expansion in the Company's primary markets. The increase in
commercial mortgage loans, similar to the increase in construction
8 Mark Twain Bancshares, Inc.
<PAGE> 11
<TABLE>
Table 8: Summary of Loan Portfolio
<CAPTION>
December 31,
----------------------------------------------------------
(in thousands of dollars) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial:
Commercial and industrial $ 796,637 $ 745,193 $ 724,491 $ 694,590 $ 520,810
Commercial and industrial secured by real estate 159,518 122,706 117,007 81,773 115,316
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total commercial and industrial 956,155 867,899 841,498 776,363 636,126
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Real estate construction:
Residential construction and development 206,676 184,621 173,325 164,435 144,938
Commercial office 30,588 21,841 8,155 14,746 5,194
Commercial warehouse 22,233 10,989 9,359 6,060 6,960
Commercial retail centers 32,623 28,812 20,944 7,417 13,603
Commercial land and development 54,101 26,934 19,167 7,951 6,203
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total real estate construction 346,221 273,197 230,950 200,609 176,898
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Real estate mortgage:
Residential 200,273 177,285 172,613 134,665 153,721
Commercial office 134,728 126,473 114,012 113,343 107,346
Commercial warehouse 93,869 96,712 92,113 79,134 71,762
Commercial retail centers 60,290 60,747 58,559 62,093 56,941
Other commercial 235,898 222,376 200,795 189,447 163,642
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total real estate mortgage 725,058 683,593 638,092 578,682 553,412
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Consumer 150,481 147,250 149,615 160,740 174,647
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total loans 2,177,915 1,971,939 1,860,155 1,716,394 1,541,083
Less allowance for loan losses 33,745 30,508 28,894 27,012 25,356
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Net loans $2,144,170 $1,941,431 $1,831,261 $1,689,382 $1,515,727
- --------------------------------------------------------------------========== ========== ========== ========== ==========
</TABLE>
<TABLE>
Table 9: Maturity Distribution
<CAPTION>
Over One Year
Through Five Years Over Five Years
------------------- -----------------
One Year Fixed Floating Fixed Floating
(in thousands of dollars) Or Less Rate Rate Rate Rate Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $502,643 $169,459 $244,211 $24,030 $15,812 $956,155
Real estate construction 209,224 82,170 49,472 4,767 588 346,221
Real estate mortgage 218,061 266,261 114,110 95,715 30,911 725,058
</TABLE>
loans, is represented by a broad base of properties which meet the Company's
underwriting standards for equity, sponsorship, and cash flows. The increase
in residential mortgage loans was primarily the result of the acquisitions
completed during 1996.
Consumer loans increased $3.2 million at year-end 1996 compared to year-end
1995 levels. Excluding the effects of the consumer loan portfolios of the
banks acquired in 1996, the consumer loan portfolio decreased $7.0 million
during 1996. This compares to a decrease of $2.4 million experienced in 1995.
Declines in the traditional installment loan category were primarily
responsible for the change. Prime Equity Accounts, which represent lines of
credit secured by the borrower's primary residence, decreased modestly and
represent approximately 75% of the consumer loan portfolio.
The amount of certain loans outstanding as of December 31, 1996, is shown in
Table 9 based on time remaining to maturity. Demand loans are reported in the
one-year-or-less category. All other loans are reported at contractual
maturities. See "Liquidity" and "Interest Rate Sensitivity" for further
discussion.
Allowance for Loan Losses
In 1996, the allowance for loan losses increased $3.2 million, $2.4 million
from banks acquired and represented 1.55% of loans at year-end. The provision
for loan losses was $2.0 million for 1996, a reduction of $3.0 million from
the prior year.
Net charge-offs for the year were $1.2 million, a decrease of $2.2 million
from 1995. The ratio of net charge-offs to average loans was 0.06% for 1996
which compares favorably with 0.18% for 1995 and 0.21% for 1994.
The level and allocation of the allowance for loan losses is based upon
qualitative and quantitative factors. Qualitative factors include assessments
of current economic conditions, particularly as those conditions affect
segments of the Company's primary markets. Quantitative factors include the
level and composition of non-performing assets, recent and expected net
charge-offs, and a detailed review by the Company's loan review staff. The
results of the quarterly internal loan reviews are the primary basis upon
which the adequacy of the reserve is determined.
Annual Report 1996 9
<PAGE> 12
Management's Discussion & Analysis (continued)
<TABLE>
Table 10: Summary of Loan Loss Experience
<CAPTION>
(in thousands of dollars) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans at year-end $2,177,915 $1,971,939 $1,860,155 $1,716,394 $1,541,083
- --------------------------------------------------------------------========== ========== ========== ========== ==========
Average loan outstandings $2,031,127 $1,916,374 $1,748,639 $1,626,068 $1,563,903
- --------------------------------------------------------------------========== ========== ========== ========== ==========
Allowance at beginning of year $ 30,508 $ 28,894 $ 27,012 $ 25,356 $ 24,096
Allowance of acquired banks 2,424 -- -- 1,091 --
Loans charged off:
Commercial and industrial 1,628 1,959 3,601 3,834 4,516
Commercial and industrial secured by real estate -- 51 123 192 2,641
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total commercial and industrial 1,628 2,010 3,724 4,026 7,157
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Commercial real estate construction -- -- -- 278 253
Residential real estate construction 16 217 117 78 213
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total real estate construction 16 217 117 356 466
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Commercial real estate mortgage 216 1,027 238 2,067 136
Residential real estate mortgage 209 528 353 257 217
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total real estate mortgage 425 1,555 591 2,324 353
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Consumer 351 560 336 671 695
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total loans charged off 2,420 4,342 4,768 7,377 8,671
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Recoveries:
Commercial and industrial 889 281 743 369 722
Commercial and industrial secured by real estate 3 -- 8 467 142
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total commercial and industrial 892 281 751 836 864
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Commercial real estate construction -- -- 3 114 30
Residential real estate construction 67 16 47 55 74
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total real estate construction 67 16 50 169 104
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Commercial real estate mortgage 90 261 71 305 39
Residential real estate mortgage 98 306 172 13 52
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total real estate mortgage 188 567 243 318 91
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Consumer 84 89 80 337 185
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Total recoveries 1,231 953 1,124 1,660 1,244
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Net loans charged off 1,189 3,389 3,644 5,717 7,427
Additions to allowance charged to expense 2,002 5,003 5,526 6,282 8,687
- ------------------------------------------------------------------------------ ---------- ---------- ---------- ----------
Allowance at end of year $ 33,745 $ 30,508 $ 28,894 $ 27,012 $ 25,356
- --------------------------------------------------------------------========== ========== ========== ========== ==========
Net charge-offs to average loans 0.06% 0.18% 0.21% 0.35% 0.47%
Allowance to year-end loans 1.55% 1.55% 1.55% 1.57% 1.65%
Earnings coverage of net charge-offs 70.41x 21.69x 17.48x 9.41x 5.71x
</TABLE>
<TABLE>
Table 11: Allocation of the Allowance for Loan Losses at December 31
<CAPTION>
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
(in thousands of dollars) Allowance % Allowance % Allowance % Allowance % Allowance %
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $11,045 44% $10,934 44% $10,355 45% $ 9,681 45% $ 8,723 42%
Real estate construction 6,003 16% 3,156 14% 2,989 13% 2,795 12% 2,708 11%
Real estate mortgage 12,679 33% 12,897 35% 12,215 34% 11,419 34% 11,041 36%
- ------------------------------------------ --- ------- --- ------- --- ------- --- ------- ---
Total real estate loans 18,682 49% 16,053 49% 15,204 47% 14,214 46% 13,749 47%
- ------------------------------------------ --- ------- --- ------- --- ------- --- ------- ---
Consumer loans 938 7% 918 7% 870 8% 814 9% 906 11%
Not allocated 3,080 -- 2,603 -- 2,465 -- 2,303 -- 1,978 --
- ------------------------------------------ --- ------- --- ------- --- ------- --- ------- ---
Total $33,745 100% $30,508 100% $28,894 100% $27,012 100% $25,356 100%
- -----------------------------------======= === ======= === ======= === ======= === ======= ===
</TABLE>
10 Mark Twain Bancshares, Inc.
<PAGE> 13
<TABLE>
Table 12: Risk Elements
<CAPTION>
December 31,
-------------------------------------------------------
(in thousands of dollars) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 7,086 $13,663 $ 6,813 $ 9,079 $15,161
Restructured loans 2,244 109 484 484 --
Foreclosed property 3,424 6,099 10,523 11,230 12,167
- ------------------------------------------------------------------------------ ------- ------- ------- -------
Total non-performing assets $12,754 $19,871 $17,820 $20,793 $27,328
- -----------------------------------------------------------------------======= ======= ======= ======= =======
Percentage of non-performing assets to loans plus foreclosed property 0.58% 1.00% 0.95% 1.20% 1.76%
Loans contractually past due 90 days or more $ 321 $ 530 $ 1,132 $ 251 $ 791
Percentage of non-performing assets plus 90 days
past due to loans plus foreclosed property 0.60% 1.03% 1.01% 1.22% 1.81%
Percentage of allowance for loan losses to non-performing loans 349.65% 213.31% 342.79% 275.24% 158.95%
Percentage of allowance for loan losses to total non-performing assets 264.58% 153.53% 162.14% 129.91% 92.78%
Percentage of allowance for loan losses to risk elements<F*> 258.09% 149.54% 152.46% 128.36% 90.17%
Percentage of risk elements<F*> to total average assets 0.44% 0.74% 0.72% 0.85% 1.20%
<FN>
<F*>Risk elements include total non-performing assets plus loans contractually
past due 90 days or more.
</TABLE>
Table 11 summarizes the allocation of the allowance for loan losses by major
category and identifies the percentage of each loan category to the total
loan portfolio balance. This reserve allocation follows very closely the loan
portfolio risk classifications assigned by individual loan officers which are
reviewed by internal loan review. In addition, prior loss experience,
anticipated volume levels, and management's evaluation of the effect of
general economic conditions are factored into the allocation. As each of
these criteria are subject to change, the allocation of the allowance for
loan losses is not necessarily indicative of the trend of future losses in a
particular loan category.
Risk Elements
Non-performing assets totaled $12.8 million at December 31, 1996, a decrease
of $7.1 million over December 31, 1995. Excluding the effects of banks
acquired during 1996, non-performing assets decreased $8.9 million during
1996. The decrease in non-accrual loans is primarily through payments
received related to the $5.5 million relationship put on non-accrual status
during the fourth quarter of 1995. The increase in restructured loans from
year-end 1995 reflects the restructuring of one relationship during 1996
which was identified by management as a potential problem credit as of
December 31, 1995. The decrease in foreclosed property is due to sales of
numerous parcels of property during 1996. As a percentage of loans plus
foreclosed property, non-performing assets were 0.58% at December 31, 1996
compared to 1.00% at year-end 1995 and 0.95% at year-end 1994.
Non-performing assets plus loans past due 90 days or more totaled $13.1
million and represent 0.60% of loans plus foreclosed property at December 31,
1996, a 43 basis point reduction over year-end 1995 levels, and represented the
lowest level experienced in the previous five years.
The allowance for loan losses covers 349.65% of non-performing loans at
December 31, 1996 up from 213.31% at December 31, 1995.
Table 13 illustrates the changes in the Company's non-performing assets while
Table 12 summarizes the composition of the Company's risk elements.
Loans not included in the past due, non-accrual or restructured categories,
but where known information about possible credit problems causes management
to be uncertain as to the ability of the borrowers to comply with the present
loan repayment terms over the next six months totaled approximately $21.9
million at December 31, 1996. Principal and interest payments on these loans
were current at December 31, 1996.
The Company is continually analyzing its loan portfolio in order to identify
early risk elements that require management attention. The loan portfolio is
subject to review by lending management, the Company's internal loan review
staff and various regulatory agencies. The Company believes that its
consistently low levels of risk elements are a reflection of both the
Company's strict underwriting discipline and its practice of early problem
recognition and resolution.
<TABLE>
Table 13: Changes in Non-performing Assets
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $19,871 $17,820 $20,793
Balance from acquired banks 1,742 -- --
Additions 9,775 23,457 15,919
Payments received and loans
returned to accrual status (12,912) (9,941) (11,904)
Disposals of foreclosed property (3,972) (7,218) (2,977)
Charge-offs and writedowns (1,750) (4,247) (4,011)
- ------------------------------------------------------------ ------- -------
Balance at end of year $12,754 $19,871 $17,820
- -----------------------------------------------------======= ======= =======
</TABLE>
Deposits
Average deposits, as shown in Table 14, increased 4.3% in 1996. Average time
deposits less than $100 thousand increased $85.9 million or 11.1% for 1996.
This follows an increase of 15.6% in this category in 1995. Average time
deposits $100 thousand or greater decreased $10.9 million or 5.3% in 1996 after
an increase of $51.7 million or 33.6% in 1995. All other deposit accounts, on
average, showed modest growth during 1996. As noted earlier, the composition of
average interest bearing liabilities continued to shift to time deposits from
interest bearing checking and savings and money market accounts. This shift
represents the Company's efforts to gather marginal funds at the lowest
cost, given the interest rate environment and customer preferences.
Annual Report 1996 11
<PAGE> 14
Management's Discussion & Analysis (continued)
<TABLE>
Table 14: Deposit Composition
<CAPTION>
December 31,
----------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-interest bearing demand deposits $ 410,237 $ 401,096 $ 398,310
Interest bearing demand deposits 225,781 225,609 251,849
Savings and money market deposits 692,856 678,466 727,797
Time deposits (less than $100 thousand) 857,938 771,989 667,605
Time deposits ($100 thousand or greater) 194,721 205,611 153,940
- ------------------------------------------------------------------------------ ---------- ----------
Total average deposits $2,381,533 $2,282,771 $2,199,501
- --------------------------------------------------------------------========== ========== ==========
Non-interest bearing demand deposits $ 498,431 $ 519,155 $ 461,958
Interest bearing demand deposits 232,091 234,686 240,290
Savings and money market deposits 726,573 664,155 700,258
Time deposits (less than $100 thousand) 927,383 840,948 718,955
Time deposits ($100 thousand or greater) 210,434 198,448 150,596
- ------------------------------------------------------------------------------ ---------- ----------
Total deposits $2,594,912 $2,457,392 $2,272,057
- --------------------------------------------------------------------========== ========== ==========
</TABLE>
Table 15 sets forth, by time remaining to maturity, time deposits in amounts
of $100 thousand or greater as of December 31, 1996.
<TABLE>
Table 15: Time Deposits $100 Thousand or Greater
<CAPTION>
(in thousands of dollars)
- ------------------------------------------------------------
<S> <C>
Less than three months $ 91,810
Three to six months 61,895
More than six months to twelve months 37,200
More than twelve months 19,529
- ------------------------------------------------------------
Total $210,434
- ----------------------------------------------------========
</TABLE>
Short-term Borrowings
Table 16 summarizes the composition of the Company's short-term borrowings,
while Table 17 provides selected data related to federal funds purchased and
securities sold under repurchase agreements. As discussed earlier, the
increase in short-term borrowings during 1996 represents the financing of
investment securities purchased during the year and the reduction of
long-term debt. See "Interest Rate Sensitivity" and "Liquidity" for further
discussion of the use of short-term borrowings by the Company.
<TABLE>
Table 16: Summary of Short Term Borrowings
<CAPTION>
December 31,
--------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $ 30,000 $ 55,000 $ --
Securities sold under agreements
to repurchase 155,751 108,964 93,174
Treasury tax and loan,
note option accounts 7,490 1,767 2,317
Commercial paper -- -- 9,455
Other short term borrowings 350 -- 43,172
- -------------------------------------------------------- -------- --------
Total $193,591 $165,731 $148,118
- ------------------------------------------------======== ======== ========
</TABLE>
<TABLE>
Table 17: Selected Data for Federal Funds Purchased and
Securities Sold Under Repurchase Agreements
<CAPTION>
December 31,
--------------------------------------------------------
(in thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding at year-end $185,751 $163,964 $ 93,174
Weighted average interest rate
at year-end 4.70% 5.13% 4.84%
Average balances outstanding
for the year $238,769 $137,771 $ 2,317
Average interest rate for the year 4.92% 5.31% 3.63%
Maximum amount outstanding at
any month-end during the year $326,903 $191,271 $235,867
</TABLE>
<TABLE>
Table 18: Maturities of Off-Balance Sheet Investment Products
<CAPTION>
Total
Notional Unrealized
(in thousands of dollars) 1997 1998 1999 2000 2001+ Value Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed generic interest rate swaps (Prime Rate)
Notional value $ -- $50,000 $ -- $85,000 $ -- $135,000 $(1,359)
Weighted average receive rate -- 8.82% -- 8.17% -- 8.41%
Purchased interest rate floors (Prime Rate):
Notional value $75,000<F1> $40,000 $ -- $ -- $ -- $115,000 $ 128
Weighted average receive rate 9.00% 8.50% -- -- -- 8.83%
<FN>
<F1> The maximum rate received on the $75 million floor is 1.00%
</TABLE>
12 Mark Twain Bancshares, Inc.
<PAGE> 15
<TABLE>
<CAPTION>
Table 19: Rate Sensitivity at December 31, 1996 0-1 2-12 13-24 25-36 Over 36
(in thousands of dollars) Months Months Months Months Months Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans $1,268,722 $ 246,127 $ 150,279 $174,985 $337,802 $2,177,915
Federal funds sold and securities
purchased under resale agreements 23,500 -- -- -- -- 23,500
Held-to-maturity securities 2,938 30,811 54,536 25,386 104,808 218,479
Available-for-sale securities 15,876 59,002 98,160 97,002 188,124 458,164
Trading account securities 30,772 -- -- -- -- 30,772
Interest bearing due from banks 4,387 -- -- -- -- 4,387
Interest rate swaps and interest rate floors (160,000) (15,000) 90,000 -- 85,000 --
- ----------------------------------------------------------------- --------- --------- -------- -------- ----------
Total earning assets $1,186,195 $ 320,940 $ 392,975 $297,373 $715,734 $2,913,217
- -------------------------------------------------------========== ========= ========= ======== ======== ==========
Interest Bearing Liabilities
Interest bearing demand deposits $ 121,420 $ -- $ 18,446 $ 18,446 $ 73,779 $ 232,091
Savings and money market deposits 680,092 -- 7,747 7,747 30,987 726,573
Time deposits 100,903 777,780 144,414 64,225 50,495 1,137,817
Short-term borrowings 193,591 -- -- -- -- 193,591
Long-term debt -- -- -- -- 2,036 2,036
- ----------------------------------------------------------------- --------- --------- -------- -------- ----------
Total interest bearing liabilities $1,096,006 $ 777,780 $ 170,607 $ 90,418 $157,297 $2,292,108
- -------------------------------------------------------========== ========= ========= ======== ======== ==========
Monthly Gap $ 90,189 $(456,840) $ 222,368 $206,955 $558,437
- -------------------------------------------------------========== ========= ========= ======== ========
Cumulative Gap $ 90,189 $(366,651) $(144,283) $ 62,672 $621,109
- -------------------------------------------------------========== ========= ========= ======== ========
</TABLE>
Interest Rate Derivatives
During 1995 and 1996, the Company engaged in a limited number of interest
rate derivative transactions to reduce the Company's sensitivity to falling
interest rates. There were no such transactions prior to 1995. The Company
has established policies and procedures to manage the risks associated with
these financial instruments. Such transactions are directly approved by the
Company's Asset/Liability Committee. Only those products which qualify under
current accounting rules for hedge accounting treatment are allowed by policy.
Management believes that interest rate derivatives are a critical tool in
managing the Company's net interest income and net income through periods of
sudden changes in interest rates.
Table 18 summarizes the Company's interest rate derivative transactions as of
December 31, 1996. The Company has transacted two types of interest rate
derivatives - interest rate floors and interest rate swaps. Interest rate
floors are transactions whereby the Company pays another party an upfront
premium to receive the difference of a fixed rate less the reference rate, with
no further obligation from the Company. Premiums paid and amounts due from the
floors are accrued over the term of the floor. Interest rate swaps are
transactions whereby the Company swaps its floating rate assets to a fixed rate.
Amounts due from or to the Company are accrued during the term of swap. All of
the Company's current interest rate derivatives reduce the sensitivity of the
Company's earnings from decreases in the prime rate.
Interest Rate Sensitivity
The Company's Asset/Liability Committee monitors the interest rate
sensitivity of the balance sheet on a monthly basis. The committee reviews
asset and liability repricing in the context of current and possible interest
rate scenarios and the economic climate, both nationally and in the Company's
market areas. The Company manages net interest income on a continuous
12-month cycle through various interest rate scenarios and simulations. The
objective of the committee is to minimize the earnings sensitivity to changes
in interest rates while maintaining a net interest margin in keeping with
company objectives.
Table 19 represents a point in time analysis of the Company's interest rate
sensitivity using known repricing of loans and deposits and estimated
prepayments from mortgage-backed securities. The estimates on mortgage-backed
security prepayments are based on management's experience of how these bonds
will perform over their expected lives. These estimates are believed to be
conservative.
While this table indicates the expected timing in repricing, it does not
address the extent to which changes in market prices impact rates earned and
paid or the basis on which those rates may change. To allow for more dynamic
changes in the balance sheet and repricing, the bank utilizes simulation
modeling. Using simulations, management can more effectively determine the
interest rate sensitivity of net interest income in a wide variety of
interest rate environments.
Using both the information from the simulations and from Table 19, the
Company is asset sensitive in the most immediate time frames and liability
sensitive thereafter. The structure
Annual Report 1996 13
<PAGE> 16
Management's Discussion & Analysis (continued)
of the balance sheet is deliberately positioned for a rising rate environment in
the near term by management preference. Declines in net interest rates could
have a short-term adverse effect on the net interest income of the Company.
Liquidity
Long-term liquidity is a function of a large core deposit base and a strong
capital position. The Company remains committed to growth of its stable core
deposit base through pricing and product development as the primary source of
long-term liquidity. The capital position of the Company is a result
of earnings growth and earnings retention. The Company manages dividends to
retain sufficient capital for long-term liquidity and growth.
Short-term liquidity needs arise from the continuous fluctuations in the flow
of funds on both sides of the balance sheet from growth and, to a lesser
extent, seasonal and cyclical customer demands. The Asset/Liability Committee
analyzes its liquidity position by projecting cash flows from the balance
sheet on a monthly basis and by taking appropriate measures. The position of
the balance sheet is then analyzed by comparing net cash flows to external
sources of liquidity.
The securities portfolio provides a stable long-term earnings base, provides
sources of liquidity and represents one of the primary means of adjusting and
managing interest rate risk.
The designation of securities as available-for-sale and held-to-maturity does
not impact the portfolio as a source of liquidity due to the ability to
transact repurchase agreements using those securities. The Company maintains
federal funds lines of approximately $200 million and repurchase agreement
lines for the sale and repurchase of securities. Liquidity needs, as well as
the economic and interest rate environment, are all assessed on a continuous
basis when analyzing the Company's securities portfolio. If alterations in the
securities portfolio are deemed necessary, decisions are not materially
influenced by unrealized gains or losses that may exist at any point in time in
the portfolio.
Effects of Inflation
Balance sheets of financial institutions typically contain assets and
liabilities that are monetary in nature and, therefore, differ greatly from
most commercial and industrial companies which have significant investments in
premises, equipment, and inventory. During periods of inflation, financial
institutions that are in a net positive monetary position will experience a
decline in purchasing power, which does have an impact on growth. Another
significant effect on internal equity growth is other expenses, which tend to
rise during periods of inflation.
Management believes the most significant impact on financial results is the
Company's ability to align its asset/liability management program to react to
changes in interest rates.
Capital
Total shareholders' equity increased 12.9% in 1996 to total $311.6 million at
December 31, 1996 compared to $275.9 million at year-end 1995. Excluding the
change in net unrealized gains (losses) on available-for-sale securities,
shareholders' equity increased 14.0% in 1996. The Company's average
equity-to-asset ratio was 9.52% for 1996, the highest level in the history of
the Company. At year-end 1996, the Company's equity-to-asset ratio was 9.95%,
also the highest level in Company history.
Dividends paid during 1996 increased 14.8% to $1.24 per share from $1.08 per
share in 1995. This represents a dividend payout ratio of 38.39%. The Company
expects to maintain a payout ratio between 35% and 45%.
The Company also analyzes its capital and the capital position of its
subsidiaries in terms of regulatory risk-based capital guidelines. Under the
capital adequacy guidelines regulatory framework for prompt corrective
action, the Company and its subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings,
and other factors. Management believes, as of December 31, 1996, that the
Company and its subsidiaries meet all capital adequacy requirements to which
they are subject. Note 22 - Regulatory Matters, to the Consolidated Financial
Statements summarizes the capital requirements and capital ratios for the
Company and its significant subsidiaries.
In April 1995, the Company's board of directors authorized the purchase of up
to one million shares of the Company's common stock in a systematic pattern
to meet the common stock issuance requirements of the Company's 1995 Stock
Option Plan and other corporate purposes. During 1995, the Company purchased
approximately 109,000 shares under this program for the benefit plan and
other ongoing needs. During 1996, the Company purchased approximately 486,000
shares under the program. Approximately 307,000 of the shares purchased in
1996 were purchased for and reissued upon the conversion of the Company's 7%
convertible subordinated capital notes. The remainder of the shares
purchased in 1996 were for the benefit plan. Coincidental with entering into
the Agreement and Plan of Reorganization between the Company and Mercantile
Bancorporation Inc. on October 27, 1996, the Company terminated its stock
repurchase program.
14 Mark Twain Bancshares, Inc.
<PAGE> 17
Statement by Management
The financial statements and related financial information presented here
were prepared by management in accordance with generally accepted accounting
principles and include amounts that are based on management's best estimates
and judgements. The Company maintains an accounting system and related
controls that are sufficient to provide reasonable assurance that assets are
safeguarded and that transactions are properly authorized and recorded. The
concept of reasonable assurance is based on the recognition that the cost of
an accounting and control system must be related to the benefits derived. The
accounting system and related controls are monitored by an extensive internal
audit program and by the Company's independent auditors in accordance with
generally accepted auditing standards. The Company's internal auditor and
independent auditors meet regularly with the Audit Committee of the Board of
Directors to ensure that respective responsibilities are being properly
discharged and to discuss the results of examinations.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Mark Twain Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of Mark Twain
Bancshares, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mark Twain
Bancshares, Inc. at December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 15, 1997
Annual Report 1996 15
<PAGE> 18
<TABLE>
Consolidated Balance Sheet
<CAPTION>
December 31,
---------------------------
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 150,926 $ 156,207
Interest bearing deposits with banks 4,387 --
Federal funds sold and securities purchased under resale agreements 23,500 7,900
Held-to-maturity securities (market value of $217,414 and $245,355, respectively) 218,479 244,094
Available-for-sale securities 458,164 445,808
Trading account securities 30,772 63,579
Loans, net of allowance for loan losses of $33,745 and $30,508, respectively 2,144,170 1,941,431
Premises and equipment 24,977 20,764
Accrued income receivable 18,701 17,830
Other assets 59,189 70,618
- ------------------------------------------------------------------------------------------------------- ----------
Total assets $3,133,265 $2,968,231
- ---------------------------------------------------------------------------------------------========== ==========
Liabilities
Non-interest bearing deposits $ 498,431 $ 519,155
Interest bearing deposits 2,096,481 1,938,237
- ------------------------------------------------------------------------------------------------------- ----------
Total deposits 2,594,912 2,457,392
- ------------------------------------------------------------------------------------------------------- ----------
Short-term borrowings 193,591 165,731
Other liabilities 31,102 50,712
Long-term debt 2,036 18,490
- ------------------------------------------------------------------------------------------------------- ----------
Total liabilities 2,821,641 2,692,325
- ------------------------------------------------------------------------------------------------------- ----------
Shareholders' Equity
Common stock, $1.25 par value, authorized 30,000,000 shares,
issued 17,114,839 and 16,508,220 shares, respectively 21,394 20,635
Surplus 75,492 63,630
Undivided profits 229,149 194,888
Net unrealized gains (losses) on available-for-sale securities (1,774) 1,026
- ------------------------------------------------------------------------------------------------------- ----------
324,261 280,179
Less common treasury stock at cost, 432,333 and 362,685 shares, respectively 12,637 4,273
- ------------------------------------------------------------------------------------------------------- ----------
Total shareholders' equity 311,624 275,906
- ------------------------------------------------------------------------------------------------------- ----------
Total liabilities and shareholders' equity $3,133,265 $2,968,231
- ---------------------------------------------------------------------------------------------========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
16 Mark Twain Bancshares, Inc.
<PAGE> 19
<TABLE>
Consolidated Statement of Income
<CAPTION>
Years Ended December 31,
-----------------------------------------------
(in thousands of dollars, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 182,201 $ 180,955 $ 146,845
Interest on held-to-maturity securities:
Taxable 15,080 22,207 24,581
Non-taxable 132 173 674
Interest on available-for-sale securities 28,070 15,884 15,056
Interest on trading account securities 3,425 3,003 4,197
Interest on mortgage loans held for resale -- -- 2,453
Interest on deposits with banks 33 -- 3
Interest on federal funds sold and securities
purchased under resale agreements 700 951 804
- ------------------------------------------------------------------------------------ ----------- -----------
Total interest income 229,641 223,173 194,613
- ------------------------------------------------------------------------------------ ----------- -----------
Interest Expense
Interest on deposits 89,202 85,006 62,479
Interest on short-term borrowings 12,370 8,414 6,337
Interest on long-term debt 348 1,512 1,776
- ------------------------------------------------------------------------------------ ----------- -----------
Total interest expense 101,920 94,932 70,592
- ------------------------------------------------------------------------------------ ----------- -----------
Net interest income 127,721 128,241 124,021
Provision for loan losses 2,002 5,003 5,526
- ------------------------------------------------------------------------------------ ----------- -----------
Net interest income after provision for loan losses 125,719 123,238 118,495
- ------------------------------------------------------------------------------------ ----------- -----------
Other Income
Service charges on deposit accounts 8,256 7,051 7,398
Securities transactions 234 296 309
Other income 31,317 29,439 27,793
- ------------------------------------------------------------------------------------ ----------- -----------
Total other income 39,807 36,786 35,500
- ------------------------------------------------------------------------------------ ----------- -----------
Other Expenses
Salaries and employee benefits 49,706 47,531 47,651
Net occupancy and furniture and equipment expense 12,492 13,222 13,870
Other expenses 19,614 25,769 28,761
- ------------------------------------------------------------------------------------ ----------- -----------
Total other expenses 81,812 86,522 90,282
- ------------------------------------------------------------------------------------ ----------- -----------
Income before income taxes 83,714 73,502 63,713
Applicable income taxes 30,446 25,789 22,731
- ------------------------------------------------------------------------------------ ----------- -----------
Net income $ 53,268 $ 47,713 $ 40,982
- -------------------------------------------------------------------------=========== =========== ===========
Primary Earnings per Share
Weighted average shares 16,473,190 16,288,839 16,103,109
- -------------------------------------------------------------------------=========== =========== ===========
Net income $ 3.23 $ 2.93 $ 2.54
- -------------------------------------------------------------------------=========== =========== ===========
Fully Diluted Earnings per Share
Weighted average shares 16,813,065 16,904,113 16,715,863
- -------------------------------------------------------------------------=========== =========== ===========
Net income $ 3.18 $ 2.85 $ 2.48
- -------------------------------------------------------------------------=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
Annual Report 1996 17
<PAGE> 20
<TABLE>
Consolidated Statement of Changes in Shareholders' Equity
<CAPTION>
Net Unrealized
Gains (Losses)
Common Stock on Available- Total
----------------- Undivided for-Sale Treasury Shareholders'
(in thousands) Shares Amount Surplus Profits Securities Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 16,267 $20,334 $57,855 $137,813 $ 1,013 $ 2,021 $214,994
Net income -- -- -- 40,982 -- -- 40,982
Cash dividends declared -- -- -- (14,282) -- -- (14,282)
Common stock issued upon conversion of 7%
convertible subordinated capital notes 109 135 1,588 -- -- -- 1,723
Reissuance of treasury stock pursuant to employee
benefit and stock issuance plans (95 shares) -- -- 776 -- -- (465) 1,241
Change in net unrealized gain (loss) on
available-for-sale securities, net of tax -- -- -- -- (10,636) -- (10,636)
Other, net -- -- 27 -- -- -- 27
- ---------------------------------------------------------- ------- ------- -------- -------- ------- --------
Balance, December 31, 1994 16,376 20,469 60,246 164,513 (9,623) 1,556 234,049
Net income -- -- -- 47,713 -- -- 47,713
Cash dividends declared -- -- -- (17,338) -- -- (17,338)
Common stock issued upon conversion of 7%
convertible subordinated capital notes 117 147 1,719 -- -- -- 1,866
Purchase of treasury stock (109 shares) -- -- -- -- -- 3,303 (3,303)
Reissuance of treasury stock pursuant to employee
benefit and stock issuance plans (145 shares) -- -- 1,241 -- -- (586) 1,827
Change in net unrealized gain (loss) on
available-for-sale securities, net of tax -- -- -- -- 10,649 -- 10,649
Other, net 15 19 424 -- -- -- 443
- ---------------------------------------------------------- ------- ------- -------- -------- ------- --------
Balance, December 31, 1995 16,508 20,635 63,630 194,888 1,026 4,273 275,906
Net income -- -- -- 53,268 -- -- 53,268
Cash dividends declared -- -- -- (20,099) -- -- (20,099)
Changes in equity due to acquisitions 607 759 14,750 1,092 31 -- 16,632
Purchase of treasury stock (486 shares) -- -- -- -- -- 18,495 (18,495)
Reissuance of treasury stock upon conversion
of 7% convertible subordinated capital notes
(307 shares) -- -- (1,905) -- -- (6,776) 4,871
Reissuance of treasury stock pursuant to employee
benefit and stock issuance plans (110 shares) -- -- (1,013) -- -- (3,355) 2,342
Change in net unrealized gain (loss) on
available-for-sale securities, net of tax -- -- -- -- (2,831) -- (2,831)
Other, net -- -- 30 -- -- -- 30
- ---------------------------------------------------------- ------- ------- -------- -------- ------- --------
Balance, December 31, 1996 17,115 $21,394 $75,492 $229,149 $ (1,774) $12,637 $311,624
- ----------------------------------------------------====== ======= ======= ======== ======== ======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
18 Mark Twain Bancshares, Inc.
<PAGE> 21
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
Years Ended December 31,
---------------------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 53,268 $ 47,713 $ 40,982
Adjustments to reconcile to net cash provided by operating activities:
Provision for loan losses 2,002 5,003 5,526
Provision for depreciation and amortization 3,968 4,883 5,758
Amortization of security premiums and accretion of discounts (793) (1,194) (2,104)
Provision for deferred income taxes (335) (2,214) (3,248)
Net decrease in mortgage loans held for resale -- -- 112,304
Net (increase) decrease in trading account securities 32,807 (30,670) 8,556
Securities transactions (234) (296) (309)
(Increase) decrease in accrued income receivable 294 (258) (3,001)
Increase (decrease) in interest payable (421) 1,771 1,862
Other (5,668) 9,574 (1,913)
- ------------------------------------------------------------------------------------ -------- --------
Net cash provided by operating activities 84,888 34,312 164,413
- ------------------------------------------------------------------------------------ -------- --------
Investing Activities
Net increase in loans (113,677) (112,292) (144,731)
Net proceeds from sales of foreclosed property 4,762 4,864 2,977
Net (increase) decrease in premises and equipment (3,029) 3,133 (2,354)
Purchase of assets to be leased (936) (2,979) (2,664)
Proceeds from sale of available-for-sale securities 36,498 29,185 2,962
Proceeds from maturities and prepayments of securities
available for sale 66,625 26,584 50,132
Purchase of available-for-sale securities (87,247) (99,593) (53,106)
Proceeds from maturities and prepayments of
held-to-maturity securities 46,605 54,995 165,711
Purchase of held-to-maturity securities (19,074) (99,805) (241,361)
Net cash of acquired companies 25,138 -- --
- ------------------------------------------------------------------------------------ -------- --------
Net cash used by investing activities (44,335) (195,908) (222,434)
- ------------------------------------------------------------------------------------ -------- --------
Financing Activities
Net increase (decrease) in deposits (386) 185,335 80,144
Net increase in short-term borrowings 22,446 17,613 8,422
Payments on long-term debt (11,655) (32) (2,582)
Cash dividends (20,099) (17,338) (14,282)
Purchase of treasury stock (18,495) (3,303) --
Reissuance of treasury stock 2,342 1,827 1,241
Other -- -- 25
- ------------------------------------------------------------------------------------ -------- --------
Net cash provided (used) by financing activities (25,847) 184,102 72,968
- ------------------------------------------------------------------------------------ -------- --------
Increase in cash and cash equivalents 14,706 22,506 14,947
Cash and cash equivalents at beginning of year 164,107 141,601 126,654
- ------------------------------------------------------------------------------------ -------- --------
Cash and cash equivalents at end of year $178,813 $164,107 $141,601
- ----------------------------------------------------------------------------======== ======== ========
See Note 14 for supplemental disclosures.
See accompanying notes to consolidated financial statements.
Annual Report 1996 19
<PAGE> 22
Notes to Consolidated Financial Statements
Summary of Significant
1 Accounting Policies
- -----------------------------------------------------------------------------
Mark Twain Bancshares, Inc. (the Company) is a multi-bank holding company
which, through its subsidiaries, operates 42 banking locations in the St. Louis,
Kansas City, and Springfield, Missouri metropolitan areas. The Company's
subsidiaries provide commercial and retail financial services which include
providing financing to small and middle-market businesses, bond and brokerage
services, and trust services.
The accounting and reporting policies of the Company and its subsidiaries
conform to generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The following is a summary of significant accounting policies followed in the
preparation of the financial statements:
Basis of Presentation. For purposes of comparability, certain prior year amounts
have been reclassified to conform with current year presentation.
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and all its subsidiaries. Intercompany accounts and
transactions have been eliminated.
Cash Equivalents. For purposes of the Consolidated Statement of Cash Flows,
the Company considers cash and due from banks, interest-bearing deposits with
banks, and federal funds sold and securities purchased under resale
agreements as cash and cash equivalents.
Securities. Securities that management has both the positive intent and
ability to hold to maturity are classified as held-to-maturity securities and
are carried at cost, adjusted for amortization of premiums and accretion of
discounts using the interest method. Securities which are purchased with the
intent to hold for an indefinite period of time, including securities that
management intends to use as part of its asset/liability strategy or that may
be sold to meet liquidity needs, are classified as available-for-sale
securities. Available-for-sale securities are carried at fair value, with
unrealized gains and losses reflected as a separate component of
shareholders' equity, net of tax, until realized. Securities which are
purchased with the intent to hold for a short period of time are classified
as trading account securities and are carried at fair value, with unrealized
gains and losses reflected as adjustments to other income.
Interest and dividends on securities, including the amortization of premiums
and accretion of discounts, are reported in interest income using the
interest method. Gains and losses on securities are determined on an
identified certificate basis.
Mortgage Loans Held for Resale. Prior to December 31, 1994, in its mortgage
lending activities, the Company originated and purchased certain loans which
were sold in the secondary mortgage market. Mortgage loans held for resale
were hedged primarily with forward delivery contracts. Gains and losses from
hedging transactions were deferred and included in the cost of the loans
until the loans were sold. Mortgage loans held for resale were carried at the
lower of aggregate cost or fair value.
Interest and Fees on Loans. Interest on loans is accrued on the basis of the
daily amount of principal outstanding. The accrual of interest on loans is
discontinued when, in management's judgement, the interest will not be
collected in the normal course of business. When a loan is placed on
non-accrual status, the accrued interest for the current year is reversed
against interest income, and accrued interest from prior years is charged
against the allowance for loan losses. Interest on these loans is accounted for
on the cash basis or cost recovery method, until qualifying for return to
accrual status. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current, the borrower has
demonstrated payment performance for a reasonable period of time, and the
ultimate collectibility of the total contractual principal and interest is no
longer in doubt.
The Company defers and amortizes all non-refundable loan fees and direct
costs of origination over the respective life of the loans as an adjustment
to the yield of the related loan.
Allowance for Loan Losses. The allowance for loan losses is increased by the
provision for loan losses charged to operating expenses and reduced by net
loans charged off. The level of the allowance and the current year provision
are based on management's evaluation of potential losses in the loan
portfolio, past loan loss experience, and other factors that warrant current
recognition in providing an adequate allowance.
Premises and Equipment. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
charged to expense using the straight-line method over the estimated useful
lives of the assets.
Foreclosed Property. Foreclosed property represents properties acquired
through customer loan defaults and is classified as other assets. The
property is stated at an amount equal to the lesser of the loan balance prior
to foreclosure, plus certain costs incurred for improvements to the property,
or fair value less estimated selling costs of the property. The carrying
value of foreclosed property at December 31, 1996 and 1995 was $3,424,000 and
$6,099,000, respectively.
20 Mark Twain Bancshares, Inc.
<PAGE> 23
Intangible Assets. The unamortized amount of intangible assets is included in
other assets. The excess of cost over the fair value of net assets acquired
for all acquisitions accounted for as purchases is amortized on a
straight-line basis over periods ranging from 15 to 40 years from the
respective dates of acquisition. The identifiable intangible assets,
representing the acquired deposit base premium on acquisitions accounted for as
purchases, are being amortized on a straight-line basis over a period of 5 to 10
years from the respective dates of acquisition.
At December 31, 1996 and 1995, the Company had no capitalized purchased mortgage
servicing rights and excess servicing fees. Total amortization expense for
purchased mortgage servicing rights and excess servicing fees was $0, $0, and
$450,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Derivative Financial Instruments. The Company utilizes a limited number of
derivative financial instruments as part of its interest rate risk management
strategy and in conjunction with its customer service activities. Derivative
financial instruments utilized include interest rate swaps, interest rate caps
and floors, and foreign forward exchange contracts.
Interest rate swaps are used principally as a tool to manage the interest
sensitivity of the Company's balance sheet. These contracts represent an
exchange of interest payment streams based on an agreed-upon notional
principal amount with at least one stream based on a specified floating-rate
index. The underlying principal balances of the assets or liabilities are not
affected. Net settlements are reported as adjustments to interest income or
interest expense, as appropriate. The swap agreements are carried on the accrual
basis and are not adjusted to fair values in the consolidated financial
statements.
Interest rate caps and floors require the seller (for an initial fee) to pay
the purchaser, at specified dates, the amount, if any, by which a market
interest rate exceeds the agreed-upon cap or falls below the agreed-upon
floor, applied to a notional principal amount. Realized gains and losses on
positions used in the management of specific asset and liability positions
are amortized (including periodic amortization of the premium paid) over the
terms of the items hedged as adjustments to interest income or expense. The
interest caps and floors are carried on the accrual basis and are not
adjusted to fair values in the consolidated financial statements.
The Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. Committed exposures include foreign currency denominated deposit
accounts and commercial letters of credit. Realized and unrealized gains and
losses are deferred and recognized in other income in the same period as the
hedged transactions.
See Note 21 for a discussion of the risks associated with derivatives and the
Company's policies to monitor such risks.
Stock-based Compensation. The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the time of grant or such higher price as may be required under the
Internal Revenue Code at the time of grant in the case of a grant to a 10%
shareholder. In accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
the Company follows Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its employee stock options. Accordingly, the
Company does not recognize compensation expense for the stock option grants. If
the Company had elected to recognize compensation cost based on the fair value
of the options granted at the grant date as prescribed by SFAS No. 123, net
income and earnings per share would not have been reduced by a material amount.
Income Taxes. The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and the tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Earnings Per Share. Primary earnings per share is based on the average number
of common shares and common share equivalents outstanding during each year,
and elimination of interest and dividends paid on the common share
equivalents. Fully diluted earnings per share gives effect to both the
increase in the average shares outstanding which would have resulted from
conversion of all of the outstanding convertible notes and the elimination of
interest paid thereon and the exercise of dilutive stock options as of the
beginning of each year.
2 Acquisitions and Pending Affiliation
- ----------------------------------------------------------------------------
On October 27, 1996, the Company entered into an Agreement and Plan of
Reorganization between the Company, Mercantile Bancorporation Inc.
(Mercantile) and Ameribanc, Inc. (Merger Sub) under which Mercantile would
acquire the Company through a merger of the Company with and into Merger Sub.
Upon consummation of the merger, each issued and outstanding share of the
Company's common stock would be converted into and become the right to
receive .952 shares of Mercantile common stock. Shareholder and regulatory
approvals of the merger are pending. If approved, plans call for the merger
to be completed in the second quarter of 1997. It is anticipated that the
merger will be accounted for as a pooling of interests.
On December 27, 1996, the Company acquired First City Bancshares,
Incorporated of Springfield, Missouri, owner of First City National Bank,
Springfield, Missouri, for 243,656 shares of the Company's common stock. An
additional 25,011 shares are contingently issuable and are held in escrow.
Annual Report 1996 21
<PAGE> 24
Notes to Consolidated Financial Statements (continued)
These escrowed shares are not shown as outstanding as of December 31, 1996.
The acquisition was accounted for under the purchase method of accounting.
The excess of the purchase price over the fair value of net assets acquired
was approximately $4,920,000. The results of operations were included in the
consolidated financial statements from the acquisition date.
On September 10, 1996, the Company acquired Northland Bancshares, Inc., owner
of the First National Bank of Platte County in the Kansas City, Missouri,
metropolitan area for 362,963 shares of the Company's common stock. The
acquisition was accounted for under the pooling-of-interests method of
accounting. The financial statements for prior periods were not restated as
the transaction was not material to the consolidated financial statements.
On August 12, 1994, the Company acquired C.B. Bancshares, Inc., owner of
Century Bank in St. Louis, Missouri, for 705,110 shares of the Company's
common stock. On November 15, 1994, the Company acquired United Kansas Bank
Group, Inc., owner of United Kansas Bank in Merriam, Kansas, for 473,866
shares of the Company's common stock. The acquisitions were accounted for
under the pooling-of-interests method of accounting and, accordingly, prior
period financial statements were restated.
3 Held-to-Maturity Securities
- ----------------------------------------------------------------------------
The amortized cost and fair value of held-to-maturity securities were as
follows:
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands of dollars) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states
and political
subdivisions $ 4,180 $ 85 $ 15 $ 4,250
Mortgage-backed
securities 213,828 985 2,122 212,691
Other securities 471 2 -- 473
- ------------------------------------------------------------------ ------ ------ --------
Total $218,479 $1,072 $2,137 $217,414
- ----------------------------------------------------------======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands of dollars) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states
and political
subdivisions $ 2,269 $ 14 $ 12 $ 2,271
Mortgage-backed
securities 241,339 1,940 682 242,597
Other securities 486 1 -- 487
- ------------------------------------------------------------------ ------ ---- --------
Total $244,094 $1,955 $694 $245,355
- ----------------------------------------------------------======== ====== ==== ========
</TABLE>
Held-to-maturity securities with a carrying value at December 31, 1996 and
1995, of $101,198,000 and $78,555,000, respectively, were pledged to secure
public deposits and short-term borrowings and for other purposes required by
law and remained under the Company's control.
The following table summarizes the maturity distribution of the
held-to-maturity portfolio at December 31, 1996:
<TABLE>
<CAPTION>
Amortized Fair
(in thousands of dollars) Cost Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 179 $ 180
Due after one year through five years 1,575 1,581
Due after five years through ten years 1,638 1,673
Due after ten years 1,259 1,289
- ------------------------------------------------------------------ --------
4,651 4,723
Mortgage-backed securities 213,828 212,691
- ------------------------------------------------------------------ --------
Total $218,479 $217,414
- ----------------------------------------------------------======== ========
</TABLE>
There were no sales of held-to-maturity securities during 1996, 1995 and
1994.
4 Available-for-Sale Securities
- -------------------------------------------------------------------------------
The amortized cost and fair value of available-for-sale securities were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands of dollars) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasuries
and agencies $186,699 $ 910 $1,098 $186,511
Obligations of states
and political
subdivisions 1,790 59 -- 1,849
Mortgage-backed
securities 257,627 570 2,641 255,556
Other securities 14,913 47 712 14,248
- ------------------------------------------------------------------ ------ ------ --------
Total $461,029 $1,586 $4,451 $458,164
- ----------------------------------------------------------======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------
Amortized Unrealized Unrealized Fair
(in thousands of dollars) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasuries
and agencies $161,549 $2,305 $ 68 $163,786
Obligations of states
and political
subdivisions 2,112 73 10 2,175
Mortgage-backed
securities 272,489 1,405 2,048 271,846
Other securities 8,001 -- -- 8,001
- ------------------------------------------------------------------ ------ ------ --------
Total $444,151 $3,783 $2,126 $445,808
- ----------------------------------------------------------======== ====== ====== ========
</TABLE>
Available-for-sale securities with a carrying value at December 31, 1996 and
1995, of $233,061,000 and $189,680,000, respectively, were pledged to secure
public deposits and short-term borrowings and for other purposes required by law
and remained under the Company's control.
22 Mark Twain Bancshares, Inc.
<PAGE> 25
The following table summarizes the maturity distribution of the available-for-
sale portfolio at December 31, 1996:
<TABLE>
<CAPTION>
Amortized Fair
(in thousands of dollars) Cost Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 67,917 $ 67,640
Due after one year through five years 125,153 125,042
Due after five years through ten years 6,290 6,152
Due after ten years 4,042 3,774
- ------------------------------------------------------------------ --------
203,402 202,608
Mortgage-backed securities 257,627 255,556
- ------------------------------------------------------------------ --------
Total $461,029 $458,164
- ----------------------------------------------------------======== ========
</TABLE>
The following table summarizes the proceeds, gross gains, and gross losses
from sales of available-for-sale securities for the years ended December 31,
1996, 1995, and 1994:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds $36,498 $29,185 $2,962
Gross gains 264 302 3
Gross losses 30 6 2
</TABLE>
5 Loans
- -------------------------------------------------------------------------------
At December 31, 1996 and 1995, the carrying value of loans consisted of the
following:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $ 956,155 $ 867,899
Real estate construction 346,221 273,197
Real estate mortgage 725,058 683,593
Consumer 150,481 147,250
- ------------------------------------------------------------------ ----------
Loans 2,177,915 1,971,939
Less allowance for loan losses 33,745 30,508
- ------------------------------------------------------------------ ----------
Net loans $2,144,170 $1,941,431
- --------------------------------------------------------========== ==========
</TABLE>
Loans are presented net of unearned discount and net deferred loan fees
(expenses) of $19,000 and $(162,000) at December 31, 1996 and 1995,
respectively.
During 1996 and 1995, the subsidiary banks made loans to some of the
directors and officers of the Company and its significant subsidiaries, as
well as to certain related persons, interests or organizations of the
directors and executive officers. All such loans were made in the ordinary
course of business and on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable loans made
to other persons. None involved more than normal risk of collectibility or
presented other unfavorable features. At December 31, 1996 and 1995, these
loans, exclusive of any loans to any such persons for which the aggregate did
not exceed $60,000 during the latest year, amounted to approximately
$67,915,000 and $67,726,000, respectively. For the year ended December 31,
1996, $13,743,000 in new loans were made, and $13,554,000 represented
repayments. At December 31, 1996 and 1995, the Company had advanced $1,668,000
and $2,169,000, respectively, to 17 and 23 officers of the Company or its
subsidiaries for the purpose of purchasing shares of stock of the Company.
Transactions in the allowance for loan losses for the years ended December
31, 1996, 1995, and 1994, were as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $30,508 $28,894 $27,012
Allowance of acquired banks 2,424 -- --
Provision for loan losses 2,002 5,003 5,526
- ------------------------------------------------------------------ ------- -------
34,934 33,897 32,538
- ------------------------------------------------------------------ ------- -------
Loans charged-off 2,420 4,342 4,768
Recoveries of loans charged-off 1,231 953 1,124
- ------------------------------------------------------------------ ------- -------
Net loans charged-off 1,189 3,389 3,644
- ------------------------------------------------------------------ ------- -------
Balance at end of year $33,745 $30,508 $28,894
- -----------------------------------------------------------======= ======= =======
</TABLE>
At December 31, 1996, the recorded investment in loans that are considered to be
impaired under SFAS No. 114, as amended by SFAS No. 118, was $9,330,000 (of
which $7,086,000 were on non-accrual status). Included in this amount is
$9,184,000 of impaired loans for which the related allowance for loan losses is
$2,583,000 and $146,000 of impaired loans that as a result of write-downs do not
have an allowance for loan losses. At December 31, 1995, the recorded investment
in loans that were considered to be impaired was $13,663,000 (all of which are
on non-accrual status). Included in this amount is $13,387,000 of impaired loans
for which the related allowance for loan losses was $2,009,000 and $276,000 of
impaired loans that as a result of write-downs did not have an allowance for
loan losses. The average recorded investments in impaired loans for the years
ended December 31, 1996 and 1995, were approximately $9,185,000 and
$8,933,000, respectively. Interest income, recorded using the cash basis
method, for those loans for the years ended December 31, 1996 and 1995, was
insignificant.
6 Premises and Equipment
- -------------------------------------------------------------------------------
At December 31, 1996 and 1995, premises and equipment by classification
consisted of the following:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 4,546 $ 3,334
Buildings 11,612 9,727
Leasehold improvements 19,631 17,510
Furniture, fixtures and equipment 23,188 20,226
- ------------------------------------------------------------------ -------
Total cost 58,977 50,797
Less accumulated depreciation and amortization 34,000 30,033
- ------------------------------------------------------------------ -------
Net carrying value $24,977 $20,764
- -----------------------------------------------------------======= =======
</TABLE>
Depreciation and amortization charged to expense amounted to $3,040,000,
$3,983,000 and $4,257,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
Annual Report 1996 23
<PAGE> 26
Notes to Consolidated Financial Statements (continued)
7 Deposits
- -------------------------------------------------------------------------------
At December 31, 1996 and 1995, the carrying value of deposits consisted of
the following:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Non-interest bearing demand deposits $ 498,431 $ 519,155
Interest bearing demand deposits 232,091 234,686
Savings and money market deposits 726,573 664,155
Time deposits 1,137,817 1,039,396
- ----------------------------------------------------------------- ----------
Total deposits $2,594,912 $2,457,392
- -------------------------------------------------------========== ==========
</TABLE>
Scheduled maturities of time deposits at December 31, 1996 are:
1997-$878,683,000; 1998-$144,414,000; 1999-$64,225,000; 2000-$47,944,000; and
2001 and thereafter $2,551,000.
8 Short-term Borrowings
- ------------------------------------------------------------------------------
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $ 30,000 $ 55,000 $ --
Securities sold under agreements
to repurchase 155,751 108,964 93,174
Treasury tax and loan,
note option accounts 7,490 1,767 2,317
Commercial paper -- -- 9,455
Other short-term borrowings 350 -- 43,172
- ----------------------------------------------------- -------- --------
Total short-term borrowings $193,591 $165,731 $148,118
- ---------------------------------------------======== ======== ========
</TABLE>
The Company has available lines of credit of $22,000,000 of which none had
been utilized at December 31, 1996. Commitment fees range up to 14% for these
lines of credit, and they may be withdrawn at any time without prior notice.
The table below presents data concerning securities sold under repurchase
agreements, which generally mature in less than 30 days:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Average balances outstanding
for the year $152,737 $107,315 $122,276
Maximum amount outstanding at
any month-end during the year 210,022 161,522 194,816
</TABLE>
9 Long-term Debt
- ------------------------------------------------------------------------------
At December 31, 1996 and 1995, long-term debt was
as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
8 1/2% debentures due 1999 $ -- $11,579
7% convertible subordinated
capital notes due 1999 2,036 6,911
- ------------------------------------------------------------------ -------
Total long-term debt $2,036 $18,490
- ------------------------------------------------------------====== =======
</TABLE>
The 8 1/2% debentures due 1999 were issued on February 27, 1987. The
debentures were called for redemption at a premium over par of 1%, effective
March 1, 1996.
The 7% convertible subordinated capital notes due in 1999, issued on June 23,
1987, are convertible into the Company's common stock at a conversion price
of $15.889 per share. The notes are redeemable with certain limitations by
the holders and by the Company beginning June 1, 1988, at a premium over par
declining from 7% (0% as of December 31, 1996). At maturity, noteholders will
receive common stock or cash to the extent that qualified funds are
available. During 1996, 1995, and 1994, the noteholders converted notes into
306,723 shares, 117,467 shares, and 108,530 shares of common stock,
respectively. At December 31, 1996, there were 128,138 shares of common stock
reserved for issuance upon conversion of the notes.
Scheduled maturity of the borrowed funds as of December 31, 1996, is 1999 -
$2,036,000.
10 Income Taxes
- ------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of
December 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Reserve for loan losses $12,932 $11,835 $10,672
Tax effect of SFAS
No. 115 Allowance 1,092 -- 6,181
Pension obligation 2,415 2,193 2,013
Tax over book basis of
premises and equipment 1,401 1,886 1,132
Tax over book basis of
foreclosed real estate 347 646 573
Deferred gain on sale/leaseback 323 338 410
Deferred loan fees -- -- 484
- ------------------------------------------------------ ------- -------
Total deferred tax assets 18,510 16,898 21,465
- ------------------------------------------------------ ------- -------
Deferred tax liabilities:
Lease financing transactions 1,641 2,212 1,644
Tax effect of SFAS
No. 115 Allowance -- 631 --
Book over tax basis of
partnership investments -- -- 418
Discount accretion 486 466 293
Others, net 604 432 553
- ------------------------------------------------------ ------- -------
Total deferred tax liabilities 2,731 3,741 2,908
- ------------------------------------------------------ ------- -------
Net deferred tax asset $15,779 $13,157 $18,557
- -----------------------------------------------======= ======= =======
</TABLE>
24 Mark Twain Bancshares, Inc.
<PAGE> 27
Applicable income taxes (benefits) for the years ended December 31, 1996,
1995, and 1994, including the tax effect of securities transactions of
$82,000, $103,000, and $108,000, respectively, were as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current (Federal and State) $30,781 $28,003 $25,979
Deferred (335) (2,214) (3,248)
- ------------------------------------------------------ ------- -------
Total applicable income taxes $30,446 $25,789 $22,731
- -----------------------------------------------======= ======= =======
</TABLE>
The total tax differs from that computed by applying the
U.S. Federal income tax rate of 35% to income before taxes. A reconciliation
of these differences is as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected
Federal tax expense $29,300 $25,726 $22,299
Increase (decrease) in Federal
taxes resulting from:
State income taxes (net of
Federal income tax benefit) 1,953 608 1,841
Tax-exempt interest (831) (825) (870)
Low-income housing tax credit (827) (806) (1,095)
Disallowed expenses 782 548 971
Other, net 69 538 (415)
- ------------------------------------------------------ ------- -------
Total applicable income taxes $30,446 $25,789 $22,731
- -----------------------------------------------======= ======= =======
</TABLE>
11 Restrictions on Subsidiary Dividends
- ------------------------------------------------------------------------------
Subsidiary bank dividends are the principal source of funds for payment of
dividends by the Company to its shareholders. The payment of dividends by the
banks are subject to regulation by the Federal Deposit Insurance Corporation.
The state-chartered banks are also subject to regulation by the states of
Missouri, Kansas and Illinois. The nationally chartered bank is subject to
regulation by the Comptroller of the Currency. These payments are not
restricted as to the amount of dividends that can be paid, other than what
prudent and sound banking principles permit and what must be retained to meet
minimum legal capital requirements. Accordingly, approximately $108,390,000
could be paid at December 31, 1996, without prior regulatory approval.
Extensions of credit by subsidiaries to the Company are
permitted by regulatory authorities but are limited in amount and subject to
collateral requirement. At December 31, 1996, approximately $21,811,000 would
have been available under Federal Reserve guidelines.
12 Stock Option Plans
- ------------------------------------------------------------------------------
Under the 1995, 1992, and 1983 Incentive Stock Option Plans, 900,000,
675,000, and 450,000 shares of common stock, respectively, were available for
grant to officers and key employees. Options are granted at fair market value
at the date of grant for a term of five to ten years. At December 31, 1996
and 1995, 553,385 shares and 829,585 shares, respectively, were available for
grant under the Option Plans.
Exercise prices for options outstanding as of December 31, 1996, ranged from
$16.67 to $42.03. The weighted-average remaining contractual life of those
options is 2.49 years.
The fair value of the options granted was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions for 1996 and 1995: risk-free interest rate of 6.0%;
dividend yield of 3.28%; volatility factors of the expected market price of
the Company's common stock of 0.17; and a weighted-average expected life of
the options of 4.5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
The following table summarizes option activity and related information for
1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-January 1 817,141 $23.83 700,364 $19.93 562,237 $16.26
Granted 276,200 38.61 244,500 27.81 220,700 25.54
Exercised (94,668) 18.26 (127,723) 10.63 (75,223) 9.31
Cancelled -- -- -- -- (7,350) 16.38
- ------------------------------------------------------- ------ ------- ------ ------- ------
Outstanding-December 31 998,673 $28.45 817,141 $23.83 700,364 $19.93
- ------------------------------------------------======= ====== ======= ====== ======= ======
Exercisable-December 31 375,121 $22.98 254,298 $20.71 184,534 $15.39
- ------------------------------------------------======= ====== ======= ====== ======= ======
Weighted-average fair value of options granted
during the year $7.34 $5.14
- --------------------------------------------------===== =====
</TABLE>
Annual Report 1996 25
<PAGE> 28
Notes to Consolidated Financial Statements (continued)
Restrictions on Cash
13 and Due From Banks
- ------------------------------------------------------------------------------
At December 31, 1996, $34,426,000 in cash and due from bank balances were
maintained in accordance with the guidelines as set forth by the Federal
Reserve Bank to maintain certain average reserve balances.
Supplemental Disclosures for the
14 Consolidated Statement of Cash Flows
- ------------------------------------------------------------------------------
Supplemental disclosures of noncash investing and financing activities, and
additional disclosures, including details of cash and cash equivalents from
acquisitions accounted for as purchases or pooling-of-interests with no
restatement, were as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets purchased $161,685 $ -- $ --
Liabilities assumed 144,606 -- --
Issuance of common stock 16,632 -- --
- ------------------------------------------------------ -------- -------
Net cash paid for acquisitions (447) -- --
Cash and cash equivalents acquired 25,585 -- --
- ------------------------------------------------------ -------- -------
Cash and cash equivalents from
acquisitions, net of cash paid $ 25,138 $ -- $ --
- ----------------------------------------------======== ======== =======
Conversion of 7% convertible
subordinated capital notes into
common stock $ 4,871 $ 1,866 $ 1,723
Held-to-maturity securities
transferred to available-for-sale
securities -- 184,801 --
Available-for-sale securities
transferred to held-to-maturity
securities -- 29,378 --
Transfer from loans to foreclosed
property 896 1,940 2,386
Additional disclosures:
Interest paid 102,349 93,161 68,732
Income taxes paid 31,224 27,370 26,232
</TABLE>
In December 1995, the Financial Accounting Standards Board issued a special
report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities," which allowed all entities a
one-time opportunity to reconsider the classification of securities.
Accordingly, the Company reclassified certain securities during December
1995 between held-to-maturity securities and available-for-sale securities.
15 Net Trading Revenue
- ------------------------------------------------------------------------------
The Company's trading activities involve secondary marketing in several
financial markets. Trading revenue is earned on an as agent or principal
basis in executing transactions for customers. The Company maintains a
trading account in which it takes positions, primarily to provide a
resource for institutional and retail activity to fill customers'
investment needs. In addition, the Company maintains trading accounts
in which it takes positions in the bond and equity markets based on
expectations of future market conditions. Trading revenue results from
combined portfolios of instruments that are managed on an aggregate basis.
The following table summarizes the components of net trading revenue for the
years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities $ 3,342 $ 4,105 $3,437
U.S. Treasury and agency
securities 2,041 2,264 2,361
Foreign securities 4,485 3,314 1,239
Corporate debt securities 449 479 439
Corporate equity securities 1,208 2,091 (408)
State and political subdivision
securities 820 936 890
Other 58 132 394
- ------------------------------------------------------ ------- ------
Total net trading revenue $12,403 $13,321 $8,352
- -----------------------------------------------======= ======= ======
</TABLE>
For the years ended December 31, 1996, 1995, and 1994, the change in net
unrealized holding gains (losses) on trading account securities included in
net trading revenue was $(1,361,000), $2,267,000 and $(307,000),
respectively.
16 Retirement Plans
- ------------------------------------------------------------------------------
The Company maintains both qualified and non-qualified non-contributory
pension plans that cover substantially all employees who meet certain age and
service requirements. The Company does not provide any other post-retirement
benefits.
The qualified plan was established in 1989 and provides pension benefits based
on the employee's length of service and compensation levels. The Company's
funding policy is to contribute annually at least the minimum amount required
by government funding standards but not more than is tax deductible. For 1996,
1995 and 1994, $1,600,000 was contributed to the plan each year.
The non-qualified plan provides pension benefits to certain employees of the
Company, which would have been provided under the qualified plan in the
absence of limits placed on qualified plan benefits by the Internal Revenue
Service. The Company's funding policy has been to fund benefits as they are
paid. In 1993, the Company also purchased life insurance policies (Company as
beneficiary) with a face value of $19,500,000 as a method to partially
finance benefits under this plan. The cash surrender value of these policies
was $1,936,000 and $1,176,000 at December 31, 1996 and 1995. Contributions
under the non-qualified plan were not material for the three years in the
period ended December 31, 1996.
At December 31, 1996, 1995, and 1994, the qualified plan's assets were
invested in the Arrow Equity Portfolio and Fixed Income Portfolio mutual
funds managed by the Company's Trust Division, and in 27,250, 26,666 and
22,250 shares of common stock of the Company, respectively.
26 Mark Twain Bancshares, Inc.
<PAGE> 29
The net periodic pension expense included in the consolidated statement of
income is summarized as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $1,144 $ 956 $ 891
Interest cost on projected
benefit obligation 1,597 1,409 1,178
Net amortization and deferral 636 2,039 (154)
Actual return on assets (907) (2,092) 236
- ------------------------------------------------------ ------ ------
Total $2,470 $2,312 $2,151
- ------------------------------------------------====== ====== ======
</TABLE>
The following table sets forth the plans' statuses and amounts recognized in
the consolidated balance sheet:
<TABLE>
<CAPTION>
December 31,
-------------------
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $18,049 $15,792
- ------------------------------------------------------ ======= =======
Accumulated benefit obligation $18,307 $16,338
- ------------------------------------------------------ ======= =======
Projected benefit obligation $23,944 $21,778
Plan assets at fair value (12,410) (10,065)
- ------------------------------------------------------ ------- -------
Projected benefit obligation in
excess of plan assets 11,534 11,713
Unrecognized net transition obligation (2,715) (3,157)
Unrecognized net gain (loss) (2,438) (2,756)
- ------------------------------------------------------ ------- -------
Accrued pension liability $ 6,381 $ 5,800
- ------------------------------------------------------ ======= =======
</TABLE>
Assumptions used in the actuarial present value determinations were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate in determining
benefit obligations 7.50% 7.50% 8.00%
Rate of increase in compensation levels 4.50% 4.50% 4.50%
Expected long-term rate on assets 8.50% 8.50% 8.50%
</TABLE>
17 Other Income and Expenses
- ------------------------------------------------------------------------------
A summary of the components of other income and other expenses exceeding one
percent of revenues in any of the years presented is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Division revenue $12,889 $11,903 $8,897
Trust Division revenue 7,206 6,364 6,084
Brokerage revenue 4,799 4,215 5,174
Mortgage Division revenue -- -- 2,178
FDIC premiums 6 2,558 4,833
Data processing expense 4,776 4,461 4,764
Charitable contributions 1,062 3,057 713
</TABLE>
18 Leases
- ------------------------------------------------------------------------------
Commitments for leased banking and other premises and equipment expire or may
be terminated at various dates through the year 2073. The future minimum
annual rentals required under noncancelable leases, all of which are
operating leases, having terms in excess of one year as of December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
(in thousands of dollars)
- ------------------------------------------------------
<S> <C>
1997 $ 5,852
1998 4,995
1999 4,720
2000 3,770
2001 2,841
Thereafter to 2073 14,747
</TABLE>
Certain leases are renewable at the Company's option for varying extended
terms at renewal rates relating to the then fair value of the item. The total
rent expense for equipment, bank premises, and other property was $6,205,000,
$6,258,000, and $6,473,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
19 Legal Proceedings
- ------------------------------------------------------------------------------
The Company and its subsidiaries are parties to a number of lawsuits, most of
which are considered routine litigation incidental to doing business. The
Company, after consultation with legal counsel, does not expect the outcome of
any litigation to have a material effect on its consolidated financial
position.
20 Fair Value of Financial Instruments
- ------------------------------------------------------------------------------
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and due from banks and federal funds sold and securities purchased
under resale agreements approximate those assets' fair values.
Held-to-maturity securities: Fair values for held-to-maturity securities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments.
Trading account and available-for-sale securities: Fair values for the
Company's trading account and available-for-sale securities, which are also
the amounts recognized in the consolidated balance sheet, are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Annual Report 1996 27
<PAGE> 30
Notes to Consolidated Financial Statements (continued)
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans, prime home equity loans, and
credit card loans were based on quoted market prices of similar loans sold in
conjunction with securitization transactions. The fair values for other loans
(e.g., commercial real estate, real estate construction, real estate,
mortgage loans, and commercial and industrial loans) are estimated using
discounted cash flow analyses, using interest rates currently offered for
loans with similar terms to borrowers of similar credit quality.
Deposit liabilities: The fair values of demand deposits (e.g., interest and
non-interest checking, savings, and certain types of money market accounts)
are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). The carrying amounts for variable-rate,
fixed-term certificates of deposit and money market accounts approximate
their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-term borrowings: The fair values of the Company's fixed-rate long-term
borrowings are estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
Commitments to extend credit and letters of credit: Fair values for the
Company's loan commitments and letters of credit are based upon fees
currently charged to enter into similar agreements.
Interest rate swaps, interest rate caps and floors, and foreign exchange
contracts: The fair value of interest rate swaps, interest rate caps and
floors, and foreign exchange contracts is estimated, using quoted market
prices or dealer quotes, and represents the amount that the Company would
receive or pay to execute a new agreement with terms identical to those
remaining on the current agreements, considering current interest and exchange
rates and the current creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments as of December
31, 1996 and 1995, are summarized in the following table:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
Carrying/ Estimated Carrying/ Estimated
(in thousands of dollars) Contract Value Fair Value Contract Value Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 150,926 $ 150,926 $ 156,207 $ 156,207
Interest bearing deposits with banks 4,387 4,387 -- --
Federal funds sold and securities purchased under resale agreements 23,500 23,500 7,900 7,900
Trading account securities 30,772 30,772 63,579 63,579
Available-for-sale securities 458,164 458,164 445,808 445,808
Held-to-maturity securities 218,479 217,414 244,094 245,355
Loans, net of allowance 2,144,170 2,185,355 1,941,431 1,995,038
Financial Liabilities
Deposits $2,594,912 $2,616,644 $2,457,392 $2,493,275
Short-term borrowings 193,591 193,591 165,731 165,731
Long-term debt 2,036 2,024 18,490 18,872
Foreign currency contracts 74,427 72,638 137,272 135,993
Unrecognized Financial Instruments<F*>
Commitments to extend credit $ 411 $ 411 $ 314 $ 314
Commercial letters of credit 4 4 3 3
Standby letters of credit 333 333 291 291
Interest rate swaps 95 (1,264) 8 1,006
Interest rate caps and floors 127 255 258 928
<FN>
<F*>The amounts shown under "carrying amount" represent accruals or deferred
fees arising from those unrecognized financial instruments.
</TABLE>
28 Mark Twain Bancshares, Inc.
<PAGE> 31
21 Off-Balance Sheet Risk
- -----------------------------------------------------------------------------
In the normal course of business, the Company utilizes a variety of
off-balance sheet financial instruments to service the financial needs of its
customers and as part of its interest rate risk management strategy. These
instruments involve varying degrees of risk in excess of the amount
recognized in the Company's balance sheet as either an asset or liability. As
such, the contractual or notional amounts of these instruments may or may not
be an appropriate indicator of the credit or market risk associated with
these instruments.
The Company controls the credit risk arising from these instruments through
its credit approval process and through the use of risk control limits and
monitoring procedures.
The Company issues loan commitments, commercial letters of credit and standby
letters of credit. For these instruments, the contractual amount represents
the maximum potential credit risk if the counterparty does not perform
according to the terms of the contract. A large majority of these commitments
expire without being drawn upon. As a result, total contractual amounts do
not represent future credit exposure or liquidity requirements.
Commercial and standby letters of credit are subject to the same credit
policies and underwriting standards used when making loans or extending loan
commitments. The amount of collateral obtained is based on management's
credit evaluation of the customer and generally consists of securities,
receivables, inventory, fixed assets and deeds of trust.
Interest rates, in the event of funding these commitments, are predominantly
based on floating rates or prevailing market rates at the time of funding.
Substantially all of the loan commitments and standby letters of credit expire
within one year unless renewed by the Company.
The Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. Committed exposures include foreign currency denominated deposit
accounts and commercial letters of credit. The risks inherent in these
contracts are the potential inability of a counterparty to meet the terms of
each contract and the risk associated with changes in the market values of
the underlying contracts. The contractual amounts of these instruments
greatly exceed the possible loss that could arise from counterparty default
or changes in currency rates. The Company does not engage in speculation. The
Company's foreign exchange contracts do not subject the Company to
significant risk due to exchange rate movements because gains and losses on
these contracts offset gains or losses on the liabilities and transactions
being hedged. The exposure to credit loss for foreign exchange contracts can
be estimated by calculating the cost to replace all profitable outstanding
contracts at current market rates. At December 31, 1996 and 1995, the
Company's exposure to credit loss from commitments to purchase and sell
foreign exchange contracts was $402,000 and $1,006,000, respectively.
The Company enters into interest rate swap and interest rate cap and floor
contracts as part of its interest rate risk management strategy. These
contracts involve the exchange of interest payments without the exchange of
the underlying notional amount on which the interest payments are calculated.
The notional amounts do not represent direct credit risk exposures. The
Company's direct credit exposure is limited to the net difference between the
calculated pay and receive amounts on each transaction, which is generally
netted and paid quarterly, and the ability of the counterparty to
perform its payment obligation under the contract. The Company has very
strict policies governing such contracts, including the evaluation of the
creditworthiness of the counterparties and the inclusion of collateral
arrangements within the contracts to minimize credit risk. The methods used
to determine counterparties are formally reviewed and approved annually. At
December 31, 1996, there were no past due payments related to the interest
rate contracts.
The following table summarizes the contractual amounts of the Company's
off-balance sheet financial instruments as of December 31, 1996 and 1995, as
defined under FASB Statement No. 119.
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Financial instruments, the maximum
credit risk of which is represented by
contract amount:
Commitments to extend credit $656,779 $502,443
Commercial letters of credit 3,283 2,058
Standby letters of credit 88,060 83,174
Financial instruments, the credit risk of
which is represented by other than
contract amounts:
Foreign forward exchange contracts 74,427 137,272
Interest rate swaps 135,000 50,000
Interest rate caps and floors 115,000 115,000
</TABLE>
Annual Report 1996 29
<PAGE> 32
22 Regulatory Matters
- -----------------------------------------------------------------------------
The Company and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and its subsidiaries must meet specific
capital guidelines that involve quantitative measures of assets, liabilities
and certain off-balance-sheet items calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and
ratios of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Company and its subsidiaries meet all capital adequacy requirements
to which they are subject. The following table summarizes the capital ratios
for the Company and its significant subsidiaries.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Company's significant
subsidiaries as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the subsidiaries
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table below. There are no conditions or events
since that notification that management believes have changed the
subsidiaries' classifications.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------------------ -----------------------------
(in thousands of dollars) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to risk-weighted assets):
Consolidated $338,018 12.8% greater than greater than N/A N/A
or equal to or equal to
$210,963 8.0%
Mark Twain Bank 203,244 12.1% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
134,666 8.0% $168,333 10.0%
Mark Twain Kansas City Bank 94,509 12.7% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
59,350 8.0% 74,188 10.0%
Tier I Capital (to risk-weighted assets):
Consolidated $303,009 11.5% greater than greater than N/A N/A
or equal to or equal to
$105,481 4.0%
Mark Twain Bank 182,202 10.8% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
67,333 4.0% $101,000 6.0%
Mark Twain Kansas City Bank 85,652 11.5% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
29,675 4.0% 44,513 6.0%
Tier I Capital (to average assets):
Consolidated $303,009 9.9% greater than greater than N/A N/A
or equal to or equal to
$122,214 4.0%
Mark Twain Bank 182,202 9.0% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
81,229 4.0% $101,536 5.0%
Mark Twain Kansas City Bank 85,652 10.1% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
33,868 4.0% 42,334 5.0%
As of December 31, 1995
Total Capital (to risk-weighted assets):
Consolidated $304,647 13.0% greater than greater than N/A N/A
or equal to or equal to
$188,022 8.0%
Mark Twain Bank 197,676 12.6% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
125,351 8.0% $156,689 10.0%
Mark Twain Kansas City Bank 76,702 12.3% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
49,900 8.0% 62,375 10.0%
Tier I Capital (to risk-weighted assets):
Consolidated $268,344 11.4% greater than greater than N/A N/A
or equal to or equal to
$ 94,011 4.0%
Mark Twain Bank 178,074 11.4% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
62,676 4.0% $ 94,014 6.0%
Mark Twain Kansas City Bank 69,074 11.1% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
24,950 4.0% 37,425 6.0%
Tier I Capital (to average assets):
Consolidated $268,344 9.5% greater than greater than N/A N/A
or equal to or equal to
$112,982 4.0%
Mark Twain Bank 178,074 9.2% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
77,404 4.0% $ 96,755 5.0%
Mark Twain Kansas City Bank 69,074 9.9% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
27,998 4.0% 34,997 5.0%
</TABLE>
30 Mark Twain Bancshares, Inc.
<PAGE> 33
23 Condensed Financial Information--Parent Company Only
- -----------------------------------------------------------------------------
<TABLE>
Condensed Balance Sheet
<CAPTION>
December 31,
--------------------
(in thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 323 $ 6,828
Available-for-sale securities 4,686 2,505
Trading account securities 1,604 6,441
Receivables from non-banking subsidiaries -- 299
Investment in subsidiaries representing the
Company's equity in underlying assets:
Bank subsidiaries 299,747 272,416
Other subsidiaries 2,366 1,981
Premises and equipment, less accumulated
depreciation and amortization of $2,726
and $2,558, respectively 443 582
Excess of cost over equity in underlying net
assets of subsidiary banks at dates of
acquisition, less accumulated amortization
of $2,574 and $2,430, respectively 3,692 3,836
Other assets 8,583 7,677
- ------------------------------------------------------------------ --------
Total assets $321,444 $302,565
- ----------------------------------------------------------======== ========
Liabilities
Other liabilities $ 7,784 $ 8,169
Long-term debt 2,036 18,490
- ------------------------------------------------------------------ --------
Total liabilities 9,820 26,659
- ------------------------------------------------------------------ --------
Shareholders' Equity
Common stock 21,394 20,635
Surplus 75,492 63,630
Undivided profits 229,149 194,888
Net unrealized gains (losses) on
available-for-sale securities (1,774) 1,026
- ------------------------------------------------------------------ --------
324,261 280,179
Less common treasury stock at cost 12,637 4,273
- ------------------------------------------------------------------ --------
Total shareholders' equity 311,624 275,906
- ------------------------------------------------------------------ --------
Total liabilities and shareholders' equity $321,444 $302,565
- ----------------------------------------------------------======== ========
</TABLE>
<TABLE>
Condensed Statement of Income
<CAPTION>
Years Ended December 31,
-------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Revenues from subsidiaries:
Dividends from bank and
non-bank subsidiaries $41,600 $32,585 $22,314
Service fees 8,374 8,856 6,950
Other income 21 228 425
Other interest income 581 523 415
Other 1,312 2,181 (268)
- ------------------------------------------------------ ------- -------
Total revenue 51,888 44,373 29,836
- ------------------------------------------------------ ------- -------
Expenses
Interest on short-term borrowings 282 269 481
Interest on long-term debt 348 1,512 1,773
Salaries and benefits 7,332 7,176 5,673
Occupancy expense 530 547 472
Furniture and equipment expense 236 275 286
Other 3,536 3,348 3,645
- ------------------------------------------------------ ------- -------
Total expenses 12,264 13,127 12,330
- ------------------------------------------------------ ------- -------
Income before income tax benefit
and equity in undistributed
earnings of subsidiaries 39,624 31,246 17,506
Income tax benefit 566 5 1,928
- ------------------------------------------------------ ------- -------
Income before equity in undistributed
earnings of subsidiaries 40,190 31,251 19,434
Equity in undistributed earnings
of subsidiaries:
Bank subsidiaries 12,892 17,390 21,476
Non-bank subsidiaries 186 (928) 72
- ------------------------------------------------------ ------- -------
Net income $53,268 $47,713 $40,982
- -----------------------------------------------======= ======= =======
</TABLE>
Annual Report 1996 31
<PAGE> 34
Notes to Consolidated Financial Statements (continued)
<TABLE>
Condensed Statement of Cash Flows
<CAPTION>
Years Ended December 31,
-------------------------------
(in thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $53,268 $47,713 $40,982
Adjustments to reconcile net cash
provided by operating activities:
Equity in undistributed earnings
of subsidiaries (13,078) (16,462) (21,548)
Trading account securities 4,837 (1,398) (5,043)
Other (1,011) 856 107
- ------------------------------------------------------ ------- -------
Net cash provided by
operating activities 44,016 30,709 14,498
- ------------------------------------------------------ ------- -------
Investing Activities
Investment in subsidiaries (200) 2 (106)
Net decrease in loans 638 5,414 1,136
Other (2,624) (180) 1,921
- ------------------------------------------------------ ------- -------
Net cash provided (used)
by investing activities (2,186) 5,236 2,951
- ------------------------------------------------------ ------- -------
Financing Activities
Decrease in borrowings (500) (10,365) (2,276)
Payments on long-term debt (11,583) (32) (2,307)
Cash dividends (20,099) (17,338) (14,282)
Purchase of treasury stock (18,495) (3,303) --
Reissuance of treasury stock 2,342 1,827 1,241
Other -- -- 27
- ------------------------------------------------------ ------- -------
Net cash used by
financing activities (48,335) (29,211) (17,597)
- ------------------------------------------------------ ------- -------
Increase (decrease) in cash
and cash equivalents (6,505) 6,734 (148)
Cash and cash equivalents
at beginning of year 6,828 94 242
- ------------------------------------------------------ ------- -------
Cash and cash equivalents
at end of year $ 323 $ 6,828 $ 94
- -----------------------------------------------======= ======= =======
</TABLE>
Impact of New Financial
24 Accounting Standards
- ------------------------------------------------------------------------------
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities." SFAS No. 125 addresses the accounting for all types of
securitization transactions, securities lending and repurchase agreements,
collateralized borrowing arrangements, and other transactions involving the
transfer of financial assets. It also addresses the ongoing servicing of
financial assets and extinguishment of liabilities. The provisions of SFAS
No. 125 were to be effective for fiscal years beginning after December 31,
1996; however, in December 1996, the FASB issued SFAS No. 127 "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125 (An
Amendment of FASB Statement No. 125)," which delayed the effective date of
certain provisions of SFAS No. 125 until January 1, 1998. The Company does
not expect adoption of the standards to have a material impact on the
consolidated financial statements.
Summary of Quarterly Financial
25 Information (Unaudited)
- ------------------------------------------------------------------------------
The following is a summary of quarterly operating results for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(in thousands of dollars, First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Interest income $57,114 $56,164 $56,931 $59,432
Interest expense 25,705 24,846 25,252 26,117
- ------------------------------------------------------------------ ------- ------- -------
Net interest income 31,409 31,318 31,679 33,315
- ------------------------------------------------------------------ ------- ------- -------
Provision for loan losses 981 514 506 1
Securities transactions 234 -- -- --
Net income $12,521 $12,985 $13,464 $14,298
Net income per share:
Primary $ 0.76 $ 0.80 $ 0.83 $ 0.85
Fully diluted $ 0.75 $ 0.79 $ 0.82 $ 0.84
1995
Interest income $53,799 $56,170 $56,700 $56,504
Interest expense 21,759 24,023 24,517 24,633
- ------------------------------------------------------------------ ------- ------- -------
Net interest income 32,040 32,147 32,183 31,871
- ------------------------------------------------------------------ ------- ------- -------
Provision for loan losses 1,332 1,299 713 1,659
Securities transactions 46 -- -- 250
Net income $11,368 $11,625 $12,223 $12,497
Net income per share:
Primary $ 0.70 $ 0.72 $ 0.75 $ 0.76
Fully diluted $ 0.68 $ 0.70 $ 0.73 $ 0.74
</TABLE>
32 Mark Twain Bancshares, Inc.
<PAGE> 35
Shareholder Interests
Transfer Agent, Registrar and
Dividend Disbursing Agent
Harris Trust and Savings Bank
P.O. Box A-3504
Chicago, IL 60690-3504
Toll-free: (800) 720-0417
Chicago area: (312) 360-5175
TDD: (312) 461-5633
For hand deliveries or drop-off:
311 W. Monroe Street, 11th Floor
Chicago, IL 60690-3504
Automatic Dividend Reinvestment Plan
The Company offers an Automatic Dividend Reinvestment and Voluntary Cash Only
Payment plans. Information may be obtained from:
Carl A. Wattenberg Jr.
Corporate Secretary
8820 Ladue Road
St. Louis, MO 63124
(314) 889-0708
Form 10-K Notice
Stockholders, analysts, or potential investors desiring a copy of the Annual
Report Form 10-K of Mark Twain Bancshares, Inc., as filed with the Securities
and Exchange Commission, may make their requests in writing to Carl A.
Wattenberg Jr., Corporate Secretary, at the address of the Company.
Stock Listing
On September 19, 1996, the Common Stock of the Company ($1.25 par value)
commenced trading on the New York Stock Exchange (ticker symbol - MTB). Prior
to September 19, 1996, the Common Stock of the Company was traded on the
Nasdaq Stock Market (Symbol - MTWN).
The following table presents the high and low sales prices as furnished by
the New York Stock Exchange and the Nasdaq Stock Market, Inc., as well as the
quarterly dividends declared per share. At December 31, 1996, there were
approximately 2,500 holders of record of Common Stock.
<TABLE>
<CAPTION>
Dividends
Common Stock Declared
Share Data High Low and Paid
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Fourth Quarter $50.25 $41.87 $0.31
Third Quarter $42.63 $35.25 $0.31
Second Quarter $38.50 $36.00 $0.31
First Quarter $39.75 $36.50 $0.31
1995
Fourth Quarter $39.50 $32.75 $0.27
Third Quarter $35.75 $31.50 $0.27
Second Quarter $32.75 $29.63 $0.27
First Quarter $30.00 $26.00 $0.27
</TABLE>
For more information, analysts may contact:
Keith Miller
Chief Financial Officer
(314) 889-0799
Executive Officers
Alvin J. Siteman
Chairman
John P. Dubinsky
President & Chief Executive Officer
Peter F. Benoist
Executive Vice President
President, Banking Division
Robert C. Butler
Executive Vice President
Keith Miller
Executive Vice President, Finance
Chief Financial Officer
Sandra Friedman Burnham
Senior Vice President, Risk Assessment
Nancy E. Graves
Senior Vice President
Director of Retail Banking
Timothy C. Peterson
Senior Vice President, Corporate Development
W. Thomas Reeves
Senior Vice President, Lending
Carl A. Wattenberg Jr.
Senior Vice President, Secretary & General Counsel
Thomas R. Wickenhauser
Senior Vice President, Administration
Kevin J. Cody
Vice President, Treasurer/Assistant Secretary
Board of Directors
Alvin J. Siteman<F1>
Chairman, Mark Twain Bancshares, Inc.;
President & Director, Flash Oil Corporation,
a petroleum products distributor;
President & Director, The Siteman Organization, Inc.,
a real estate development and management company;
President & Director, Site Oil Company of Missouri;
Director, Insituform Technologies, Inc. (Nasdaq)
John P. Dubinsky<F1>
President & Chief Executive Officer,
Mark Twain Bancshares, Inc.
Robert J. Baudendistel<F1>,<F2>,<F3>
Vice Chairman, Mark Twain Bancshares, Inc.;
Real estate consultant; investor; partner,
Fox Associates, a theatrical productions company
Peter F. Benoist
Executive Vice President, Mark Twain Bancshares, Inc.
Director, Earthgrains, Inc. (NYSE)
Robert A. Bernstein<F2>
President and Chief Executive Officer, Bernstein-Rein Advertising, Inc.,
specializing in retail advertising
Robert C. Butler
Executive Vice President, Mark Twain Bancshares, Inc.
Jack Deutsch<F2>
President, Standard Machine & Manufacturing Company, a manufacturer of
refrigeration and industrial valves;
Executive Vice President, Dema Engineering
Company, a manufacturer of automatic and
hydraulic dispensing devices
Henry J. Givens Jr., Ph.D.
President, Harris-Stowe State College;
Director, Laclede Gas Company (NYSE)
B.D. (Bud) Hunter<F3>
Chairman & Chief Executive Officer, Huntco, Inc.,
which owns and operates Steel Processing Centers (NYSE);
Director, Service Corporation International (NYSE);
Director, Cash America Investments, Inc. (NYSE);
Director, Celebrity, Inc. (Nasdaq)
Michael M. McCarthy<F1>,<F3>
Chairman & Chief Executive Officer, McCarthy Building Companies, a group of
construction
building and design consulting companies;
Director, Huntco, Inc. (NYSE)
James J. Murphy Jr.<F2>
President & Chief Executive Officer,
Murphy Company
[FN]
<F1> Executive Committee
<F2> Audit Committee
<F3> Compensation Committee
Mark Twain is an equal opportunity employer.
All banks members FDIC.
This report is printed on recycled paper.
<PAGE> 36
MARK TWAIN BANCSHARES, INC.
8820 Ladue Road
St. Louis, Missouri 63124-2096
(314) 727-1000
Fax: (314) 889-0755
http://www.marktwain.com
<PAGE> 1
EXHIBIT 21
<TABLE>
SUBSIDIARIES OF MARK TWAIN BANCSHARES, INC.
The following list contains information regarding the Company and its
subsidiaries (some of which do not constitute significant subsidiaries) as of
December 31, 1996. The list also includes the state or jurisdiction of
incorporation of each as well as names under which they do business, some
names of which are service marks.
<CAPTION>
NAME UNDER WHICH
CORPORATION STATE IT DOES BUSINESS
- ------------ ----- ----------------
<S> <C> <C>
Mark Twain Bancshares, Inc. Missouri Mark Twain Bancshares, Inc.
Gateway Research Associates
Omne Advertising Agency
Mark Twain "Advantage Club"<F**>
Mark Twain Banks<F**>
SUBSIDIARIES
- ------------
Mark Twain Bank Missouri Mark Twain Bank<F**>
Mark Twain Banks<F**>
Mark Twain Bank Ladue
Mark Twain Bank Frontenac
Mark Twain Trust Division
Mark Twain International Banking Division
Mark Twain Investment Services
Mark Twain Municipal Securities
Mark Twain Capital Markets Group
Mark Twain Bond Department
Mark Twain International Markets Group
Mark Twain Commercial Finance Division
Mark Twain Credit Services
Mark Twain Services
Mark Twain Bank South County
Mark Twain Bank 21
Mark Twain Bank State
Mark Twain Bank Northland
Mark Twain Bank Parkway
Mark Twain Bank O'Fallon
Mark Twain Bank St. Charles
Mark Twain Bank St. Peters
Mark Twain Bank Progress
Mark Twain Bank Fenton
Mark Twain Bank St. Louis
Mark Twain Bank Clarkson/Clayton
Mark Twain Bank Clarkson Square
Mark Twain Bank Creve Coeur
Mark Twain Bank Ellisville
Mark Twain Bank Clayton
Mark Twain Bank Des Peres
Mark Twain Operations Center
Mark Twain Leasing Division
Mark Twain Mortgage Department
Mark Twain Mortgage Shenandoah
Mark Twain Illinois Bank Illinois Mark Twain Illinois Bank
Mark Twain Bank Belleville
Mark Twain Bank Edwardsville
Mark Twain Trust Division
Mark Twain Kansas City Bank Missouri Mark Twain Kansas City Bank
Mark Twain Bank Kansas City
Mark Twain Bank Plaza
Mark Twain Bank South
Mark Twain Bank Noland
Mark Twain Bank Tower
Mark Twain Bank North
Mark Twain Trust Division
Mark Twain Commercial Finance Division
Mark Twain Bank Kansas
Mark Twain Bank Shawnee
Mark Twain Bank Parkway
Mark Twain Bank Mission
Mark Twain Bank Olathe
Mark Twain Bank Platte Woods
Mark Twain Bank 64th Street
Mark Twain Bank Barry Road
Mark Twain Bank Prairie Center
First City National Bank Missouri First City National Bank
Mark Twain Brokerage Services, Inc. Missouri Mark Twain Brokerage Services
(owned by Mark Twain Bank) Mark Twain Brokerage Services, Inc.
Mark Twain Brokerage
Mark Twain Insurance Agency
Infinet Securities
1
<PAGE> 2
<CAPTION>
NAME UNDER WHICH
CORPORATION STATE IT DOES BUSINESS
- ------------ ----- ----------------
<S> <C> <C>
Mark Twain Real Estate Missouri Mark Twain Real Estate Development Corp. I
Development Corp. I
(owned by Mark Twain Kansas City Bank)
Mark Twain Real Estate Missouri Mark Twain Real Estate Development Corp. II
Development Corp. II
(owned by Mark Twain Bank)
Mark Twain Bank Community Missouri Mark Twain Bank Community Development
Development Corp., Inc. Corp., Inc.
(owned by Mark Twain Bank)
Mark Twain Kansas City Bank Missouri Mark Twain Kansas City Bank Community
Community Development Corp., Inc. Development Corp., Inc.
(owned by Mark Twain Kansas City Bank)
Mark Twain St. Louis Investment Delaware Mark Twain St. Louis Investment Company
Company (business trust owned by
Mark Twain Bank)
Mark Twain St. Louis Real Estate Delaware Mark Twain St. Louis Real Estate Investment Trust
Investment Trust (business trust
owned by Mark Twain St. Louis
Investment Company)
Tarquad Corporation Missouri Tarquad Corporation
Mark Twain Asset Recovery, Inc. Missouri Mark Twain Asset Recovery, Inc.
MARI
Mark Twain Community Missouri Mark Twain Community Development Corp.
Development Corporation
Mark Twain Acquisition Corp. II Missouri Mark Twain Acquisition Corp. II
Mark Twain Properties, Inc. Missouri Mark Twain Properties, Inc.
<FN>
<F**>Name/Service Mark used by all banking units.
December, 1996
</TABLE>
2
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Mark Twain Bancshares, Inc. of our report dated January 15, 1997,
included in the 1996 Annual Report to Shareholders of Mark Twain Bancshares,
Inc.
We also consent to the incorporation by reference into each registration
statement listed below of our report dated January 15, 1997, with respect to
the consolidated financial statements of Mark Twain Bancshares, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1996.
<TABLE>
<CAPTION>
FORM NO.
--------- --------
<S> <C> <C>
S-3 333-19811 Mark Twain Bancshares, Inc. registration of
67,167 shares of Common Stock on Form S-3
S-8 33-59075 Mark Twain Bancshares, Inc. 1995 Stock Option Plan
S-8 33-48078 Mark Twain Bancshares, Inc. 1992 Stock Option Plan
S-8 2-86364 Mark Twain Bancshares, Inc. 1983 Incentive Stock
Option Plan
As amended through Post Effective Amendment
Number 6 dated May 2, 1992
S-8 2-88720 The Mark Twain Savings Challenge Plan
As amended through Post Effective Amendment
Number 4 dated April 28, 1987
</TABLE>
ERNST & YOUNG LLP
--------------------
Ernst & Young LLP
St. Louis, Missouri
February 19, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND
CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 150,926
<INT-BEARING-DEPOSITS> 4,387
<FED-FUNDS-SOLD> 23,500
<TRADING-ASSETS> 30,772
<INVESTMENTS-HELD-FOR-SALE> 458,164
<INVESTMENTS-CARRYING> 218,479
<INVESTMENTS-MARKET> 217,414
<LOANS> 2,177,915
<ALLOWANCE> 33,745
<TOTAL-ASSETS> 3,133,265
<DEPOSITS> 2,594,912
<SHORT-TERM> 193,591
<LIABILITIES-OTHER> 31,102
<LONG-TERM> 2,036
0
0
<COMMON> 21,394
<OTHER-SE> 290,230
<TOTAL-LIABILITIES-AND-EQUITY> 3,133,265
<INTEREST-LOAN> 182,201
<INTEREST-INVEST> 43,282
<INTEREST-OTHER> 733
<INTEREST-TOTAL> 229,641
<INTEREST-DEPOSIT> 89,202
<INTEREST-EXPENSE> 101,920
<INTEREST-INCOME-NET> 127,721
<LOAN-LOSSES> 2,002
<SECURITIES-GAINS> 234
<EXPENSE-OTHER> 81,812
<INCOME-PRETAX> 83,714
<INCOME-PRE-EXTRAORDINARY> 53,268
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,268
<EPS-PRIMARY> 3.23
<EPS-DILUTED> 3.18
<YIELD-ACTUAL> 4.63
<LOANS-NON> 7,086
<LOANS-PAST> 321
<LOANS-TROUBLED> 2,244
<LOANS-PROBLEM> 21,900
<ALLOWANCE-OPEN> 30,508
<CHARGE-OFFS> 2,420
<RECOVERIES> 1,231
<ALLOWANCE-CLOSE> 33,745
<ALLOWANCE-DOMESTIC> 33,745
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,080
</TABLE>
<PAGE> 1
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION, BENEFITS AND STOCK OPTION COMMITTEE
The Committee is composed of three independent non-employee directors. The
Committee is responsible for setting and administering senior executive officer
salaries, annual bonus, and incentive stock option grants; and, reviewing
employee benefit plans generally.
COMPENSATION POLICY
Bancshares' compensation programs are designed to link executives'
compensation to the performance of Bancshares and provide competitive
compensation for executives with regard to similar companies of similar
performance levels. The compensation program includes a blend of annual cash
compensation, including incentive awards, and equity-based incentives, all
under a policy that a substantial part of overall compensation for senior
management should be at risk, based on Bancshares' performance.
Bancshares' executive officer compensation, as with other members of senior
management, consists of two primary elements: (1) an annual component comprised
of base salary and annual incentive bonus and (2) a longer-term component
comprised of stock option incentives.
(1) ANNUAL COMPONENT: BASE SALARY AND ANNUAL BONUS
Base salaries for executive officers are initially determined by evaluating
the responsibilities of the position held and the experience of the individual,
and by reference to the competitive market place for executive talent,
including a comparison to base salaries for comparable positions at other
companies. Annual salary adjustments are determined by evaluating the
performance of Bancshares and of each executive officer, and also take into
account new responsibilities, if any. The Committee, where appropriate, also
considers non-financial performance measures. To assist the Committee, each
officer's performance is evaluated annually by his or her immediate supervisor.
Bancshares' executive officers are eligible for annual cash bonuses under
Bancshares' bonus plan for certain key supervisor and management personnel.
Under such plan, the Committee establishes bonuses as a percentage of base
salary to be paid if and to the extent the annual projections and objectives
for net earnings are met or exceeded. The Committee believes that for a bonus
program to be effective, it must be easily understood so that managers clearly
understand what the rewards are and what they must do to earn them. The concept
underlying the bonus plan is to link a significant part of compensation to the
performance of Bancshares. Under the plan Bancshares must produce a pre-
established level of income before any performance awards are paid. The plan is
designed to challenge management to achieve levels of performance significantly
higher than the Company's peer group.
(2) LONG-TERM COMPONENT: STOCK OPTIONS
The Committee believes that significant equity interest in Bancshares held
by Bancshares' management aligns the interests of management with the interests
of shareholders. To align shareholders' and executive officers' interests,
Bancshares' long-term compensation plan uses stock option grants whose value is
related to the value of Bancshares' common shares. Grants of stock options are
made under Bancshares' stock option plans which are approved by the
shareholders and are described more fully in this Exhibit. Stock options are
granted annually to executive officers also in numbers based on their position
in management, their current level of responsibility, and their performance
during the prior year. Stock options provide incentive for the creation of
shareholder value over the long term since the full benefit of the compensation
package cannot be realized unless an appreciation in the price of Bancshares'
common shares occurs over a specified number of years. Long-term stock option
incentives are used to retain and reward senior management who have
demonstrated the ability over time to achieve superior results related to peer
groups (and consistent
<PAGE> 2
with the Bancshares' overall mission statement and strategic plan) and who
through their position of authority and responsibility demonstrate success in
enhancing shareholder value.
CONCLUSION
Through the programs described above, a significant portion of Bancshares'
executive compensation is linked to individual and corporate performance. The
Committee intends to continue the policy of linking executive compensation to
corporate performance while recognizing the desirability to retain superior
executives, the goal of achieving both long-term objectives as well as
short-term objectives, and recognizing that many external factors can affect
corporate performance which may result in imbalances, for a particular time
period.
CEO COMPENSATION
During 1996, Bancshares' most highly compensated executive officer was John
Dubinsky, President and Chief Executive Officer. Mr. Dubinsky's 1996
performance was reviewed by the Committee which approved, on behalf of the
Board of Directors, the annual component of base salary and annual bonus and
the long-term component of stock options. The actions were based on the
following considerations.
Bancshares reported record profits for the sixth consecutive year, as more
fully described in the 1996 Annual Report to Shareholders. Bancshares not only
achieved its performance goals for 1996, but surpassed the established
objectives by attaining an increase of 11.6% in consolidated net income and an
increase of 11.6% in fully diluted earnings per share over 1995. In 1996,
Bancshares' return on realized equity of 18.66% and return on assets of 1.79%
were among the best for similar banks in the country. Bancshares' strong
profits in 1996, as well as in past years, have in turn increased shareholder
value significantly. That value has been reflected in the market value of
Bancshares' stock, increasing during 1996 approximately 25.8% following a 42.2%
increase in 1995. Total return to Bancshares' shareholders over the last five
years has averaged 28.94% on an annual compounded basis.
In addition to overall company performance the committee reviewed various
Peer Group Comparisons on Bank CEO Compensation prepared by SNL Securities L.P.
arranged by asset size, region, and performance levels of return on assets, all
of which review led the Committee to conclude that 1996 compensation levels,
and those approved for 1997, are within the middle percentile range for
comparable companies by size and performance.
The Committee also reviewed Mr. Dubinsky's performance as the leader of the
management team and took particular note of the management team's budgeting and
strategic planning, its leadership role in achieving diversity within the
company, its management development program, and its maintaining a consistent,
growing earnings stream, among others.
The Committee has concluded that Mr. Dubinsky's performance warrants the
compensation for 1996 as reflected in the Summary Compensation Table.
COMPENSATION, BENEFITS AND STOCK OPTION COMMITTEE
B.D. Hunter, Committee Chairman
Robert J. Baudendistel
Michael M. McCarthy
January 31, 1997
2
<PAGE> 3
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ------------
OTHER ALL OTHER
ANNUAL COMPEN-
NAME AND COMPEN- OPTIONS SATION
PRINCIPAL POSITION <F1> YEAR SALARY ($) BONUS ($) SATION<F2> (#)<F3> ($)<F4>
----------------------- ---- ---------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
John P. Dubinsky 1996 432,889 220,269 0 30,000 3,750
President & Chief 1995 410,285 207,836 0 27,500 3,750
Executive Officer 1994 389,869 178,213 0 25,000 3,750
Alvin Siteman 1996 396,604 218,132 0 30,000 3,750
Chairman 1995 374,184 205,801 0 27,500 3,750
1994 354,046 176,501 0 25,000 3,750
Peter F. Benoist 1996 310,583 150,952 0 22,000 3,393
Executive Vice 1995 296,224 143,054 0 20,000 3,300
President 1994 281,460 122,667 0 18,000 3,300
W. Thomas Reeves 1996 231,650 116,836 0 14,500 3,750
Senior Vice President 1995 219,655 110,239 0 13,200 3,750
1994 209,457 94,596 0 12,000 3,750
Robert F. Borchert 1996 247,280 97,039 0 13,700 3,750
Chairman & Chief 1995 244,619 88,211 0 13,200 3,750
Executive Officer 1994 233,359 81,906 0 12,000 3,157
Mark Twain Bank
<FN>
- -------
<F1> Includes the President and Chief Executive Officer and the four other most
highly compensated Executive Officers.
<F2> See "Personal Benefits" below.
<F3> See "Stock Option Plans" and two tables concerning options below.
<F4> See "Mark Twain Savings Challenge Plan" below.
</TABLE>
3
<PAGE> 4
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN<F*>
Among Mark Twain Bancshares, Inc., S&P 500 Index, NASD Stock Index
and SNL Securities $1-$5 Billion Bank Stock Index
[GRAPH]
<TABLE>
<CAPTION>
INVESTMENT VALUES<F*> AT DECEMBER 31
-----------------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mark Twain Bancshares 100.00 144.23 164.66 187.71 276.26 358.96
S&P 500 Index 100.00 107.62 118.47 120.03 165.13 202.89
NASD Stock Index 100.00 116.38 133.60 130.59 184.68 227.16
SNL $1B - $5B Bank Index 100.00 144.84 174.08 183.28 246.47 319.51
<FN>
- -------
<F*>The graph and table above show the values of $100 invested on December 31,
1991 in Bancshares' Common Stock, the S&P 500 Index, the NASD Stock Index
and the SNL Securities $1-$5 Billion Bank Stock Index, assuming
reinvestment of all dividends.
</TABLE>
The SNL Securities $1-$5 Billion Bank Stock Index reflects the performance
of over 100 publicly traded financial institutions having gross assets of $1-$5
billion.
4
<PAGE> 5
<TABLE>
OPTIONS GRANTED IN 1996
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL RATES OF
GRANTED TO STOCK PRICE APPRECIATION FOR
EMPLOYEES IN EXERCISE OPTION TERM<F1>
OPTIONS FISCAL YEAR PRICE EXPIRATION -----------------------------
NAME GRANTED (#) <F2> ($/SH) DATE 5% 10%
---- ----------- ------------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Dubinsky, CEO.............. 30,000 11.0% $38.19 January, 2001 $ 316,500 $ 699,600
Alvin Siteman................... 30,000 11.0% 42.03 January, 2001 201,300 584,400
Peter F. Benoist................ 22,000 8.0% 38.19 January, 2001 232,100 513,040
W. Thomas Reeves................ 14,500 5.3% 38.19 January, 2001 152,975 338,140
Robert F. Borchert.............. 13,700 5.0% 38.19 January, 2001 144,535 319,484
<FN>
- --------
<F1> The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the SEC and therefore are not intended to
forecast possible future appreciation of Bancshares stock. Bancshares did
not use an alternative formula for a grant date valuation, as Bancshares
is not aware of any formula which will determine with reasonable accuracy
a present value based on future unknown or volatile factors. The assumed
annual rates of appreciation of five and ten percent would result in the
price of Bancshares' stock increasing to $48.74 and $61.51, respectively.
<F2> This column will not total 100% as employees other than those named in the
Summary Compensation Table received Options during the year.
<F3> See "Stock Option Plans" for additional information.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN 1996 AND 1996
YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR END
YEAR-END ($)
VALUE ----------------- --------------------
SHARES ACQUIRED REALIZED EXERCISABLE (E) EXERCISABLE (E) <F2>
NAME ON EXERCISE <F1> UNEXERCISABLE (U) UNEXERCISABLE (U)
---- --------------- -------- ----------------- --------------------
<S> <C> <C> <C> <C>
John Dubinsky, CEO........................... 6,741 $147,150 33,634(E) $ 810,352(E)
67,625(U) $1,146,588(U)
Alvin Siteman................................ 5,065 $ 91,423 31,560(E) $ 674,146(E)
67,625(U) $ 933,027(U)
Peter F. Benoist............................. 0 $ 0 37,250(E) $ 988,294(E)
49,750(U) $ 846,098(U)
W. Thomas Reeves............................. 3,675 $113,988 22,500(E) $ 582,977(E)
33,025(U) $ 563,527(U)
Robert F. Borchert........................... 2,500 $ 76,871 24,800(E) $ 662,410(E)
31,850(U) $ 545,539(U)
<FN>
- --------
<F1> Values realized are calculated by subtracting the exercise price from the
fair market value of the stock on each exercise date.
<F2> Year-end values of unexercised options are calculated by subtracting the
exercise price from the fair market value of Bancshares' stock as of the
fiscal year end ($48.4375, the average of the high and low prices quoted
for December 31, 1996).
</TABLE>
5
<PAGE> 6
RETIREMENT PLANS
Effective January 1, 1989, Bancshares established a Defined Benefit Pension
Plan covering all eligible officers and employees of Bancshares and its
subsidiaries. All officers and employees participate in the Pension Plan upon
the completion of one year of service and the attainment of age 21.
Under the Pension Plan, eligible employees receive annual retirement
benefits based on the average of the highest five consecutive calendar years of
compensation during the ten-year period ending on the normal retirement date or
termination of employment.
Benefits under the Pension Plan are computed on the basis of 0.9% of
average compensation up to Covered Compensation wage base (the 35-year average
of Social Security wage bases ending in the year Social Security retirement age
is attained) plus 1.5% of average compensation over Covered Compensation wage
base, times benefit service up to 30 years. Federal tax law limits the benefit
payable under the Pension Plan.
In 1983, Bancshares established an Executive Benefit Plan, as an amendment
and restatement of an Officers' Benefit Plan established in 1978. The Executive
Plan is an unfunded plan which provides for payments to participating officers
and employees on retirement or other termination of employment, and which
supplements the Pension Plan. In order to participate, an employee must have
been employed by Bancshares for ten years and must earn base pay at least equal
to Social Security Taxable Wage Base for the year for which the employee
becomes a participant. The Executive Benefit Plan operated until January 1,
1989 as the sole retirement plan of the Company. This Plan was phased out when
the Pension Plan was adopted on January 1, 1989, although those covered under
the Plan as of that date continue to be so covered.
The annual benefit payable under the Executive Benefit Plan is 25% of the
average annual compensation for the five highest years of compensation,
increased for each year of employment in excess of ten years, up to a maximum
of 50% for employees with more than 25 years service; but the benefit is
reduced by any benefits payable under the Pension Plan.
The Executive Benefit Plan provides for a normal retirement date at age 65,
and employees who retire on or after that age are entitled to receive the full
accrued benefit. Employees who retire after age 55 with 15 years service with
the consent of Bancshares, and employees who retire with 20 years service, are
entitled to the full accrued benefit, actuarily reduced if retirement occurs
prior to age 65. The normal method of payment of benefits is the payment of the
basic annual benefit in equal monthly installments over the participant's
lifetime, with a minimum of 120 months guaranteed. Benefits are fully vested on
death or disability, and are vested on other termination of employment based on
length of service. Participants must refrain from competing with Bancshares
until at least three years after termination of employment in order to be
eligible to continue to receive payments under the Executive Plan.
6
<PAGE> 7
<TABLE>
PENSION PLAN TABLE
<CAPTION>
YEARS OF CREDITED SERVICE
----------------------------------------------
REMUNERATION 15 20 25 30 OR MORE
- ------------ ------- ------- ------- ----------
<S> <C> <C> <C> <C>
$150,000.......................................... 45,000 60,000 75,000 75,000
300,000.......................................... 90,000 120,000 150,000 150,000
400,000.......................................... 120,000 160,000 200,000 200,000
450,000.......................................... 135,000 180,000 225,000 225,000
600,000.......................................... 180,000 240,000 300,000 300,000
750,000.......................................... 225,000 300,000 375,000 375,000
</TABLE>
The table above presents annual combined retirement benefits payable under
the Pension and Executive Benefit Plans, based upon various assumed final
average salaries and years of credited service for a person reaching age 65 in
1995 with benefits computed on a straight life annuity basis (with 10 years
guaranteed). Amounts shown reflect the actual benefit under the Plan. There is
no Social Security benefit offset. "Remuneration" is the average annual
compensation for the highest five years of compensation as described above for
each plan. The compensation used by Bancshares to compute the benefit under the
Pension Plan includes 100% of base salary, 100% of the first $25,000 of
variable compensation and 50% of variable compensation over $25,000.
The credited service under the Pension and Executive Benefit Plans for each
of the individuals named in the Summary Compensation Table are as follows:
Alvin Siteman, 24 years (by separate agreement, Mr. Siteman is to be credited
with 25 years upon termination of employment with Bancshares); John Dubinsky,
29 years; Peter F. Benoist, 20 years; W. Thomas Reeves, 16 years; and Robert F.
Borchert, 24 years. Remuneration covered by the Plan is included in the Summary
Compensation Table.
MARK TWAIN SAVINGS CHALLENGE PLAN
Bancshares has an employee benefit plan under Section 401(k) of the
Internal Revenue Code. The Plan allows employees to contribute up to 9-15% of
their base pay of which 50% of the amount up to 5% of base pay is matched by
Bancshares. Employees may elect to have their contributions invested in
Bancshares Common Stock; an equity mutual fund and a balanced fund, both
managed by Mark Twain Bank Trust Division; and a pooled GIC fund, a managed
small to midsized stock fund, and a managed small to midsized balanced fund,
all of which are managed in whole or part by non-affiliated companies. All
company matching contributions are contributed or invested in Mark Twain Common
Stock. All common stock held by the Trustee (Mark Twain Bank Trust Division) is
voted as directed by the respective participants to the extent vested, and
otherwise by the Board of Directors. At December 31, 1996, there were 519,613
shares held by the Trustee. The amounts contributed by Bancshares to the
persons listed in the Summary Compensation Table includes $3,750 for Alvin
Siteman, $3,750 for John Dubinsky, $3,393 for Peter F. Benoist, $3,750 for W.
Thomas Reeves and $3,750 for Robert F. Borchert.
PERSONAL BENEFITS
After inquiry, Bancshares has concluded that the aggregate amounts of
personal benefits which cannot be specifically or precisely ascertained do not
in any event exceed $15,000 as to each individual named in the Summary
Compensation Table above and has concluded that the information set forth in
the table is not rendered materially misleading by virtue of the omission of
the value of such personal benefits.
EXECUTIVE EMPLOYMENT AGREEMENTS
Bancshares has entered into employment and compensation agreements with
certain of its officers and directors. The basic purpose of these agreements is
to provide a commitment to Bancshares from its key executives, and a reciprocal
commitment to each of them from Bancshares. The
7
<PAGE> 8
Board believes that the agreements will have the effect of providing Bancshares
with greater continuity of management by giving key personnel incentives to
remain with Bancshares, as well as disincentives to leaving.
The standard agreements provide that each covered employee's base salary
and incentive compensation (including bonus) will be determined each year by
the Board of Directors or its delegatee. The standard agreements are for
initial terms ranging from twelve to twenty-four months. Messrs. Dubinsky,
Siteman, Benoist, Reeves, and Borchert each have standard agreements with
initial terms of twenty-four months which began in 1995. The initial term
normally is extended automatically for successive twelve month periods, with a
maximum term of five years. Each standard agreement contains covenants not to
compete or engage in activities which would be detrimental to Bancshares or its
subsidiaries, which covenants survive termination.
Each standard agreement is subject to: (i) termination by Bancshares or the
employee upon at least twelve months' notice, except that the initial term
cannot be shortened by giving this notice; (ii) termination by Bancshares
without cause (as provided in the agreement); (iii) termination by the employee
in response to certain actions by Bancshares affecting the employee's position
or geographic location; (iv) termination by the employee for other reasons; (v)
termination by Bancshares for cause; and (vi) termination upon the employee's
death. If terminated by Bancshares under clause (i), the employee would receive
whatever standard severance benefit Bancshares is paying at that time upon
execution of Bancshares' standard severance agreement then being used. If
terminated under clauses (ii) or (iii) in accordance with the terms of the
agreement, the employee would be entitled, upon execution of Bancshares'
standard severance agreement, to receive each month for a period equal to the
initial term a special monthly severance benefit based generally upon the
employee's average salary and regular incentive compensation paid during the
preceding three years. If terminated under clauses (iv), (v), or (vi), no
severance benefit would be payable.
STOCK OPTION PLANS
Bancshares has three plans providing for the grant of stock options (the
"Option Plans"). The 1983 Incentive Stock Option Plan ("1983 Plan") was
adopted and approved by shareholders in 1983, and expired in 1993 with some
grants outstanding. The 1992 Stock Option Plan (the "1992 Plan") was adopted
and approved by shareholders in 1992, and will expire on January 21, 2002. The
1995 Stock Option Plan (the "1995 Plan") was adopted and approved by
shareholders in 1995, and will expire on January 15, 2005.
The 1983 Plan authorized the grant of incentive stock options, as defined
by federal tax law ("ISOs"). The 1992 and 1995 Plans authorize the grant of
ISOs and non-qualified stock options ("NQSOs"). Up to 675,000 shares of
Bancshares Common Stock may be issued under the 1992 Plan, and up to 900,000
shares may be issued under the 1995 Plan. Appropriate adjustments in the
number of shares available under the Option Plans and in the terms of
outstanding ISO and NQSOs ("options") are required for stock splits and
similar events.
Approximately 41 officers and management and supervisory employees of
Bancshares and its subsidiaries are eligible to receive options under the
Option Plans. Non-employee directors are ineligible for any option grant under
any Plan.
The Option Plans are administered by the Board's Compensation, Benefits and
Stock Option Committee, which consists entirely of non-employee directors.
Within the limits of each Plan, the Committee determines when and to whom
options are granted, the number of shares subject to each option, each option's
price and duration, when options become exercisable, whether the option is an
ISO or NQSO, and other terms and conditions which the Committee deems
appropriate. The 1992 and 1995 Plans impose a five-year limit on all options
granted under them. All options granted to date under all plans become
exercisable in four equal annual installments, beginning one year after grant;
all outstanding options terminate five years after grant. All options reported
in the table entitled "Option Grants in 1996" above were granted on January
12, 1996.
8
<PAGE> 9
The option price of options cannot be less than 100% of the market value of
Bancshares Common Stock on the grant date (110% in the case of ISOs granted to
a 10% stockholder). Optionees may pay the option price in cash or Bancshares
Common Stock. Bancshares may loan the option price to optionees to the extent
allowed by law. The Committee permits required withholding taxes to be paid
with Common Stock, including stock otherwise issuable in connection with an
option exercise.
The Committee may accelerate the exercisability of options at any time. All
Option Plans provide for automatic acceleration upon death or disability of an
optionee, or upon the occurrence of certain takeover events relating to
Bancshares. Options may be forfeited if the optionee terminates employment
within two years of grant or is dismissed at any time. Options (and any stock
or other benefits derived from options) may be forfeited if the optionee
competes with, or acts in any manner inimical to the best interests of,
Bancshares and its subsidiaries. In addition, optionees must expressly covenant
not to compete with Bancshares and its subsidiaries during the term of their
employment and for three years thereafter.
The Option Plans may be amended by the Board of Directors at any time.
Under the 1992 and 1995 Plans, certain amendments which increase the number of
authorized shares or change the class of eligible employees must be approved by
Bancshares' shareholders.
9
