FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended Sept. 30, 1995 Commission File Number 0-4742
HAWKEYE BANCORPORATION
----------------------
(Exact name of registrant as specified in its charter)
IOWA 42-0926317
---- ----------
(State or other jurisdiction of (IRS Employer identification
incorporation or organization) number)
222 Equitable Building, 604 Locust Street,
------------------------------------------
Des Moines, Iowa 50309-3723
---------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (515) 284-1930
--------------
NOT APPLICABLE
--------------
(Former name and former fiscal year, if changed from last report)
"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
-------- --------
Common Shares Outstanding:
13,461,373 shares no par value common stock.
<PAGE>
Part I - Financial Information
Item 1: Financial Statements
(a) Unaudited Consolidated Balance Sheets, Consolidated
Statements of Income and Notes to Financial Statements
are included in Registrant's Quarterly Report to
Shareholders attached hereto as Exhibit I on pages 6,7,
and 9. The Unaudited Consolidated Statements of Cash
Flows are attached hereto as Exhibit II.
(b) Earnings per common and common equivalent share and
weighted average shares outstanding are shown on the face
of the Consolidated Statements of Income in Registrant's
Quarterly Report to Shareholders attached hereto as
Exhibit I on page 7. Footnote 6 of the Notes to
Financial Statements, also included in the Registrant's
Quarterly Report to Shareholders attached hereto as
Exhibit I, provides an analysis of the computation of
weighted average shares outstanding used to determine
earnings per common and common equivalent share.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL INFORMATION
(In thousands except per share)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Interest income $36,427 $31,286 $105,900 $90,495
Interest expense 17,300 13,004 49,337 37,414
Net interest income 19,127 18,282 56,563 53,081
Provision for loan losses 192 6 249 48
Other income 7,187 6,517 20,195 20,092
Other expenses 16,372 15,973 50,178 47,259
Income from operations,
before taxes 9,750 8,820 26,331 25,866
Income tax expense 3,681 2,781 9,004 8,420
Net income 6,069 6,039 17,327 17,446
Earnings per common and
common equivalent share 0.45 0.45 1.28 1.31
<PAGE>
At the Period Ended:
September 30, September 30, December 31,
1995 1994 1994
---- ---- ----
% Return on average
shareholders' equity 12.52 13.90 14.04
% Return on average assets 1.18 1.26 1.27
Average assets $1,955,928 $1,856,128 $1,868,308
Average earning assets 1,795,763 1,709,928 1,718,427
Average loans 1,266,231 1,149,527 1,167,150
Average deposits 1,689,412 1,621,793 1,630,026
Average shareholders' equity 184,992 167,792 169,147
Long-term debt 39,741 30,922 31,536
Total assets 1,992,565 1,891,356 1,926,875
Ratio of average equity
to average assets 9.46% 9.04% 9.05%
Results of Operations
- - ---------------------
Earnings for the third quarter of 1995 rose to $6.069 million,
as compared to $6.039 million in 1994. Net income for the first
nine months of 1995 was $17.327 million, versus $17.446 million for
the same period last year.
The following table presents the basic components of results
of operations:
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Net interest income $19,127 $18,282 $56,563 $53,081
Provision for loan losses (192) (6) (249) (48)
Noninterest income 7,187 6,517 20,195 20,092
Other noninterest expenses (16,372) (15,973) (50,178) (47,259)
Income tax expense (3,681) (2,781) (9,004) (8,420)
----- ----- ----- -----
Net income $6,069 $6,039 $17,327 $17,446
===== ===== ====== ======
Capital Resources
- - -----------------
The ratio of total shareholders' equity to total assets was
9.7% at September 30, 1995, as compared to 9.0% at December 31,
1994. The increase in shareholders' equity resulted from net
income in the first nine months of $17.3 million, less $6.3 million
of dividends paid, plus an unrealized gain on securities available
for sale of $5.3 million, and issuance of common stock of $2.2
million.
<PAGE>
September 30, December 31,
(In thousands) 1995 1994
- - -------------- ---- ----
Total shareholders' equity $192,819 $174,354
Allowance for loan losses 21,553 21,334
Total assets 1,992,565 1,926,875
Equity to assets 9.68% 9.05%
Primary capital to assets 10.64% 10.04%
Dividends
- - ---------
Preferred and preference stock dividends of $679 thousand and
$110 thousand were paid during the first nine months of 1994. All
preferred and preference stock were converted into common stock by
December 31, 1994.
Common dividends of $4,513 thousand were paid in the first
nine months of 1994. This compares to common dividends of $6,327
thousand paid in the first nine months of 1995. The current
quarterly dividend rate of 17 cents per share will require payments
of $9,154 thousand annually to common shareholders.
The Company's dividend policy goal is a payout similar to the
industry average of 35-40% of earnings. The actual dividend payout
in the first nine months of 1995 was 36.5%.
Mergers and Acquisitions
- - ------------------------
On August 4, 1995, Hawkeye Bancorporation ("Hawkeye") and
Mercantile Bancorporation, Inc., a Missouri corporation
("Mercantile") entered into a definitive Agreement and Plan of
Reorganization (the "Merger Agreement"), which provides, among
other things, for the merger ("Merger") of Hawkeye with and into a
wholly owned subsidiary of Mercantile.
Under the terms of the Merger Agreement, each share of the
common stock, without par value ("Hawkeye Common Stock"), of
Hawkeye issued and outstanding immediately prior to the effective
time of the Merger shall be converted into 0.585 of a share of
common stock, par value $5.00 per share, of Mercantile, subject to
the terms and conditions of the Merger Agreement.
On August 4, 1995, as a condition to Mercantile's entering
into the Merger Agreement, Hawkeye entered into an Stock Option
Agreement (the "Stock Option Agreement") pursuant to which
Mercantile was granted an option to purchase, under certain
circumstances, 2,678,000 shares of Hawkeye Common Stock (19.9% of
the number of such shares then outstanding), at a per share
exercise price of $22.
On August 4, 1995, persons who are directors of Hawkeye
entered into agreements (the "Voting and Support Agreements")
<PAGE>
pursuant to which they agreed, among other things, to vote or cause
to be voted the shares of Hawkeye Common Stock owned of record or
beneficially by them in favor of the Merger Agreement.
Consummation of the Merger is subject to certain conditions,
including: (i) receipt of requisite approval of the shareholders of
Hawkeye of the Merger Agreement as requested by Iowa law; (ii)
receipt of approval of the Federal Reserve Board and the Iowa
Division of Banking, and any other applicable regulatory authority;
(iii) registration of the shares of Mercantile Common Stock to be
issued pursuant to the Merger under the Securities Act of 1933, as
amended, and all applicable state securities laws: (iv) receipt of
opinions of counsel that the Merger will qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended,
and (v) satisfaction of certain other closing conditions.
Depending on the above conditioned, the Hawkeye special
shareholder meeting is targeted for December 21, 1995, and
consummation of the merger is projected to be December 29, 1995.
Net Interest Income
- - -------------------
For the quarter ended September 30, 1995, net interest income
increased $0.845 million, up five percent from one year ago, to
$19.127 million. On a taxable equivalent basis, net interest
income increased $0.851 million, or four percent, to $19.936
million in the current quarter from $19.085 million in 1994. For
the nine months ended September 30, 1995, net interest income
increased seven percent to $56.563 million from $53.081 million for
the same period in 1994. On a taxable equivalent basis, net
interest income increased $3.501 million to $59.011 million for the
first nine months of 1995 from $55.510 million in 1994. Compared
to the second quarter of 1995, the gross interest margin decreased
one basis point to 4.35% on a fully taxable equivalent basis.
Interest income, interest expense and net interest income on a
taxable equivalent basis for the two comparable periods are shown
in the table below.
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1995 1994 1995 1994
- - ------------- ---- ---- ---- ----
Interest income $36.4 $31.3 $105.9 $90.5
Interest expense 17.3 13.0 49.3 37.4
---- ---- ---- ----
Net interest income 19.1 18.3 56.6 53.1
Taxable equivalent adjustment
to interest income 0.8 0.8 2.4 2.4
Net interest income - ---- ---- ---- ----
taxable equivalent $19.9 $19.1 $59.0 $55.5
==== ==== ==== ====
The primary reason for the increase in net interest income was
a 6.0% and 5.0% growth in average earning assets for the third
quarter and first nine months, respectively.
<PAGE>
Noninterest Income
- - ------------------
Noninterest income increased $.670 million for the third
quarter and $.103 million for the first nine months of 1995, as
compared to the same periods last year. The primary reasons for
the increase in the third quarter were increased loan fees of $.256
million and increased sales of fee-related financial products of
$.203 million. The following table reflects the components of
noninterest income:
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1995 1994 1995 1994
- - ------------- ---- ---- ---- ----
Fees $3.5 $2.8 $9.5 $8.9
Trust and agency services 1.3 1.3 3.9 3.8
Service charges 1.0 1.0 2.9 2.9
Insurance, real estate, and
advisory services 0.4 0.5 1.1 1.4
Security gains 0.1 0.4
Other 1.0 0.9 2.7 2.7
--- --- ---- ----
$7.2 $6.5 $20.2 $20.1
=== === ==== ====
Noninterest Expense
- - -------------------
Noninterest expense was $16.4 million and $16.0 million for
the third quarter of 1995 and 1994, respectively. For the first
nine months of 1995 as compared to 1994, noninterest expense
increased 6.2% from $47.3 million to $50.2 million. The following
table reflects the components of noninterest expense:
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1995 1994 1995 1994
- - ------------- ---- ---- ---- ----
Salaries and benefits $8.0 $7.9 $23.5 $22.9
Computer 1.7 1.6 5.1 4.9
Fees 1.8 1.1 4.2 3.1
Occupancy 1.3 1.3 3.9 3.6
Furniture and equipment 1.0 0.9 3.0 2.5
Marketing 0.9 0.9 2.6 2.5
Insurance 1.0 2.2 3.1
Other expenses 1.7 1.3 5.7 4.7
---- ---- ---- ----
$16.4 $16.0 $50.2 $47.3
==== ==== ==== ====
The third quarter of 1995 included FDIC refunds of $1.025
million and merger related expenses of $.581 million. Salaries and
benefits increased less than three percent or $.650 million as
compared to the first nine months of last year, and increased
operating expenses of about $.950 million are associated with the
four acquisitions consummated since late June of 1994.
<PAGE>
Liquidity and Capital Management
- - --------------------------------
The Company's primary source of funds are management fees and
dividends from the Subsidiaries. Dividends of $12.8 million and
$16.1 million were received from the subsidiaries during the first
nine months of 1995 and 1994, respectively, to meet cash flow needs
of the Parent Company. Management fees of $3.0 million were
received in the first nine months of 1995 and 1994.
Hawkeye's twenty-three Bank Subsidiaries ended the third
quarter with primary capital of $210.2 million, 9.55% of assets.
At September 30, 1995, approximately $75.8 million of dividends are
available to be paid by the Bank Subsidiaries without causing their
primary capital ratios to fall below 7.0%. The Parent Company
anticipates an additional $6.7 million of dividends from the Bank
Subsidiaries during the remainder of 1995. At September 30, 1995,
all Bank Subsidiaries exceed minimum regulatory capital
requirements.
The Company's Tier I capital ratio is 13.1% and its total risk
adjusted capital ratio is 14.4%. These ratios compare favorably
to the regulatory minimums of 4.0% for Tier I and 8.0% for total
risk adjusted capital. The comparable ratios at December 31, 1994
were 12.5% and 13.8%, respectively.
Regulatory agencies have also initiated a third capital
requirement, called a leverage ratio. Under the risk-based rules,
a financial institution with a very secure asset portfolio could
actually reduce the amount of its capital. To limit the amount of
leverage an institution could undertake, and to ensure a sufficient
capital level, a minimum leverage ratio of Tier I core capital of
3.0% of total assets has been required. The Company's leverage
ratio of 8.8% also exceeds this minimum. The comparable ratio at
December 31, 1994 was 8.4%.
September 30, 1995
Tier 1 Total Leverage
------ ----- --------
Combined ratios of Bank
Subsidiaries - 13.7% 14.9% 9.2%
Management of the Company believes a strong capital position
is essential for operating a safe and sound financial institution
and safeguarding the funds entrusted to it by customers and
shareholders.
As long as the Subsidiaries maintain adequate capital, their
liquidity needs are not dependent on the Parent Company's source of
funds. Liquidity reserves, maintained to meet their deposit and
loan needs, consist of overnight and short-term investments
including: federal funds sold, interest bearing deposits in other
banks, other short-term investments, loans, and securities
<PAGE>
available for sale. Additionally, the Subsidiaries may borrow
through the Federal Reserve System's discount window or through the
purchase of federal funds to fund temporary liquidity needs.
Public stock or debt offerings would be available to the
Company to raise additional capital, if necessary.
Interest Rate Sensitivity
- - -------------------------
The primary tool for managing the banks' interest margins is
interest sensitivity analysis -- an ongoing comparison of present
and prospective interest income with present and prospective
interest expense. Analysis of the amounts and yields of the
various asset and liability categories maturing or repricing in
various future periods serves as the basis for establishing loan
rates and terms as well as deposit pricing to protect and enhance
interest margins.
The key goal of interest sensitivity management is to protect
against unfavorable changes in margins arising from changes in the
general level of interest rates. This is achieved by balancing the
amount of assets maturing or repricing in any future period with
the amount of liabilities maturing or repricing in the same period.
Any imbalance in any future period is referred to as a "gap".
The following schedule summarizes the maturing or repricing of
Hawkeye's assets and liabilities at September 30, 1995.
0-90 91-180 181-365 One To Over
(In millions) Days Days Days Five Yrs Five Yrs Total
Assets: ---- ------ ------- -------- -------- -----
Loans $418.3 $132.9 $201.6 $395.8 $150.0 $1,298.6
Securities
and other 131.4 21.4 34.1 249.8 80.7 517.4
----- ----- ----- ----- ----- -------
549.7 154.3 235.7 645.6 230.7 1,816.0
Liabilities: ----- ----- ----- ----- ----- -------
Deposits 788.8 165.5 212.4 325.5 20.3 1,512.5
Borrowed
funds 11.7 4.4 14.0 23.0 8.1 61.2
----- ----- ----- ----- ---- -------
800.5 169.9 226.4 348.5 28.4 1,573.7
Rate sensi- ----- ----- ----- ----- ----- -------
tive gap $(250.8) $(15.6) $9.3 $297.1 $202.3 $242.3
======= ===== === ===== ===== =====
The consolidated due-within-one-year rate-sensitive assets on
September 30, 1995, were $939.7 million or 79% of the rate
sensitive liabilities also due within one year. Included in
deposits repricing within 90 days were $628.5 million of retail
savings and interest bearing transaction accounts that historically
reprice more slowly than time deposits in a changing interest rate
environment; and based on historical averages, about 65% or $408.5
<PAGE>
million, would reprice over one year. Thus, an adjusted cumulative
one year gap of $151.4 million or 119% exists at September 30,
1995.
Investment Portfolio
- - --------------------
The investment portfolio, consisting of investment securities
and securities available for sale, is used to furnish liquidity,
balance interest rate risk, provide income and collateralize public
funds. The Company invests mainly in high quality liquid
investments with short to intermediate maturities. In addition to
credit risk analysis, the Company also monitors interest rate risk
using interest rate sensitivity analysis.
Occasionally, in response to market conditions, opportunities
result whereby certain securities available for sale can be sold
and the proceeds can be reinvested at comparatively better yields.
Proceeds from the sale of securities were $34.5 million and $56.6
million for the nine months ended September 30, 1995 and 1994,
respectively. Such transactions are predicated on market
conditions and not the Company's desire to generate trading profits
and losses. These securities available for sale are used for
additional liquidity and to manage interest rate risk. Security
gains of $104 thousand for the first nine months of 1995 compare to
$396 thousand for the same period last year.
At September 30, 1995, the fair market value of securities
available for sale was lower than amortized cost by $0.266 million.
Thus, an unrealized loss on securities available for sale of $0.164
million was recorded in shareholders' equity; and a $0.102 million
increase of deferred tax assets was made.
Allowance for Loan Losses and Nonperforming Assets
- - --------------------------------------------------
The allowance for loan losses was 1.66% and 1.73% of loans on
September 30, 1995, and December 31, 1994, respectively. Net loan
recoveries of $192 thousand for the third quarter of 1995 compare
to $70 thousand net loan chargeoffs for the same period in 1994.
For the first nine months of 1995, net loan chargeoffs of $111
thousand compare to net loan recoveries of $429 thousand for the
same period in 1994.
Nonperforming assets represent assets where there is a concern
about future collectibility. The following table sets forth the
amounts (in thousands) of such nonperforming assets:
<PAGE>
September 30, December 31,
1995 1994
---- ----
Nonaccrual loans $3,393 $2,963
Restructured loans 672 491
Other real estate owned 393 941
----- -----
$4,458 $4,395
===== =====
Percent of nonperforming
assets to total loans and
other real estate owned 0.34% 0.36%
==== ====
Hawkeye has recorded at September 30, 1995 and December 31, 1994,
an allowance for loan losses of $21.553 million and $21.334 million
respectively. Adequacy of the allowance is based on management's
review of each bank's loan portfolio, including known problem
loans, analysis of regulatory examinations and the possible impact
of economic conditions in the market areas served. Management
believes the allowance is at an adequate level for all periods
presented based on all available data.
Deposits
- - --------
Total deposits increased $41.4 million from December 31, 1994,
to $1,717.1 million at September 30, 1995. Bank Subsidiaries are
encouraged to grow local deposits based upon safe and sound banking
principles as capital levels permit. The following table presents
the components of deposits (in millions) and the percentage
increase (decrease) from December 31, 1994 to September 30, 1995:
September 30, December 31, %
1995 1994 Change
----- ---- ------
Demand deposits $ 204.6 $ 216.7 (5.6)
Savings deposits 169.3 182.3 (7.1)
N.O.W. and money
market deposits 459.3 442.3 3.8
Jumbo time deposits 107.0 76.3 40.2
Other time deposits 776.9 758.0 2.5
------- ------- ---
$1,717.1 $1,675.6 2.5
======= ======= ===
Income Taxes
- - ------------
Income taxes on operating income differ from statutory rates
principally because of tax-exempt interest, goodwill amortization
and nondeductible merger related expenses.
<PAGE>
Hawkeye Bancorporation Exhibit I
Registrant's Quarterly Report to Shareholders ---------
<PAGE>
Hawkeye Bancorporation Exhibit II
Consolidated Statements of Cash Flows ----------
(Unaudited)
Nine Months Ended
September 30,
(In thousands) 1995 1994
- - -------------------------------------------------------------------------
Cash Flows from Operating Activities $17,327 $17,446
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
for income taxes
Depreciation 3,169 2,531
Amortization 1,096 837
Net Amortization (accretion) of securities 166 1,708
Gain on sales of securities available for sale (104) (396)
Provision for loan losses 249 48
(Gain) loss on sales of premises and equipment 1 (14)
Other real estate owned writedowns 48 2
Increase in accrued interest receivable (3,615) (2,755)
(Increase) decrease in other assets 325 (292)
Increase (decrease) in other liabilities 3,156 (5,335)
- - --------------------------------------------------------------------------
Net cash provided by operating activities 21,818 13,780
- - --------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from sales of securities AFS 34,512 56,579
Proceeds from maturities of securities AFS 78,703 38,901
Proceeds from maturity of securities HTM 32,112 90,296
Purchases of securities AFS (96,619) (78,150)
Purchases of securities HTM (7,348) (47,433)
Net (increase) decrease in short-term investments
and interest bearing deposits in other banks (2,177) 8,369
Net increase in loans (57,774) (115,732)
Purchases of premises and equipment (4,906) (3,643)
Proceeds from sales of premises and equipment 28
Cash paid for acquisitions net of cash received 394 25,005
- - --------------------------------------------------------------------------
Net cash used in investing activities (23,103) (25,780)
- - --------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in deposits 23,171 (21,447)
Net increase (decrease) in short-term borrowings (5,613) 710
Payment of preferred stock dividends (679)
Payment of preference stock dividends (110)
Payment of common stock dividends (6,327) (4,513)
Issuance of common stock 28
Proceeds from long-term borrowings 11,430 6,470
Payments on long-term debt (3,225) (3,160)
- - --------------------------------------------------------------------------
Net cash provided by (used in) financing activities 19,436 (22,701)
- - --------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,151 (34,701)
Cash and cash equivalents at beginning of year 109,906 139,211
- - --------------------------------------------------------------------------
Cash and cash equivalents at end of period $128,057 $104,510
- - --------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
- - --------------------------------------------------
Cash paid for:
Interest $46,782 $37,294
Income taxes 8,529 8,939
<PAGE>
Supplemental Disclosures of Cash Flow Information
- - -------------------------------------------------
Additional common stock was issued upon the conversion of preference and
preferred stock in 1994 and upon acquisition activities in both years
resulting in the changes as shown in the Statements of Changes in
Shareholders' equity on Page 8 of Exhibit I.
See notes to financial statements.
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
On August 14, 1995, Form 8-K was filed announcing the merger of
Hawkeye Bancorporation and Mercantile Bancorporation, Inc. See the
section "Mergers and Acquisitions" beginning on page 4 of this Form
10-Q for further description.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HAWKEYE BANCORPORATION
Date__________________________________________________________
Robert W. Murray
Chief Executive Officer &
President
Date___________________________________________________________
Brent E. Johnson
Vice President & Chief
Financial Officer
<PAGE>
<TABLE>
HAWKEYE BANCORPORATION
Financial Highlights & Historical Summary
(Unaudited in thousands)
<CAPTION>
- - ----------------------------------------------------------------------------------------------
At the Period Ending: Percent September 30,
Increase 1995 1994
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Assets 5.4 % $1,992,565 $1,891,356
Total Deposits 4.0 1,717,075 1,651,206
Total Loans 6.2 1,298,589 1,222,615
Total Shareholders' Equity 12.3 192,819 171,733
For the Nine Months Ending:
- - ----------------------------------------------------------------------------------------------
Net Interest Income 6.6 % 56,563 $ 53,081
Net Income (0.7) 17,327 17,446
Per Share
- - ----------------------------------------------------------------------------------------------
Net Income per Common & Common Equivalent Share (2.3)% $ 1.28 $ 1.31
Book Value per Common Share 11.2 14.32 12.88
- - ----------------------------------------------------------------------------------------------
At the Period Ending: September 30, September 30, December 31,
1995 1994 1994
- - ----------------------------------------------------------------------------------------------
Ratios:
Primary capital to assets 10.64% 10.11% 10.04%
Allowance for loan losses as a percent of loans 1.66 1.77 1.73
Return on average assets 1.18 1.26 1.27
Return on average equity 12.52 13.90 14.04
_______________________________________________________________________________________________
Graph Charts Data
Total Shareholders' Equity
1990 $118,981
1991 $129,444
1992 $147,085
1993 $162,552
1994 $174,354
9/30/95 $192,819
Book Value per Common Share
1990 $7.87
1991 $9.38
1992 $10.84
1993 $12.15
1994 $13.06
9/30/95 $14.32
</TABLE>
<PAGE>
<TABLE>
HAWKEYE BANCORPORATION
Financial Highlights & Historical Summary
(Unaudited in thousands)
<CAPTION>
- - ------------------------------------------------------------------------------------------------
At the Period Ending: September 30, December 31,
1995 1994 1994
________________________________________________________________________________________________
<S> <C> <C> <C>
Asset Quality:
Nonaccrual loans $3,393 $4,633 $2,963
Restructured loans 672 763 491
Loans past due ninety days or more as
to interest or principal payments 657 1,060 939
Other real estate owned 393 666 941
______ ______ ______
Total nonperforming assets $5,115 $7,122 $5,334
====== ====== ======
Ratio of nonperforming assets to total assets .26% .38% .28%
Ratio of net loan chargeoffs to average loans .01 % (.05)% (.01)%
Average Balances:
Assets $1,955,928 $1,856,128 $1,868,308
Deposits 1,689,412 1,621,793 1,630,026
Loans, net 1,266,231 1,149,527 1,167,150
Earning Assets 1,795,763 1,709,928 1,718,427
Shareholders' equity 184,992 167,792 169,147
________________________________________________________________________________________________
Graph Charts Data
Allowance for Loan Losses to Nonperforming Loans
1990 152%
1991 162%
1992 240%
1993 419%
1994 486%
9/30/95 456%
Primary Capital Ratio
1990 8.43%
1991 8.74%
1992 8.94%
1993 9.68%
1994 10.04%
9/30/95 10.64%
</TABLE>
<PAGE>
<TABLE>
HAWKEYE BANCORPORATION
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
________________________________________________________________________________________________________________
September 30, December 31,
(Dollars in thousands) 1995 1994 1994
________________________________________________________________________________________________________________
<S> <C> <C> <C>
Assets
Cash and due from banks $ 96,917 $ 89,689 $ 93,276
Federal funds sold 31,140 14,821 16,630
Interest bearing deposits in other banks 200 300 200
Other short-term investments 70,864 65,119 68,687
Securities available for sale(amortized cost--September 30, 1995--
$287,536; December 31, 1994--$293,407; and
September 30, 1994--$270,206) 287,270 265,365 284,682
Investment securities (market value--September 30, 1995--
$129,289; December 31, 1994--$150,051; and
September 30, 1994--$160,312) 127,896 160,438 152,077
Loans:
Commercial 264,112 261,275 272,103
Agricultural 153,805 173,701 159,854
Real estate 708,855 630,778 643,874
Consumer 171,817 156,861 158,297
________________________________________________________________________________________________________________
Total loans 1,298,589 1,222,615 1,234,128
Less allowance for loan losses 21,553 21,587 21,334
________________________________________________________________________________________________________________
Net loans 1,277,036 1,201,028 1,212,794
Premises and equipment, net 38,157 34,575 36,247
Accrued interest receivable 22,877 20,894 18,935
Goodwill and core deposit intangibles 21,564 19,553 21,185
Other assets 18,644 19,574 22,162
________________________________________________________________________________________________________________
Total assets $ 1,992,565 $ 1,891,356 $ 1,926,875
================================================================================================================
Liabilities
Deposits:
Noninterest bearing $ 204,619 $ 213,068 $ 216,729
Interest bearing 1,512,456 1,438,138 1,458,911
________________________________________________________________________________________________________________
Total deposits 1,717,075 1,651,206 1,675,640
Short-term borrowings:
Federal funds purchased and other 15,003 18,558 23,616
Short-term debt 6,500 4,431 3,500
Long-term debt 39,741 30,922 31,536
Other liabilities 21,427 14,506 18,229
________________________________________________________________________________________________________________
Total liabilities 1,799,746 1,719,623 1,752,521
================================================================================================================
Shareholders' Equity
Preference stock, no par value:
Authorized 200,000,000 shares
Issued: September 30, 1994 -- 155,048 shares 179
Preferred stock, $1 par value:
Authorized 5,000,000 shares
Issued: September 30, 1994 -- 113,094 shares 113
Common stock, no par, $.01 stated value
Authorized 200,000,000 shares
Issued: September 30, 1995 -- 13,461,373 shares
December 31, 1994 -- 13,350,249 shares
September 30, 1994 -- 12,300,700 shares 135 123 134
Capital surplus 105,129 101,889 102,977
Retained earnings 87,719 72,420 76,719
Unrealized loss on securities available for sale (164) (2,991) (5,476)
________________________________________________________________________________________________________________
Total shareholders' equity 192,819 171,733 174,354
________________________________________________________________________________________________________________
Total liabilities and shareholders' equity $ 1,992,565 $ 1,891,356 $ 1,926,875
================================================================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
HAWKEYE BANCORPORATION
Consolidated Statements of Income
(Unaudited)
<CAPTION>
_________________________________________________________________________________________________________________
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands except per share) 1995 1994 1995 1994
_________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Interest Income
Loans $ 28,384 $ 24,079 $ 81,406 $ 67,899
Securities:
Taxable 5,416 5,180 16,788 16,526
Nontaxable 913 880 2,797 2,639
Federal funds sold and other 1,714 1,147 4,909 3,431
_________________________________________________________________________________________________________________
Total interest income 36,427 31,286 105,900 90,495
Interest Expense
Deposits 16,346 12,291 46,575 35,526
Federal funds purchased and other 254 210 856 506
Short-term debt 61 18 140 72
Long-term debt 639 485 1,766 1,310
_________________________________________________________________________________________________________________
Total interest expense 17,300 13,004 49,337 37,414
_________________________________________________________________________________________________________________
Net interest income 19,127 18,282 56,563 53,081
Provision for loan losses 192 6 249 48
_________________________________________________________________________________________________________________
Net interest income after provision for loan losses 18,935 18,276 56,314 53,033
_________________________________________________________________________________________________________________
Other Income
Insurance, real estate and advisory services 407 559 1,095 1,405
Trust and agency services 1,284 1,269 3,888 3,804
Service charges 976 961 2,927 2,901
Fees 3,484 2,780 9,458 8,874
Investment security gains 25 35 104 396
Other 1,011 913 2,723 2,712
_________________________________________________________________________________________________________________
Total other income 7,187 6,517 20,195 20,092
Other Expenses
Salaries and employee benefits 7,985 7,892 23,528 22,878
Occupancy 1,330 1,239 3,878 3,596
Furniture and equipment 1,014 854 2,947 2,436
Other 6,043 5,988 19,825 18,349
_________________________________________________________________________________________________________________
Total other expenses 16,372 15,973 50,178 47,259
Income from operations, before taxes 9,750 8,820 26,331 25,866
Income tax expense 3,681 2,781 9,004 8,420
_________________________________________________________________________________________________________________
Net income $ 6,069 $ 6,039 $ 17,327 $ 17,446
=================================================================================================================
Weighted average number of common shares,
dilutive common share equivalents and other
dilutive items 13,533 13,331 13,512 13,327
Earnings per common and common equivalent share $ .45 $ .45 $ 1.28 $ 1.31
=================================================================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
HAWKEYE BANCORPORATION
Statements of Changes in Shareholders' Equity *
(Unaudited)
<CAPTION>
_________________________________________________________________________________________________________________________________
Preference Preferred Common Capital Retained Unrealized
(Dollars in thousands) Stock Stock Stock Surplus Earnings Gain(Loss) Total
_________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 $365 $113 $121 $101,677 $60,276 $162,552
Net income 17,446 17,446
Issuance of common stock 28 28
Preference stock conversions (186) 2 184
Dividends:
Preference stock (110) (110)
Preferred stock (679) (679)
Common stock (4,513) (4,513)
Unrealized loss on securities available for sale ($2,991) (2,991)
_________________________________________________________________________________________________________________________________
Balances, September 30, 1994 $179 $113 $123 $101,889 $72,420 ($2,991) $171,733
=================================================================================================================================
Balances, January 1, 1995 $134 $102,977 $76,719 ($5,476) $174,354
Net income 17,327 17,327
Issuance of common stock 1 2,152 2,153
Dividends:
Common stock (6,327) (6,327)
Unrealized loss on securities available for sale 5,312 5,312
_________________________________________________________________________________________________________________________________
Balances, September 30, 1995 $135 $105,129 $87,719 $ (164) $192,819
=================================================================================================================================
</TABLE>
<TABLE>
HAWKEYE BANCORPORATION
Consolidated Average Funds and Rates *
(Unaudited)
<CAPTION>
_____________________________________________________________________________________________
Nine Months Ended September 30,
1995 1994
Average Average
(Dollars in thousands) Balance Rate Balance Rate
_____________________________________________________________________________________________
<S> <C> <C> <C> <C>
Interest Earning Assets
Loans $ 1,266,231 8.71% $ 1,149,527 8.01%
Securities 431,879 6.49 465,261 5.92
Federal funds sold and other 97,653 6.72 95,140 4.82
_____________________________________________________________________________________________
Total 1,795,763 8.07% $ 1,709,928 7.27%
_____________________________________________________________________________________________
Interest Bearing Liabilities
Deposits $ 1,498,000 4.16% $ 1,429,071 3.32%
Federal funds purchased and other 20,530 5.57 18,168 3.72
Short-term debt 3,167 5.91 2,924 3.29
Long-term debt 34,634 6.82 28,630 6.12
_____________________________________________________________________________________________
Total $ 1,556,331 4.24% $ 1,478,793 3.38%
_____________________________________________________________________________________________
Rate Analysis
Interest income/earning assets 8.07% 7.27%
Interest expense/earning assets 3.67 2.93
Net yield 4.39 4.34
=============================================================================================
* See notes to financial statements.
The September 30, 1995 and 1994 rates in the table "Consolidated Average Funds and Rates" include the
effect of taxable equivalent adjustments, using the statutory federal tax rate of 35%, in adjusting
interest on tax-exempt loans and securities to a fully taxable basis. The applicable taxable
equivalent adjustments for 1995 were: loans $1,069 and securities $1,379. Without these adjustments
rates would have been: loans 8.60%, securities 6.06%, total 7.88% and net yield 4.21%.
The applicable taxable equivalent adjustments for 1994 were: loans $1,009 and securities $1,420.
Without these adjustments rates would have been: loans 7.90%, securities 5.51%, total 7.08% and
and net yield 4.15%.
</TABLE>
<PAGE>
<TABLE>
HAWKEYE BANCORPORATION
Consolidated Statements of Changes in Allowance for Loan Losses *
(Unaudited)
<CAPTION>
_______________________________________________________________________________________________________
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 1995 1994 1995 1994
_______________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Balance, beginning of period $21,553 $21,651 $21,334 $21,110
Provision charged to operating expense 192 6 249 48
Loans charged off (380) (255) (833) (850)
Recoveries 188 185 722 1,279
Allowance of acquired subsidiary at date of acquisition 81
_______________________________________________________________________________________________________
Balance, end of period $21,553 $21,587 $21,553 $21,587
=======================================================================================================
*See notes to financial statements.
HAWKEYE BANCORPORATION
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands except per share)
1. In the opinion of the Company, the accompanying unaudited financial
statements contain all the adjustments (consisting of normal recurring
accruals) necessary to present fairly its financial positions as of September
30, 1995 and 1994 and December 31, 1994, and its results of operations
and changes in shareholders' equity for the periods ended September 30, 1995
and 1994.
2. On August 4, 1995, the Company announced a merger with Mercantile
Bancorporation, Inc., the 16.0 billion St. Louis based bank holding company.
The transaction will be structured as a pooling of business interest. Under
the terms of the agreement, Hawkeye shareholders will receive 0.585 shares of
Mercantile stock for each share of Hawkeye common stock. The merger could be
closed by late December or early January depeneding upon regulatory and
shareholder approvals.
3. The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan", on January 1, 1995. Under
the new standard, a loan is considered impaired, based on current information
and events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. When the future collectability of the recorded loan balance
is expected, interest income may be recognized on a cash basis.
At September 30, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with FAS 114 totaled $4.7 million,
of which $3.8 million related to loans with no valuation allowance and $0.9
million related to loans with a corresponding valuation allowance of $0.3
million. The Company recognized $72 thousand of interest income on impaired
loans for the first nine months of 1995.
4. Income taxes on operating income differ from statutory rates principally
because of tax-exempt interest and goodwill amortization.
5. The Company entered into a new term loan agreement in April of 1994, which
provides for long-term financing of $16 million; that a $2.5 million principal
payment is required on the first day of April of each year, and the balance of
the principal is payable on April 1, 2001; that interest is payable quarterly;
that the Company must comply with various financial and operating covenants;
and that essentially all common stock of the Subsidiary Banks are pledged as
collateral. On June 2, 1995, the Company converted from a variable interest
rate per annum equal to 90% of the Corporate Base Rate subject to a 5% floor
and an 8% ceiling until April 1, 1997; to a fixed rate of 7.29% unitl June 2,
1998. At September 30, 1995, $13.5 million was outstanding under this
agreement.
6. The following table sets forth the number of shares (in thousands) used
to determine earnings per common and common equivalent share:
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
- - --------------------------------------------------------------------
Common shares 13,461 12,280 13,449 12,187
Common share equivalents:
Incremental shares for
stock option plans 72 43 63 38
Preference shares 176 269
Preferred shares 832 833
- - --------------------------------------------------------------------
13,533 13,331 13,512 13,327
- - --------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 96,917
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 31,140
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 287,270
<INVESTMENTS-CARRYING> 127,896
<INVESTMENTS-MARKET> 129,289
<LOANS> 1,298,589
<ALLOWANCE> 21,553
<TOTAL-ASSETS> 1,992,565
<DEPOSITS> 1,717,075
<SHORT-TERM> 21,503
<LIABILITIES-OTHER> 21,427
<LONG-TERM> 39,741
<COMMON> 135
0
0
<OTHER-SE> 192,684
<TOTAL-LIABILITIES-AND-EQUITY> 1,992,565
<INTEREST-LOAN> 81,406
<INTEREST-INVEST> 19,585
<INTEREST-OTHER> 4,909
<INTEREST-TOTAL> 105,900
<INTEREST-DEPOSIT> 46,575
<INTEREST-EXPENSE> 49,337
<INTEREST-INCOME-NET> 56,563
<LOAN-LOSSES> 249
<SECURITIES-GAINS> 104
<EXPENSE-OTHER> 50,178
<INCOME-PRETAX> 26,331
<INCOME-PRE-EXTRAORDINARY> 17,327
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,327
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 4.21
<LOANS-NON> 3,393
<LOANS-PAST> 657
<LOANS-TROUBLED> 672
<LOANS-PROBLEM> 26,259
<ALLOWANCE-OPEN> 21,334
<CHARGE-OFFS> 833
<RECOVERIES> 722
<ALLOWANCE-CLOSE> 21,553
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 21,553
</TABLE>
