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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NO. 1-11792
MERCANTILE BANCORPORATION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-0951744
(STATE OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NO.)
P.O. BOX 524 63166-0524
ST. LOUIS, MISSOURI (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-425-2525
SECURITIES REGISTERED PURSUANT TO NAME OF EXCHANGE ON WHICH
SECTION 12(B) OF THE ACT: REGISTERED:
(1) COMMON STOCK ($5.00 PAR VALUE) (1) NEW YORK STOCK EXCHANGE
(2) PREFERRED STOCK PURCHASE RIGHTS (2) NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K 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. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-
AFFILIATES OF THE REGISTRANT AS OF MARCH 10, 1995:
COMMON STOCK, $5.00 PAR VALUE, $1,488,634,772
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF MARCH 10, 1995:
COMMON STOCK $5.00 PAR VALUE, 45,681,034 SHARES OUTSTANDING
<TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
AS PROVIDED HEREIN, PORTIONS OF THE DOCUMENTS BELOW ARE INCORPORATED BY
REFERENCE:
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DOCUMENT PART--FORM 10-K
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<S> <C>
ANNUAL REPORT OF THE REGISTRANT TO ITS SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1994 PARTS I, II, IV
PROXY STATEMENT FOR THE 1995 ANNUAL MEETING OF SHAREHOLDERS PART III
</TABLE>
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PART I
ITEM I. BUSINESS
THE COMPANY
Mercantile Bancorporation Inc. ("Mercantile" or "Registrant")
is a holding company which, as of March 10, 1995, owned all the
stock (except for directors' qualifying shares) of Mercantile
Bank of St. Louis National Association ("Mercantile Bank"), 40
commercial banks located throughout Missouri, southern Illinois,
eastern Kansas, and northern Iowa, one savings and loan
association located in Lebanon, Missouri, and other non-banking
subsidiaries. At December 31, 1994, Mercantile's consolidated
assets were $12,241,794,000, consolidated loans were
$8,114,845,000, consolidated deposits were $9,053,859,000 and
consolidated shareholders' equity was $1,068,250,000. At Decem-
ber 31, 1994, Mercantile Bank and its consolidated subsidiaries
had assets of $6,351,671,000, loans of $3,936,710,000, deposits
of $3,881,183,000 and shareholder's equity of $524,064,000.
Mercantile has its principal offices at P.O. Box 524, St.
Louis, Missouri 63166-0524 (telephone number 314-425-2525).
BUSINESS
GENERAL
Mercantile was organized on March 10, 1970, as a Missouri
corporation for the purpose of becoming a multi-bank holding
company. Mercantile commenced operations as a bank holding com-
pany in March 1971. Since then Mercantile has acquired and
organized additional banks, bank holding companies and savings
and loan associations which are located throughout Missouri,
southern Illinois, eastern Kansas, and northern Iowa.
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FINANCIAL SUMMARY OF MERCANTILE
A financial summary of Mercantile and its consolidated
subsidiaries is detailed below:
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DECEMBER 31
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1994 1993 1992 1991 1990
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(THOUSANDS)
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Total assets $12,241,794 $12,141,127 $12,273,028 $10,765,280 $10,136,510
Loans and leases 8,114,845 7,381,774 7,499,221 6,945,537 6,883,722
Investments in debt
and equity securities 3,033,775 3,401,178 3,401,277 2,474,766 1,886,145
Deposits 9,053,859 9,602,083 9,927,959 8,776,421 8,277,953
Shareholders' equity 1,068,250 958,557 851,324 690,262 580,913
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SUBSIDIARIES
The table setting forth the names and locations of
Mercantile's subsidiary financial institutions as well as their
total assets, shareholder's equity and return on assets as of
December 31, 1994, is included on page 12 in the Annual Report of
the Registrant to its Shareholders for the year ended December
31, 1994, and is incorporated herein by reference.
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Mercantile acquired a number of subsidiaries in transactions
that closed in 1994 and in the first two months of 1995.
Effective January 3, 1994, Mercantile acquired Metro
Bancorporation, a Waterloo, Iowa-based bank holding company with
assets of approximately $370 million. A total of 1,638,278
shares of Mercantile common stock were issued in the transaction,
which was accounted for as a pooling-of-interests. Effective
February 1, 1994, Mercantile consummated its acquisition of
United Postal Bancorp, Inc. ("UPBI"), the holding company for
United Postal Savings Association ("UPSA"), a Missouri-chartered
savings association, which at the time of acquisition had assets
of approximately $1.3 billion. A total of 5,631,953 shares of
Mercantile common stock were issued in the acquisition
transaction, which was accounted for as a pooling-of-interests.
On August 16, 1994, UPSA was merged into Mercantile Bank.
Effective January 3, 1995, Mercantile acquired UNSL Financial
Corp. ("UNSL") a Lebanon, Missouri-based holding company for
United Savings Bank, a Missouri-chartered savings bank with
assets of approximately $508 million. A total of 1,578,107
shares of Mercantile common stock were issued in the transaction,
which was accounted for as a pooling-of-interests. Also
effective January 3, 1995, Mercantile acquired Wedge Bank, an
Illinois-chartered bank headquarted in Alton, Illinois, which at
the time of acquisition had assets of approximately $196 million.
A total of 969,954 shares of Mercantile common stock were issued
in the transaction, which was accounted for as a pooling-of-
interests.
In addition Mercantile has announced signed agreements to
acquire five other holding companies.
On September 21, 1994, Mercantile announced that it had
signed an agreement to acquire Central Mortgage Bancshares, Inc.
("Central Mortgage"), a $650 million asset-bank holding company
based in Kansas City, Missouri. The transaction is expected to
be consummated in the second quarter of 1995. Approximately
2,625,000 shares of Mercantile common stock will be issued upon
consummation of the acquisition, which will be accounted for as a
pooling-of-interests. At a meeting held on January 24, 1995 the
shareholders of Central Mortgage approved the terms of the
acquisition.
On December 5, 1994, Mercantile announced its intention to
enter the Arkansas banking market through the acquisition of
TCBankshares, Inc. ("TCB"), a $1.4 billion asset-holding company
which owns six banks in central, northern and western Arkansas.
Approximately 4,750,000 shares of Mercantile common stock, 5,300
shares of Mercantile Series B-1 Preferred Stock, and 9,500 shares
of Mercantile Series B-2 Preferred Stock, will be issued in the
acquisition, which is anticipated will be consummated in the
second quarter of 1995. The transaction will be accounted for as
a pooling-of-interests. The shareholders of TCB have signed
agreements pursuant to which each has agreed to vote all shares
owned in favor of the acquisition.
On December 23, 1994, Mercantile announced that it had signed
an agreement to acquire Plains Spirit Financial Corporation, the
holding company for the Davenport, Iowa-based First Federal
Savings Bank of Iowa, a federally chartered savings bank with
assets of approximately $439 million. It is anticipated that the
transaction will be consummated late in the second quarter of
1995. Shareholders of Plains Spirit Financial Corporation will
receive a combination of cash and up to 1.4 million shares
of Mercantile common stock in exchange for their Plains Spirit
stock. The acquisition will be accounted for as a purchase.
On January 27, 1995, Mercantile announced that it had signed
an agreement to acquire Southwest Bancshares, Inc., the holding
company for Southwest Bank, a $176 million-asset, Missouri-
chartered bank located in Bolivar, Missouri. Approximately
675,000 shares of Mercantile common stock will be issued upon
consummation of the acquisition, which is anticipated will occur
in the third quarter of 1995. The acquisition will be accounted
for as a pooling-of-interests.
On February 17, 1995, Mercantile announced that it had signed
an agreement to acquire AmeriFirst Bancorporation Inc., the $164
million-asset holding company for AmeriFirst Bank, a Missouri-
chartered bank located in southeast Missouri. Approximately
661,000 shares of Mercantile common stock will be issued in
exchange for the outstanding stock of AmeriFirst Bancorporation
upon consummation of the merger, which is anticipated will occur
in the third quarter of 1995. The acquisition will be accounted
for as a pooling-of-interests.
Except as may otherwise be indicated above, consummation of
each of the above-listed pending acquisitions is subject to
approval by all appropriate regulatory authorities and the
shareholders of each of the companies to be acquired.
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SERVICES AND TRANSACTIONS WITH SUBSIDIARIES
Mercantile provides its subsidiaries with advice and
specialized services in the areas of accounting and taxation,
budgeting and strategic planning, employee benefits and human
resources, insurance, operations, marketing, credit analysis and
administration, loan support and participations, investments,
auditing, trust, data processing, bank security and banking and
corporate law. A fee is charged by Mercantile for these
services. The responsibility for the management of each subsid-
iary remains with its Board of Directors and with the officers
elected by each Board.
Intercompany transactions between Mercantile and its sub-
sidiaries are subject to restrictions of existing banking and
savings and loan laws and accepted principles of fair dealing.
Mercantile had 149 full-time equivalent employees at December
31, 1994. Mercantile uses the premises of Mercantile Bank for
its offices. Mercantile pays Mercantile Bank a fee for services
and facilities furnished to it.
EMPLOYEES
At December 31, 1994, Mercantile and its subsidiaries had
5,656 full-time equivalent employees. Mercantile provides a
variety of employment benefits and believes it enjoys a good
relationship with its employees.
OPERATIONS
Financial Services. Through its subsidiary financial
institutions, Mercantile offers complete banking and trust
services to the commercial, industrial, residential and
agricultural areas which it serves. Services include commercial,
real estate, installment and credit card loans, checking, savings
and time deposits, trust and other fiduciary services, and
various other customer services such as bond trading, direct
equipment lease financing, international banking and safe deposit
services.
Most subsidiary financial institutions serve only the general
area in which they are located, predominantly in the 7th, 8th and
10th Federal Reserve Districts. In general, the smaller
subsidiary banks are engaged primarily in retail banking, with
most of the business and commercial activities centered in the
larger subsidiary banks. Membership in Mercantile's subsidiary
group provides each subsidiary institution with a means of
satisfying the credit needs of its customers beyond its own legal
lending limit.
Correspondent Banking. In addition to Mercantile's services
for individuals and corporations, its largest subsidiary bank,
Mercantile Bank, is a bankers' bank. Mercantile Bank is a
correspondent bank for 552 commercial banks located throughout
the United States. Correspondent banking services to banks in
Kansas and western Missouri are provided through Mercantile Bank
of Kansas City and Mercantile Bank of Topeka. In addition,
Mercantile Bank of Joplin provides correspondent services for
banks in its area. Correspondent banking services include the
processing of checks and collection items, loan assistance and
assistance with training and operations.
Trust and Investment Advisory Services. Mercantile, through
its subsidiaries, offers clients all types of fiduciary services,
ranging from the management of funds for individuals, corporate
retirement plans and charitable foundations to the administration
of estates and trusts. To investors it offers portfolio manage-
ment, advisory and custodian services. For corporations,
governmental bodies and public authorities, Mercantile
subsidiaries act as fiscal and paying agent, transfer agent,
registrar and trustee under corporate indentures and pension and
profit sharing trust agreements. Mercantile Trust Company
National Association is a nationally-chartered bank which
provides individual trust services. Mississippi Valley Advisors
Inc., a registered investment advisor and subsidiary of
Mercantile Bank, among other things provides investment advisory
services for employee benefit funds, including pension and
profit-sharing plans, endowment funds and registered mutual
funds. At December 31, 1994, Mercantile subsidiaries managed
investments with a market value of approximately $12.0 billion
and administered $4.6 billion in non-managed assets. Certain of
Mercantile's subsidiary banks provide trust and investment
services to individual and corporate customers with assistance
from Mercantile Bank.
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Investment and Underwriting Activities. Mercantile Bank
offers a wide range of investment services to individuals,
corporations, correspondent banks and others. Included in those
services are foreign exchange, derivative products, money market
and bond trading operations which serve banks and corporations in
the purchase and sale of various investments and/or hedging
instruments. In addition, Mercantile Bank is registered as a
municipal securities dealer.
Brokerage Services. Mercantile Investment Services, Inc.
("MISI"), a subsidiary of Mercantile Bank, is a registered
broker/dealer and a member of both the National Association of
Securities Dealers, Inc. ("NASD") and the Securities Investors
Protection Corporation ("SIPC"). MISI currently offers brokerage
services, including execution of transactions involving stocks,
bonds, options, mutual funds and other securities.
International. Mercantile Bank maintains accounts at 39
foreign banks, and 45 foreign banks maintain accounts at
Mercantile Bank. In addition, Mercantile Bank is engaged in
providing its customers with international banking services.
Mercantile Bank and Mercantile Bank of Kansas City offer a wide
range of services to their customers involved in international
business including currency exchange and letters of credit.
Customers of other subsidiary banks with a need for such services
are referred to these banks.
Mercantile Bank maintains a branch in the City of Georgetown
in the Grand Cayman Islands. This branch enables Mercantile Bank
to participate in the Eurodollar market for deposits and loans.
At December 31, 1994, total deposits of the foreign branch
amounted to $245,935,000.
COMPETITION
Mercantile's subsidiary financial institutions are subject to
intense competition from other banks and financial institutions
in their service areas, predominantly the 7th, 8th and 10th
Federal Reserve Districts. In making loans, substantial competi-
tion is encountered from banks and other lending institutions
such as savings and loan associations, insurance companies,
finance companies, credit unions, factors, small loan companies
and pension trusts. In addition, Mercantile subsidiaries compete
for retail deposits with savings and loan associations, credit
unions and money market mutual funds. The competition provided
by other financial institutions is not limited to those
institutions with offices located in the area served by the
particular subsidiary.
Many other institutions also offer some or all of the trust
and fiduciary services performed by Mercantile's subsidiaries.
Mercantile Bank competes with all local institutions and, in the
field of corporate pension trust services, competition is
nationwide.
Missouri law currently allows Missouri banks and bank holding
companies to acquire, and be acquired by, similar entities in
states contiguous to Missouri which have reciprocal laws. To
date, Mercantile has made acquisitions in Illinois, Kansas and
Iowa. Mercantile currently has a pending acquisition in
Arkansas. At March 10, 1995, all states contiguous to Missouri
had enacted laws permitting interstate acquisitions on a regional
or nationwide, reciprocal or nonreciprocal basis, and all such
laws were in effect as of such date. In addition, a number of
other non-contiguous states have enacted laws which allow
acquisitions of banks and bank holding companies located therein
by similar entities regardless of location or reciprocity of law
in such entities' domicile state.
In September 1994 legislation was enacted that is expected to
have a significant effect in restructuring the banking industry
in the United States. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 facilitates the interstate
expansion and consolidation of banking organizations (i) by
permitting bank holding companies that are adequately capitalized
and managed, beginning September 29, 1995, to acquire banks
located in states outside their home states regardless of whether
such acquisitions are authorized under the law of the host state,
(ii) by permitting the interstate merger of banks after June 1,
1997, subject to the right of individual states to "opt in" or to
"opt out" of this authority before that date, (iii) by permitting
banks to establish new branches on an interstate basis provided
that such action is specifically authorized by the law of the
host state, (iv) by permitting foreign banks to establish, with
approval of the regulators in the United States, branches outside
their home states to the same extent that national or state banks
located in the home state would be authorized to do so, and (v)
by permitting banks, beginning September 29, 1995, to receive
deposits, renew time deposits, close loans, service loans and
receive payments on loans and other obligations as agent
for any bank or thrift affiliate, whether the affiliate
is located in the same state or a different state. One
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effect of this legislation will be to permit Mercantile to
acquire banks located in any state and to permit bank holding
companies located in any state to acquire banks and bank holding
companies in Missouri. Overall, this legislation is likely to
have the effects of increasing competition and promoting
geographic diversification in the banking industry.
SUPERVISION AND REGULATION
General. As a bank holding company, Mercantile is subject to
regulation under the Bank Holding Company Act of 1956, as
amended, ("BHCA") and its examination and reporting requirements.
Under the BHCA, a bank holding company may not directly or
indirectly acquire the ownership or control of more than 5% of
the voting shares or substantially all of the assets of any
company, including a bank or savings and loan association,
without the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). In
addition, bank holding companies are generally prohibited under
the BHCA from engaging in nonbanking activities, subject to
certain exceptions.
As a savings and loan holding company Mercantile is also
subject to regulatory oversight by the Office of Thrift
Supervision (the "OTS") under the Home Owner's Loan Act of 1933,
as amended. As such, Mercantile is required to register and file
reports with the OTS and is subject to regulation by the OTS. In
addition, the OTS has enforcement authority over Mercantile which
permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to its subsidiary savings
association.
Mercantile and its subsidiaries are subject to supervision
and examination by applicable federal and state banking agencies.
The earnings of Mercantile's subsidiaries, and therefore the
earnings of Mercantile, are affected by general economic conditions,
management policies and the legislative and governmental actions of
various regulatory authorities, including the Federal Reserve
Board, the Federal Deposit Insurance Corporation ("FDIC"), the OTS
and the Office of the Comptroller of the Currency (the "Comptroller").
In addition, there are numerous governmental requirements and
regulations that affect the activities of Mercantile and its
subsidiaries.
Certain Transactions with Affiliates. There are various
legal restrictions on the extent to which a bank holding company
and certain of its nonbank subsidiaries can borrow or otherwise
obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be
on non-preferential terms and secured by designated amounts of
specified collateral and be limited, as to the holding company or
any one of such nonbank subsidiaries, to 10% of the lending
bank's capital stock and surplus, and as to the holding company
and all such nonbank subsidiaries in the aggregate, to 20% of
such capital stock and surplus.
Payment of Dividends. Mercantile is a legal entity separate
and distinct from its banking and other subsidiaries. The
principal source of Mercantile's revenues is dividends from its
national and state banking subsidiaries. Various federal and
state statutory provisions limit the amount of dividends the
affiliate banks can pay to Mercantile without regulatory
approval. The approval of the appropriate bank regulator is
required for any dividend by a national bank or state member bank
if the total of all dividends declared by the bank in any
calendar year would exceed the total of its net profits, as
defined by regulatory agencies, for such year combined
with its retained net profits for the preceding two years. In
addition, a national bank or a state member bank may not pay a
dividend in an amount greater than its net profits then on hand.
The payment of dividends by any affiliate bank may also be
affected by other factors, such as the maintenance of adequate
capital for such affiliate bank.
Capital Adequacy. The Federal Reserve Board has issued
standards for measuring capital adequacy for bank holding
companies. These standards are designed to provide risk-
responsive capital guidelines and to incorporate a consistent
framework for use by financial institutions operating in major
international financial markets. The banking regulators have
issued standards for banks that are similar to, but not identical
with, the standards for bank holding companies.
In general, the risk-related standards require banks and bank
holding companies to maintain certain capital levels based on
"risk-adjusted" assets, so that categories of assets with
potentially higher credit risk will require more capital backing
than categories with lower credit risk. In addition, banks and
bank holding companies are required to maintain capital to
support off-balance sheet activities such as loan commitments.
Mercantile and each of its subsidiary financial institutions
exceed all applicable capital adequacy standards.
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FDIC Insurance Assessments. The subsidiary depository
institutions of Mercantile are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule.
Under this schedule, the annual premiums initially range from
$.23 to $.31 for every $100 of deposits. Each financial
institution is assigned to one of three capital groups--well
capitalized, adequately capitalized or undercapitalized--and
further assigned to one of three subgroups within a capital
group, on the basis of supervisory evaluations by the
institution's primary federal and, if applicable, state
supervisors, and on the basis of other information relevant to
the institution's financial condition and the risk posed to the
applicable insurance fund. The actual assessment rate applicable
to a particular institution will, therefore, depend in part upon
the risk assessment classification assigned to the institution
by the FDIC. As of December 31, 1994, all Mercantile subsidiary
depository institutions were categorized as "well capitalized".
The Financial Institutions Reform, Recovery and Enforcement
Act of 1989 adopted in August 1989 to provide for the resolution
of insolvent savings associations, also required the FDIC to
establish separate deposit insurance funds -- the Bank Insurance
Fund ("BIF") for banks and the Savings Association Insurance Fund
("SAIF") for savings associations. The law also requires the
FDIC to set deposit insurance assessments at such levels as will
cause BIF and SAIF to reach their "designated reserve ratios" of
1.25 percent of the deposits insured by them within a reasonable
period of time. Due to low costs of resolving bank insolvencies
in the last few years, BIF is expected to reach its designated
reserve ratio in mid-1995. As a result, the FDIC recently proposed
to lower deposit insurance assessment rates on banks by revising
the range to $.04 to $.31 for every $100 of deposits. However,
the balance in SAIF is not expected to reach the designated
reserve ratio until about the year 2002, as the law provides that
a significant portion of the costs of resolving past insolvencies
of savings associations must be paid from this source.
Accordingly, it is likely that SAIF rates will be significantly
higher than BIF rates in the future. Since Mercantile has
acquired substantial amounts of SAIF-insured deposits during the
years from 1989 to the present, which deposits have not been
converted from SAIF to BIF, it will be required to pay insurance
assessments on these acquired deposits at rates significantly
higher than the rates charged by BIF until such time that the
rates are equalized. Mercantile does not expect that its SAIF
deposit insurance costs will have a significant adverse effect on
its earnings.
Support of Subsidiary Banks. Under Federal Reserve Board
policy, Mercantile is expected to act as a source of financial
strength to each subsidiary bank and to commit resources to
support each of the subsidiaries in circumstances where it might
not choose to do so absent such a policy. In addition, any
capital loans by Mercantile to any of its subsidiaries would also
be subordinate in right of payment to deposits and certain other
indebtedness of such subsidiary. This support may be required at
times when Mercantile may not find itself able to provide it.
Consistent with this policy regarding bank holding companies
serving as a source of financial strength for their subsidiary
banks, the Federal Reserve Board has stated that, as a matter of
prudent banking, a bank holding company generally should not
maintain a rate of cash dividends unless its net income available
to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears
consistent with the bank holding company's capital needs, asset
quality and overall financial condition.
FIRREA and FDICIA. The Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") contains a cross-
guarantee provision which could result in insured depository
institutions owned by Mercantile being assessed for losses
incurred by the FDIC in connection with assistance provided to,
or the failure of, any other insured depository institution owned
by Mercantile. Under FIRREA, failure to meet the capital
guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities,
including the termination of deposit insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") made extensive changes to the federal banking
laws. FDICIA instituted certain changes to the supervisory
process, including provisions that mandate certain regulatory
agency actions against undercapitalized institutions within
specified time limits. FDICIA contains various other provisions
that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the
federal banking regulators to assign each insured institution to
one of five capital categories ("well capitalized," "adequately
capitalized" or one of three "undercapitalized" categories) and
to take progressively more restrictive actions based on the
capital categorization, as specified below. Under FDICIA, capital
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requirements would include a leverage limit, a risk-based
capital requirement and any other measure of capital deemed
appropriate by the federal banking regulators for measuring the
capital adequacy of an insured depository institution. All
institutions, regardless of their capital levels, are restricted
from making any capital distribution or paying any management
fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-
related regulations under FDICIA. Under those regulations, a
bank will be well capitalized if it: (i) had a risk-based
capital ratio of 10% or greater; (ii) had a ratio of Tier 1
capital to risk-adjusted assets of 6% or greater; (iii) had a
ratio of Tier 1 capital to adjusted total assets of 5% or
greater; and (iv) was not subject to an order, written agreement,
capital directive, or prompt corrective action directive to meet
and maintain a specific capital level for any capital measure.
An association will be adequately capitalized if it was not "well
capitalized" and: (i) had a risk-based capital ratio of 8% or
greater; (ii) had a ratio of Tier 1 capital to risk-adjusted
assets of 4% or greater; and (iii) had a ratio of Tier 1 capital
to adjusted total assets of 4% or greater (except that certain
associations rated "Composite 1" under the federal banking
agencies' CAMEL rating system may be adequately capitalized if
their ratios of core capital to adjusted total assets were 3% or
greater). As previously discussed, all Mercantile subsidiary
financial institutions as of December 31, 1994 were categorized
as "well capitalized".
FDICIA makes extensive changes in existing rules regarding
audits, examinations and accounting. It generally requires annual
on-site, full scope examinations by each bank's primary federal
regulator. It also imposes new responsibilities on management, the
independent audit committee and outside accountants to develop or
approve reports regarding the effectiveness of internal controls,
legal compliance and off-balance sheet liabilities and assets.
Depositor Preference Statute. Legislation enacted in August
1993 provides a preference for deposits and certain claims for
administrative expenses and employee compensation against an
insured depository institution in the liquidation or other
resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general
unsecured claims against such an institution, including federal
funds and letters of credit, as well as any obligation to
shareholders of such an institution in their capacity as such.
Community Development Legislation. The Riegle Community
Development and Regulatory Improvement Act of 1994 is intended
to (i) increase the flow of loans to businesses in distressed
communities by providing incentives to lenders to provide credit
within those communities, (ii) remove impediments to the
securitization of small business loans, (iii) provide for a
reduction in paperwork and a streamlining of bank regulation
through, for example, the coordination of examinations in a bank
holding company context, a reduction in the number of currency
transaction reports required, improvements to the National Flood
Insurance Program that include enabling lenders to force place
flood insurance, and (iv) increase the level of consumer
protection provided to customers in banking transactions.
Mercantile believes that these provisions of the new law will not
have a material effect on its operation.
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STATISTICAL DISCLOSURES
The following statistical disclosures, except as noted, are
included in the Annual Report of the Registrant to its
Shareholders for the year ended December 31, 1994, and
incorporated herein by reference.
<CAPTION>
ANNUAL REPORT
SCHEDULE REFERENCE
-------- -------------
<S> <C>
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. Average Balance Sheets Page 66
B. Analysis of Net Interest Earnings (included herein at page 9) N/A
C. Taxable-equivalent Rate-Volume Analysis (included herein at page 9) N/A
II. INVESTMENT PORTFOLIO
A. Book Value by Type of Security Note E, Page 52
B. Maturity Distribution (included herein at page 10) N/A
III. LOAN PORTFOLIO
A. Types of Loans Exhibit 23, Page 30
B. Maturities and Sensitivities to Changes in Interest Rates Exhibit 23, Page 30
C. Risk Elements
1. Non-accrual, Past Due and Restructured Loans Exhibit 28, Page 34
Exhibit 29, Page 35
Note A, Pages 48, 49
2. Potential Problem Loans Commentary, Page 35
3. Foreign Outstandings <F*>
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. Reserve for Possible Loan Losses Exhibit 25, Page 32
Commentary, Page 31
Note A, Page 48
B. Allocation of the Reserve for Possible Loan Losses Exhibit 27, Page 33
V. DEPOSITS
A. Average Balances and Rates Paid by Deposit Category Page 66
B. Maturity Distribution of Certain CDs and Time Deposits Exhibit 13, Page 24
VI. RETURN ON EQUITY AND ASSETS Exhibit 2, Page 15
VII. SHORT-TERM BORROWINGS (included herein at page 11) N/A
<F*>There were no significant interest bearing deposits with foreign banks at December 31, 1994, 1993 or
1992.
</TABLE>
8
<PAGE> 10
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
TAXABLE-EQUIVALENT RATE-VOLUME ANALYSIS
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------
AVERAGE VOLUME AVERAGE RATE<F1> INTEREST 1993 TO 1994 1992 TO 1993
----------------------------------------- --------------- -------------------- --------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992 RATE<F2> VOL. TOTAL RATE<F2> VOL. TOTAL
---- ---- ---- ---- ---- ---- ---- ---- ---- -------- ---- ----- -------- ---- -----
($ in Millions) ($ in Millions)
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and leases<F3>
$ 2,077 $ 2,009 $ 2,053 7.23% 6.54% 6.99% Commercial $150 $132 $143 $ 14 $ 4 $ 18 $ (8) $ (3) $(11)
1,260 1,301 1,315 8.18 8.00 8.25 Real estate-commercial 103 104 109 2 (3) (1) (3) (2) (5)
173 156 167 8.39 7.28 7.76 Real estate-construction 15 11 13 2 2 4 (1) (1) (2)
2,332 2,347 2,465 7.55 7.90 8.72 Real estate-residential 176 186 215 (8) (2) (10) (19) (10) (29)
1,029 934 921 8.33 9.01 9.77 Consumer 86 84 90 (7) 9 2 (7) 1 (6)
751 665 521 16.01 16.27 16.31 Credit card 120 108 85 (2) 14 12 - 23 23
- 1 2 6.69 6.72 6.91 Foreign - - - - - - - - -
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
7,622 7,413 7,444 8.52 8.43 8.80 Total Loans and Leases 650 625 655 1 24 25 (38) 8 (30)
Investments in debt and
equity securities
11 14 12 5.12 5.32 5.75 Trading 1 1 1 - - - - - -
3,021 3,144 2,786 5.46 5.84 7.01 Taxable 165 183 195 (11) (7) (18) (37) 25 (12)
240 234 191 8.06 8.41 9.40 Tax-exempt 19 20 18 (1) - (1) (2) 4 2
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
3,272 3,392 2,989 5.65 6.01 7.16 Total 185 204 214 (12) (7) (19) (39) 29 (10)
Short-term investments
Federal funds sold and
182 245 201 4.21 3.31 4.04 repurchase agreements 7 8 8 1 (2) (1) (2) 2 -
Due from banks-interest
44 74 117 4.22 3.54 5.03 bearing 2 3 6 - (1) (1) (1) (2) (3)
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Short-term
226 319 318 4.22 3.37 4.41 Investments 9 11 14 1 (3) (2) (3) - (3)
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Interest
$11,120 $11,124 $10,751 7.59 7.55 8.21 Income<F1> $844 $840 $883 $(10) $ 14 $ 4 $ - $ 37 $(43)
======= ======= ======= ==== ==== ==== ==== ==== ==== ==== ==== ====
INTEREST EXPENSE
Interest Bearing Deposits
$1,564 $1,507 $1,283 1.87 2.11 2.95 Interest bearing demand $ 29 $ 32 $ 38 $ (4) $ 1 $ (3) $(13) $ 7 $ (6)
1,617 1,643 1,533 2.92 2.76 3.41 Money market accounts 47 45 52 3 (1) 2 (11) 4 (7)
904 865 737 2.32 2.57 3.35 Savings 21 22 25 (2) 1 (1) (7) 4 (3)
Consumer time
certificates
3,067 3,481 3,878 4.36 4.66 5.68 under $100,000 134 163 220 (9) (20) (29) (35) (22) (57)
34 82 107 3.18 2.75 3.88 Other time 1 2 4 - (1) (1) (1) (1) (2)
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Interest Bearing
7,186 7,578 7,538 3.23 3.48 4.50 Core Deposits 232 264 339 (12) (20) (32) (67) (8) (75)
Time certificates
459 460 550 4.22 3.88 4.66 $100,000 and over 19 18 26 1 - 1 (4) (4) (8)
109 31 23 4.95 4.38 3.72 Foreign 6 1 1 1 4 5 - - -
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Purchased
568 491 573 4.36 3.91 4.62 Deposits 25 19 27 2 4 6 (4) (4) (8)
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Interest Bearing
7,754 8,069 8,111 3.32 3.51 4.51 Deposits 257 283 366 (10) (16) (26) (71) (12) (83)
1,043 818 821 4.24 2.90 3.70 Short-term borrowings 44 24 30 14 6 20 (6) - (6)
13 - - 6.19 - - Bank notes 1 - - - 1 1 - - -
292 275 237 7.62 8.02 8.95 Long-term debt 22 22 21 (1) 1 - (2) 3 1
------- ------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
$9,102 $9,162 $9,169 3.56 3.59 4.55 Total Interest Expense $324 $329 $417 $ 3 $ (8) $ (5) $(79) $ (9) $(88)
======= ======= ======= ==== ==== ==== ==== ==== ==== ==== ==== ====
4.03 3.96 3.66 NET INTEREST RATE SPREAD
NET INTEREST RATE MARGIN
AND NET INTEREST
4.67 4.59 4.33 INCOME<F1> $520 $511 $466
==== ==== ====
<FN>
<F1> Taxable-equivalent basis. Includes tax-equivalent adjustments of
$9,114,000, $9,574,000 and $9,570,000 for 1994, 1993 and 1992,
respectively, based on Federal income tax rates of 35% for 1994
and 1993, and 34% for 1992.
<F2> The rate-volume variance is allocated entirely to rate.
<F3> Income from loans on non-accrual status is included in loan income
on a cash basis, while non-accrual loan balances are included in
average volume.
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
<TABLE>
-------------------------------------------------------------------------------------------------------------
INVESTMENTS IN DEBT AND EQUITY SECURITIES<F1>
($ IN THOUSANDS)
<CAPTION>
DECEMBER 31, 1994
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------------------------- ---------------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE YIELD<F2> COST VALUE YIELD<F2>
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY
Within one year $ 72,013 $ 71,462 5.02% $ 380,400 $ 376,532 4.68%
One to five years 7,800 7,340 5.42 816,786 778,470 5.33
Five to 10 years - - - 1,522 1,506 5.98
After 10 years - - - - - -
-------- -------- ---------- ----------
Total 79,813 78,802 5.06 1,198,708 1,156,508 5.12
Average Maturity 8 mo. 1 yr. 9 mo.
U.S. GOVERNMENT AGENCIES<F3>
Within one year 50,035 49,623 4.90 217,552 215,710 5.05
One to five years 70,096 66,046 5.90 904,740 879,007 6.40
Five to 10 years 6,977 6,742 7.66 13,769 14,190 9.10
After 10 years 12,395 11,857 5.82 7,975 7,795 6.22
-------- -------- ---------- ----------
Total 139,503 134,268 5.62 1,144,036 1,116,702 6.17
Average Maturity 4 yr. 0 mo. 2 yr. 3 mo.
OBLIGATIONS OF STATE AND POLITICAL
SUBDIVISIONS
Within one year 1,202 1,208 9.20 50,394 49,894 5.75
One to five years 5,084 5,148 8.82 259,978 250,811 6.58
Five to 10 years 5,679 5,740 8.66 47,815 47,050 8.49
After 10 years 607 608 8.58 16,784 16,483 10.20
-------- -------- ---------- ----------
Total 12,572 12,704 8.77 374,971 364,238 6.87
Average Maturity 5 yr. 11 mo. 3 yr. 8 mo.
OTHER<F3>
Within one year 289 273 8.48 12,295 12,156 5.85
One to five years 107 108 6.06 18,726 18,372 5.17
Five to 10 years 181 179 9.62 1,508 1,484 6.69
After 10 years 4,539 4,418 9.34 - - -
-------- -------- ---------- ----------
Total 5,116 4,978 9.23 32,529 32,012 5.50
-------- -------- ---------- ----------
Average Maturity 21 yr. 10 mo. 1 yr. 3 mo.
TOTAL INTEREST-EARNING
INVESTMENTS<F3>
Within one year 123,539 122,566 5.02 660,641 654,292 4.90
One to five years 83,087 78,642 6.03 2,000,230 1,926,660 5.97
Five to 10 years 12,837 12,661 8.13 64,614 64,230 8.52
After 10 years 17,541 16,883 6.83 24,759 24,278 8.91
-------- -------- ---------- ----------
Total 237,004 230,752 5.68 2,750,244 2,669,460 5.80
Average Maturity 3 yr. 5 mo. 2 yr. 2 mo.
FEDERAL RESERVE BANK STOCK AND OTHER
EQUITY INVESTMENTS 39,222 38,480 6.72 - - -
-------- -------- ---------- ----------
TOTAL PORTFOLIO $276,226 $269,232 5.83 $2,750,244 $2,669,460 5.80
======== ======== ========== ==========
<FN>
<F1> This exhibit excludes trading securities, which are reported at
estimated fair value on the Consolidated Balance Sheet. Trading
securities totaled $14,299,000, $15,735,000 and $17,684,000 at
December 31, 1994, 1993 and 1992, respectively.
<F2> Taxable-equivalent basis.
<F3> Maturities of asset-backed obligations are based on the remaining
weighted average maturities.
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 12
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
($ IN THOUSANDS)
<CAPTION>
1994 1993 1992
--------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE MATURITY AMOUNT RATE MATURITY AMOUNT RATE MATURITY
------ ---- -------- ------ ---- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT YEAR-END
Federal funds purchased and
repurchase agreements $1,382,519 5.47% 5 DAYS $ 602,997 2.56% 3 days $744,101 2.62% 9 days
Treasury tax and loan notes 160,379 5.27 3 DAYS 502,260 2.75 3 days 215,521 2.62 4 days
Commercial paper 26,800 5.97 20 DAYS 18,390 3.25 18 days 9,198 3.32 19 days
Other short-term borrowings 13,001 6.65 173 DAYS - - N/A 16,574 7.60 124 days
---------- ---------- --------
Total Short-term Borrowings $1,582,699 5.47 7 DAYS $1,123,647 2.66 3 days $985,394 2.71 10 days
========== ========== ========
AVERAGE FOR THE YEAR
Federal funds purchased and
repurchase agreements $ 806,508 4.36% $546,099 2.92% $623,554 3.48%
Treasury tax and loan notes 207,176 3.75 239,643 2.65 141,737 3.29
Commercial paper 26,487 4.53 22,629 3.24 11,924 3.49
Other short-term borrowings 3,311 4.17 9,618 7.11 43,813 8.20
---------- -------- --------
Total Short-term Borrowings $1,043,482 4.24 $817,989 2.90 $821,028 3.70
========== ======== ========
MAXIMUM MONTH-END BALANCE
Federal funds purchased and
repurchase agreements $1,382,519 $794,217 $873,449
Treasury tax and loan notes 601,896 506,836 213,262
Commercial paper 37,406 32,621 16,025
Other short-term borrowings 13,001 33,190 66,497
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
ITEM 2. PROPERTIES
Mercantile and Mercantile Bank occupy 22 stories of the
Mercantile Tower, a 35-story building owned by Mercantile Bank
and located at Seventh and Washington Streets in St. Louis,
Missouri. Among the other properties owned by Mercantile Bank
are a four-story, 91,170 usable square foot off-site office
building located at 12443 Olive Boulevard, Creve Coeur, Missouri,
which houses Mercantile's credit card, mortgage loan, and asset-
based lending operations; a four-story, 222,400 usable square
foot off-site processing center located at 1005 Convention Plaza
in St. Louis, Missouri, which houses most other operational
functions of Mercantile; and a four-story building located at 721
Locust Street, St. Louis, Missouri, which has 101,827 square feet
of usable office space and houses Mercantile Bank.
Mercantile's subsidiaries own and lease other facilities in
Missouri, Illinois, Kansas and Iowa. See Note G to the
consolidated financial statements included on page 54 in the
Annual Report of the Registrant to its Shareholders for the year
ended December 31, 1994, which is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
See Part III, Item 10.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Information concerning the Common Stock of the Registrant,
included on page 68 in the Annual Report of the Registrant to its
Shareholders for the year ended December 31, 1994, is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data, included as Exhibit 1 on page 14 in
the Annual Report of the Registrant to its Shareholders for the
year ended December 31, 1994, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations, included on pages 14 through 41 in the
Annual Report of the Registrant to its Shareholders for the year
ended December 31, 1994, is incorporated herein by reference.
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements, included in
the Annual Report of the Registrant to its Shareholders for the
year ended December 31, 1994, are incorporated herein by
reference.
<CAPTION>
ANNUAL REPORT
STATEMENT REFERENCE
--------- -------------
<S> <C>
Independent Auditors' Report Page 43
Consolidated Statement of Income - Years ended December 31, 1994,
1993 and 1992. Page 44
Consolidated Balance Sheet - December 31, 1994, 1993 and 1992. Page 45
Consolidated Statement of Changes in Shareholders' Equity - Years ended
December 31, 1994, 1993 and 1992. Page 46
Consolidated Statement of Cash Flows - Years ended December 31, 1994,
1993 and 1992. Page 47
Notes to Consolidated Financial Statements. Pages 48 - 63
</TABLE>
Selected Quarterly Financial Data, included as Exhibit 36 on
page 41 in the Annual Report of the Registrant to its
Shareholders for the year ended December 31, 1994, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is contained in "Election of
Directors" and "Beneficial Ownership of Stock by Management,"
included in the Proxy Statement for the 1995 Annual Meeting of
Shareholders, which information is incorporated herein by
reference.
<TABLE>
The following is a list, as of March 10, 1995, of the names
and ages of the executive officers of Mercantile and all
positions and offices with Mercantile presently held by the
person named. There is no family relationship between any of the
named persons.
13
<PAGE> 15
<CAPTION>
ALL POSITIONS AND OFFICES
NAME AGE HELD WITH MERCANTILE
---- --- -------------------------
<S> <C> <S>
Thomas H. Jacobsen 55 Chairman of the Board and Chief Executive Officer
Ralph W. Babb, Jr. 46 Vice Chairman
W. Randolph Adams 50 Senior Executive Vice President and Chief Financial Officer
John Q. Arnold 51 Senior Executive Vice President and Chief Credit Officer
John H. Beirise 49 President, Mercantile Bank
Richard H. Goldberg 54 Executive Vice President
Michael J. Gorman 58 Chairman, Mercantile Bank
Richard C. King 50 President and Chief Executive Officer, Mercantile Bank of Kansas City
President and Chief Executive Officer, Mercantile Bank of Kansas
John W. McClure 49 Senior Executive Vice President
Jon W. Bilstrom 48 General Counsel and Secretary
Jon P. Pierce 54 Executive Vice President
Patrick Strickler 51 Executive Vice President
Arthur G. Heise 46 Senior Vice President and Auditor
Michael T. Normile 45 Senior Vice President, Finance and Control
</TABLE>
The executive officers were appointed by and serve at the
pleasure of the Board of Directors of Mercantile. Each of the
officers named above, except Messrs. Heise and Normile, serve on
the Mercantile Management Executive Committee. Messrs. Jacobsen,
Babb, McClure, Bilstrom, Pierce, Strickler, Heise and Normile
have served as executive officers of either Mercantile or
Mercantile Bank for the last five years. From 1974 until his
start with Mercantile in February 1991, Mr. Adams was employed by
the international consulting firm, CRESAP, a Towers Perrin
Company, most recently as Vice President/Partner in charge of its
financial institutions practice. Mr. Arnold was employed by
Harris Trust & Savings Bank for twenty-four years, most recently
as Senior Vice President and Deputy Chief Credit Officer, before
joining Mercantile in February 1991. Prior to joining Mercantile
in April 1992, Mr. Beirise was employed by Continental Bank N.A.
for twenty-four years, most recently as Managing Director,
Corporate Banking. Mr. Goldberg was President and Chairman of
ARTIS Ltd., a satellite based communications company, from August
1991 through August 1992. From 1985 through August 1991 he
served as Vice President of TBG Inc., a multi-national
information systems company, and as President of CLSI, a library
automation company. Mr. Gorman was Executive Vice President and
Secretary of UPSA from 1971 through July 1991. From August 1991
through January 1994, he was President and Chief Executive
Officer of UPSA. Mr. King served as Chairman of the Board, Chief
Executive Officer and President of MidAmerican Corporation from
1989 until January 1993.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is contained in
"Compensation of Executive Officers," included in the Proxy
Statement for the 1995 Annual Meeting of Shareholders, which is
incorporated herein by reference.
14
<PAGE> 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management is contained in "Voting Securities and
Principal Holders Thereof" and "Beneficial Ownership of Stock by
Management," included in the Proxy Statement for the 1995 Annual
Meeting of Shareholders, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is contained in "Interest of Management and Others
in Certain Transactions," included in the Proxy Statement for the
1995 Annual Meeting of Shareholders, which is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements: Incorporated herein by
reference, are listed in Item 8 hereof.
(2) Financial Statement Schedules:
None.
(3) Exhibits:
No. 3-1 Restated Articles of Incorporation of the
Registrant, as amended and currently in
effect, filed as Exhibit 3.1 to Regis-
trant's Registration Statement No. 33-
63196, are incorporated herein by
reference.
No. 3-2 By-Laws of the Registrant, as amended and
currently in effect, filed as Exhibit 3.2
to Registrant's Registration Statement
33-57489 are incorporated herein by
reference.
No. 4-1 Form of Indenture Regarding Subordinated
Securities between the Registrant and The
First National Bank of Chicago as Trustee,
filed on March 31, 1992 as Exhibit 4.1 to
Registrant's Report on Form 8-K dated
September 24, 1992, is incorporated herein
by reference.
No. 4-2 Rights Agreement dated as of May 23, 1988,
between Registrant and Mercantile Bank, as
Rights Agent (including as exhibits
thereto the form of Certificate of
Designation, Preferences and Rights of
Series A Junior Participating Preferred
Stock and the form of Rights Certificate),
filed as Exhibits 1 and 2 to Registrant's
Registration Statement on Form 8-A, dated
May 24, 1998, is incorporated herein by
reference.
No. 10-1 The Mercantile Bancorporation Inc. 1987
Stock Option Plan, as amended, filed as
Exhibit 10-3 to Registrant's Report on
Form 10-K for the year ended December 31,
1989, is incorporated herein by reference.
No. 10-2 Retirement Plan for Directors of
Mercantile Bancorporation Inc, filed as
Exhibit 10-5 to Registrant's Report on
Form 10-K for the year ended December 31,
1989, is incorporated herein by reference.
No. 10-3 The Mercantile Bancorporation Inc. Execu-
tive Incentive Compensation Plan, filed as
Appendix C to Registrant's definitive
Proxy Statement for the 1994 Annual
Meeting of Shareholders, is incorporated
herein by reference.
No. 10-4 The Mercantile Bancorporation Inc. Employee
Stock Purchase Plan, filed as Exhibit
10-7 to Registrant's Report on Form 10-K
for the year ended December 31, 1989, is
incorporated herein by reference.
15
<PAGE> 17
No. 10-5 The Mercantile Bancorporation Inc. 1991
Employee Incentive Plan, filed as Exhibit
10-7 to Registrant's Report on Form 10-K
for the year ended December 31, 1990, is
incorporated herein by reference.
No. 10-6 Amendment Number One to the Mercantile
Bancorporation Inc. 1991 Employee
Incentive Plan.
No. 10-7 The Mercantile Bancorporation Inc. 1994
Stock Incentive Plan, filed as Appendix B
to Registrant's definitive Proxy Statement
for the 1994 Annual Meeting of
Shareholders, is incorporated herein by
reference.
No. 10-8 The Mercantile Bancorporation Inc. 1994
Stock Incentive Plan for Non-Employee
Directors, filed as Appendix E to
Registrant's definitive Proxy Statement
for the 1994 Annual Meeting of
Shareholders, is incorporated herein by
reference.
No. 10-9 The Mercantile Bancorporation Inc.
Voluntary Deferred Compensation Plan,
filed as Appendix D to Registrant's
definitive Proxy Statement for the 1994
Annual Meeting of Shareholders, is
incorporated herein by reference.
No. 10-10 Form of Employment Agreement for
Thomas H. Jacobsen, as amended,
filed as Exhibit 10-8 to
Registrant's Report on Form 10-K
for the year ended December 31,
1989, is incorporated herein by
reference.
No. 10-11 Form of Employment Agreement for
Ralph W. Babb, Jr., John W.
McClure, W. Randolph Adams, John Q.
Arnold and Certain Other Executive
Officers, filed as Exhibit 10-9 to
Registrant's Report on Form 10-K
for the year ended December 31,
1989, is incorporated herein by
reference.
No. 10-12 Form of Change of Control Employ-
ment Agreement for Ralph W. Babb,
Jr., John W. McClure, W. Randolph
Adams, John Q. Arnold and Certain
Other Executive Officers, filed as
Exhibit 10-10 to Registrant's
Report on Form 10-K for the year
ended December 31, 1989, is
incorporated herein by reference.
No. 10-13 Agreement and Plan of
Reorganization dated August 17,
1993, by and among Registrant and
United Postal Bancorp, Inc.; filed
as Exhibit 2.1 to Registrant's
Registration Statement No. 33-50981, is
incorporated herein by reference.
No. 10-14 Amended and Restated Agreement and
Plan of Reorganization dated as of
December 2, 1994 by and among
Mercantile Bancorporation Inc. and
TCBankshares, Inc., filed as
Exhibit 2.1 to Registrant's Report
on Form 8-K dated December 21,
1994, is incorporated herein by
reference.
No. 10-15 Mercantile Bancorporation Inc.
Supplemental Retirement Plan, filed
as Exhibit 10-12 to Registrant's
Report on Form 10-K for the year
ended December 31, 1992, is
incorporated herein by reference.
No. 13 Annual Report of the Registrant to its
Shareholders for the year ended December
31, 1994.
No. 21 Subsidiaries of the Registrant as of March
10, 1995.
No. 23 Consent of KPMG Peat Marwick LLP.
No. 24 Power of Attorney (on signature page)
No. 27 Financial Data Schedule.
16
<PAGE> 18
(b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated December 21,
1994. Under Item 5 of that Report, Registrant disclosed
that it had entered into, and briefly described the terms
of, an Agreement and Plan of Reorganization ("Agreement")
with TCBankshares, Inc. ("TCB"), an Arkansas bank holding
company. Pursuant to the Agreement, Registrant will
acquire TCB through merger of TCB with and into a wholly
owned subsidiary of Registrant, with the shareholders of
TCB to receive an aggregate of approximately 4,750,000
shares of Registrant Common Stock, par value $5.00 per
share. In addition, holders of TCB Series A and Series B
Preferred Stock would receive an aggregate of 5,306 shares
of Registrant Series B-1 Preferred Stock and 9,500 shares
of Registrant Series B-2 Preferred Stock, respectively, in
exchange for their shares of TCB Series A and Series B
Preferred Stock. Also under Item 5, and as referenced in
Item 7, the Registrant included in the Report the Report
of Independent Auditors of TCB and the following
historical financial statements of TCB:
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Income for the Years Ended December
31, 1993, 1992 and 1991
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements--December 31, 1993
Consolidated Balance Sheets as of September 30, 1994 and 1993
(Unaudited)
Consolidated Statements of Income for the Nine Months Ended
September 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1994 and 1993 (Unaudited)
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MERCANTILE BANCORPORATION INC.
(Registrant)
Date: March 30, 1995 By: s/Thomas H. Jacobsen
------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Mercantile
Bancorporation, Inc., hereby severally and individually constitute and
appoint Thomas H. Jacobsen and W. Randolph Adams, and each of them,
the true and lawful attorneys and agents of each of us to execute in
the name, place and stead of each of us (individually and in any
capacity stated below) any and all amendments to this Annual Report on
Form 10-K and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power to act
with or without the others and to have full power and authority to do
and perform in the name and on behalf of each of the undersigned every
act whatsoever necessary or advisable to be done in the premises as
fully and to all intents and purposes as any of the undersigned might
or could do in person, and we hereby ratify and confirm our signatures
as they may be signed by our said attorneys and agents or each of them
to any and all such amendments and instruments.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <S> <C>
s/Thomas H. Jacobsen Chairman of the Board, President, March 30, 1995
----------------------------------- Chief Executive Officer and Director
(Thomas H. Jacobsen)
Principal Executive Officer
s/W. Randolph Adams Senior Executive Vice President March 30, 1995
----------------------------------- and Chief Financial Officer
(W. Randolph Adams)
Principal Financial Officer
s/Michael T. Normile Senior Vice President, March 30, 1995
----------------------------------- Finance and Control
(Michael T. Normile)
Principal Accounting Officer
s/ Richard Conerly Director March 28, 1995
-----------------------------------
(Richard P. Conerly)
s/Harry M. Cornell, Jr. Director March 28, 1995
-----------------------------------
(Harry M. Cornell, Jr.)
s/Earl K. Dille Director March 24, 1995
-----------------------------------
(Earl K. Dille)
18
<PAGE> 20
s/J. Cliff Eason Director March 24, 1995
-----------------------------------
(J. Cliff Eason)
Director March --, 1995
-----------------------------------
(Bernard A. Edison)
s/William A. Hall Director March 27, 1995
-----------------------------------
(William A. Hall)
s/Thomas A. Hays Director March 28, 1995
-----------------------------------
(Thomas A. Hays)
s/William G. Heckman Director March 31, 1995
-----------------------------------
(William G. Heckman)
s/James B. Malloy Director March 24, 1995
-----------------------------------
(James B. Malloy)
Director March --, 1995
-----------------------------------
(Charles H. Price II)
s/Harvey Saligman Director March 24, 1995
-----------------------------------
(Harvey Saligman)
s/Craig D. Schnuck Director March 27, 1995
-----------------------------------
(Craig D. Schnuck)
s/Robert W. Staley Director March 29, 1995
-----------------------------------
(Robert W. Staley)
s/Robert L. Stark Director March 28, 1995
-----------------------------------
(Robert L. Stark)
s/Patrick T. Stokes Director March 27, 1995
-----------------------------------
(Patrick T. Stokes)
s/Francis A. Stroble Director March 30, 1995
-----------------------------------
(Francis A. Stroble)
Director March --, 1995
-----------------------------------
(Joseph G. Werner)
s/John A. Wright Director March 26, 1995
-----------------------------------
(John A. Wright)
</TABLE>
19
<PAGE> 21
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit No. Description
----------- ------------
<S> <C>
No. 10-6 Amendment Number One to the Mercantile
Bancorporation Inc. 1991 Employee
Incentive Plan
No. 13 Annual Report of the Registrant to its
Shareholders for the year ended December 31,
1994.
No. 21 Subsidiaries of the Registrant as of March 10, 1995.
No. 23 Consent of KPMG Peat Marwick LLP.
No. 24 Power of Attorney (on Signature Page).
No. 27 Financial Data Schedule.
</TABLE>
20
<PAGE> 1
EXHIBIT NO. 10-6
AMENDMENT NUMBER ONE TO THE MERCANTILE BANCORPORATION INC.
1991 EMPLOYEE INCENTIVE PLAN
Sections 7.7 and 7.9 of the Mercantile Bancorporation Inc.
1991 Employee Incentive Plan are amended and restated in their
entirety to read as follows:
7.7 Termination of Employment Due to Death or Disability.
-----------------------------------------------------
If the Participant's employment with all members of the Group is
terminated by reason of the Participant's death or disability, any
outstanding Options of such Participant then exercisable shall
terminate upon the expiration date of the Options, or eighteen
months after the date of termination of employment by reason of the
Participant's death or twelve months after the date of termination
of employment by reason of the Participant's disability, whichever
first occurs. However, in the case of incentive stock options, the
favorable tax treatment prescribed under Section 422 of the Code
shall not be available if such Options are not exercised within
three months after date of termination, or twelve months after
termination on account of disability. If an incentive stock
option is not exercised within three months of termination
due to death, it shall be treated as a nonstatutory stock
option for the remainder of its allowable exercise period.
7.9 Retirement or Other Termination of Employment. If
----------------------------------------------
the Participant's employment with all members of the Group is
terminated by reason of Retirement, any outstanding Options of such
Participant then exercisable shall terminate upon the expiration
date of the Options or thirty-six months after such date of
retirement, whichever first occurs. If a Participant's employment
with all members of the Group is terminated for any reason other
than Retirement and other than for reasons described in
Section 7.7 and 7.8 of this Plan, any outstanding Options of
such Participant then exercisable shall terminate upon the
expiration of the Options or three months after such date of
termination of employment, whichever first occurs.
IN WITNESS WHEREOF, Mercantile Bancorporation Inc. has caused
this amendment to be executed and attested, and its corporate
seal to be affixed by its duly authorized officers this 15th day
of March, 1995.
(SEAL)
ATTEST MERCANTILE BANCORPORATION INC.
By: s/Michael J. Marshall By: s/Jon W. Bilstrom
------------------------- -------------------------------
Michael J. Marshall Jon W. Bilstrom
Assistant Secretrary General Counsel and Secretary
21
<PAGE> 1
MERCANTILE BANCORPORATION INC.
MERCANTILE'S
MISSION IS TO BE
A PREMIER
BANKING
ORGANIZATION
IN THE
U.S.
ANNUAL REPORT 1994
<PAGE> 2
----------------------------------------------------------------------
CORPORATE DESCRIPTION
At the end of 1994, Mercantile Bancorporation Inc., headquartered in
St. Louis, was the parent company of 40 banks in Missouri, Kansas,
Illinois and Iowa, and other subsidiaries providing specialized
financial services. Early in 1995, Mercantile completed the
affiliations of Wedge Bank in Alton, Illinois and UNSL Financial
Corp, holding company for United Savings Bank, a Lebanon, Missouri
savings and loan association. Mercantile currently has acquisitions
pending with financial institutions in Missouri and Iowa, as well as
its first merger in Arkansas. The organization's focus is on retail,
institutional and corporate markets in its primary midwest market
area and clients with ties to the Midwest.
Mercantile's main subsidiary is Mercantile Bank of St. Louis N.A.,
which traces its beginnings to 1855, when its first predecessor
opened for business. The holding company was organized in 1971,
providing the vehicle to expand the Mercantile banking concept.
Mercantile's first acquisition outside its home state was completed
in early 1987, just after Missouri adopted limited interstate banking
legislation.
Mercantile banks deliver services to customers through a network of
249 banking offices and 249 Fingertip Banking(R) Automated Teller
Machines, which also belong to the regional BankMate(R) and
international Cirrus(R) networks. Mercantile's broad range of
services are concentrated in four major lines of business-retail,
corporate and investment banking, and trust. Non-banking subsidiaries
which provide related financial services include Mississippi Valley
Advisors Inc., for investment research and asset management,
Mercantile Investment Services, Inc., for brokerage services, and
Mercantile Business Credit, Inc., an asset-based lender.
CORPORATE ADDRESS
One Mercantile Center
P.O. Box 524
St. Louis, MO 63166-0524
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
1010 Market Street
St. Louis, MO 63101-2085
GENERAL COUNSEL
Thompson & Mitchell
One Mercantile Center
St. Louis, MO 63101-1693
TRANSFER AGENT
KeyCorp Shareholder Services, Inc.
P.O. Box 6477
Cleveland, OH 44101-1477
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
Highlights........................................................ 1
Letter to Shareholders............................................ 2
Achievements, Advancements and Innovations........................ 5
Banks and Other Subsidiaries......................................12
Financial Discussion and Report...................................13
Investor Information..............................................68
Directors and Executive Officers..................................69
</TABLE>
<PAGE> 3
<TABLE>
HIGHLIGHTS
<CAPTION>
PERCENT CHANGE
-----------------
1993 TO 1992 TO
($ IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1992 1994 1993
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income $ 3.74 $ 2.80 $ 2.36 33.6% 18.6%
Dividends declared 1.12 .99 .93 13.1 6.5
Book value at December 31 24.72 22.40 20.25 10.4 10.6
Market price at December 31 31 1/4 30 1/8 32 1/8 3.7 (6.2)
Average common shares outstanding 43,091,152 42,439,298 39,492,237 1.5 7.5
-------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Taxable-equivalent net interest income $519,777 $510,770 $465,659 1.8% 9.7%
Tax-equivalent adjustment 9,114 9,574 9,570 (4.8) -
Net interest income 510,663 501,196 456,089 1.9 9.9
Provision for possible loan losses 33,472 61,013 74,579 (45.1) (18.2)
Other income 188,296 199,158 183,944 (5.5) 8.3
Other expense 412,369 444,909 418,068 (7.3) 6.4
Income taxes 92,089 75,568 52,346 21.9 44.4
Net income 161,029 118,864 95,040 35.5 25.1
-------------------------------------------------------------------------------------------------------------------------------
ENDING BALANCES
Total assets $12,241,794 $12,141,127 $12,273,028 .8% (1.1)%
Loans and leases 8,114,845 7,381,774 7,499,221 9.9 (1.6)
Deposits 9,053,859 9,602,083 9,927,959 (5.7) (3.3)
Shareholders' equity 1,068,250 958,557 851,324 11.4 12.6
Reserve for possible loan losses 170,940 168,651 165,575 1.4 1.9
-------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Total assets $12,138,914 $12,215,514 $11,815,859 (.6)% 3.4%
Earning assets 11,120,640 11,123,837 10,750,502 - 3.5
Loans and leases 7,622,125 7,412,810 7,443,980 2.8 (.4)
Deposits 9,590,178 10,002,563 9,749,860 (4.1) 2.6
Shareholders' equity 1,017,790 914,335 795,532 11.3 14.9
-------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on assets 1.33% .97% .80%
Return on equity 15.82 13.00 11.95
Overhead ratio 58.24 62.67 64.36
Other expense to average assets 3.40 3.64 3.54
Net interest rate margin 4.67 4.59 4.33
Equity to assets 8.73 7.90 6.94
Tier I capital to risk-adjusted assets 11.87 11.06 9.75
Total capital to risk-adjusted assets 15.78 14.54 14.32
Leverage 8.32 7.33 6.39
Reserve for possible loan losses to
outstanding loans 2.11 2.28 2.21
Reserve for possible loan losses to
non-performing loans 675.57 293.39 156.85
Non-performing assets to outstanding
loans and foreclosed assets .46 1.26 2.18
Dividend payout 29.95 35.36 39.41
-------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
Shareholders of record 13,585 13,778 14,469
Employees<F1> 5,656 5,978 5,901
Banks 40 42 41
Banking offices 249 249 236
Automated Teller Machines<F2> 249 242 224
-------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Full-time equivalent employees.
<F2> Member of BankMate(R) and Cirrus(R) Automated Teller Machine networks.
</TABLE>
MERCANTILE BANCORPORATION INC.
1
<PAGE> 4
<TABLE>
BANKS AND OTHER SUBSIDIARIES
<CAPTION>
DECEMBER 31, 1994
($ IN THOUSANDS)
------------------------------
LOCATIONS SHARE- RETURN ON
---------------------------- HOLDER'S AVERAGE
BANK CHIEF EXECUTIVE OFFICER MAIN OFFICE TOTAL ASSETS EQUITY ASSETS
----------------------- ----------- ----- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mercantile Bank of St. Louis N.A. Thomas H. Jacobsen St. Louis, MO 54 $6,351,671 $524,064 1.31%
Mercantile Bank of Kansas City Richard C. King Kansas City, MO 17 777,385 69,778 1.31
Mercantile Bank of Kansas Richard C. King Overland Park, KS 18 590,521 49,350 1.21
Mercantile Bank of Illinois N.A. A. Jesse Hopkins Alton, IL 15 455,261 35,565 2.42
Mercantile Bank of Joplin Larry L. Gilb Joplin, MO 11 387,641 34,526 1.70
Mercantile Bank of Northern Iowa Daniel B. Watters Waterloo, IA 7 364,669 31,813 1.28
Mercantile Bank of St. Joseph Thomas B. Fitzsimmons St. Joseph, MO 9 329,228 28,770 1.33
Mercantile Bank of Springfield David W. Felske Springfield, MO 9 305,782 24,773 1.66
Mercantile Bank of Lawrence John R. Elmore Lawrence, KS 12 233,657 24,310 1.51
Mercantile Bank of Jefferson County William C. Heady High Ridge, MO 5 211,200 18,723 1.60
Mercantile Bank of Topeka Charles N. Johns Topeka, KS 12 197,692 17,244 1.16
Mercantile Bank of Cape Girardeau O. J. Miller Cape Girardeau, MO 3 170,976 13,208 1.18
Mercantile Bank of Franklin County Thomas M. Metzger Washington, MO 4 161,611 13,020 1.74
Mercantile Bank of the Mineral Area Lowell C. Peterson Farmington, MO 3 160,033 13,138 2.05
Mercantile Bank of North Central
Missouri Loren E. Jensen Macon, MO 5 157,904 13,229 1.50
Mercantile Bank of West Central
Missouri Phillip M. Hunt Sedalia, MO 8 147,535 14,464 1.18
Mercantile Bank of Lake of the Ozarks Jerry A. Setser Eldon, MO 4 124,501 11,118 1.68
Mercantile Bank of Poplar Bluff Melvin D. Brown Poplar Bluff, MO 4 104,210 9,230 1.37
Mercantile Bank of Mt. Vernon David P. Strautz Mt. Vernon, IL 5 91,630 8,107 1.11
Mercantile Bank of Centralia Harry N. Harrison Centralia, IL 3 91,419 9,811 1.35
Mercantile Bank of Missouri Valley R. Scott Weston Richmond, MO 2 86,618 7,313 1.33
Mercantile Bank of Stoddard/Bollinger
Counties John S. Davis Dexter, MO 4 79,511 6,763 1.43
Mercantile Bank of Monett Jerry L. LeClair Monett, MO 5 79,228 6,971 1.48
Mercantile Bank of Trenton Jan O. Humphreys Trenton, MO 3 78,572 9,824 1.36
Mercantile Bank of Perryville Mark D. Grieshaber Perryville, MO 1 69,163 6,198 1.35
Mercantile Bank of Flora Martin P. Tudor Flora, IL 1 68,242 8,668 1.27
Mercantile Bank of Phelps County Robert R. Thompson Rolla, MO 2 67,161 5,468 .99
Mercantile Bank of Pike County Darrell L. Denish Bowling Green, MO 2 58,020 4,512 1.38
Mercantile Bank of Memphis Robert L. Henselman Memphis, MO 1 51,304 4,331 2.10
Mercantile Bank of Doniphan William R. Orendorff Doniphan, MO 2 50,292 5,080 1.54
Mercantile Bank of Boone County Terry W. Coffelt Columbia, MO 2 49,564 4,000 .73
Mercantile Bank of East Central
Missouri Stanley B. Bonnes Montgomery City, MO 2 49,051 4,154 1.66
Mercantile Bank of Ste. Genevieve Samuel F. Berendzen Ste. Genevieve, MO 1 48,125 4,034 1.14
Mercantile Bank of Northwest Missouri Coby D. Lamb Maryville, MO 4 43,358 4,463 .95
Mercantile Bank of Willow Springs Jerry H. Abbott Willow Springs, MO 1 39,195 3,504 2.31
Mercantile Bank of Sikeston Mark E. Nelson Sikeston, MO 1 39,161 3,665 1.34
Mercantile Bank of Wright County Thomas F. Zinnert Hartville, MO 1 38,443 3,385 1.49
Mercantile Bank of Carlyle Gregory A. Meyer Carlyle, IL 3 37,975 3,842 1.04
Mercantile Bank of Plattsburg Alan L. Hall Plattsburg, MO 3 37,288 3,836 1.56
Mercantile Trust Company N.A. W. Randolph Adams St. Louis, MO - 8,002 7,471 -
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSET-BASED LENDING
Mercantile Business Credit, Inc.
12443 Olive Blvd.
St. Louis, MO 63141-6432
BROKERAGE SERVICES
Mercantile Investment Services, Inc.
Mercantile Tower
St. Louis, MO 63101-1643
CREDIT CARD SERVICES
Mercantile Card Services Inc.
12443 Olive Blvd.
St. Louis, MO 63141-6432
CREDIT LIFE INSURANCE
Mississippi Valley Life Insurance Co.
Mercantile Tower
St. Louis, MO 63101-1643
INSURANCE AGENCY
Mercantile Insurance Services, Inc.
Mercantile Tower
St. Louis, MO 63101-1643
INVESTMENT MANAGEMENT
Mississippi Valley Advisors Inc.
Mercantile Tower
St. Louis, MO 63101-1643
OFF-SHORE BRANCH
Mercantile Bank of St. Louis N.A.
Cayman Branch
Grand Cayman, B.W.I.
RECENT MERGERS
UNSL Financial Corp
Lebanon, MO
(completed January 3, 1995)
Wedge Bank
Alton, IL
(completed January 3, 1995)
PENDING AFFILIATIONS
Central Mortgage
Bancshares, Inc.
Kansas City, MO
TCBankshares, Inc.
North Little Rock, AR
Plains Spirit Financial Corporation
Davenport, IA
Southwest Bancshares, Inc.
Springfield, MO
MERCANTILE BANCORPORATION INC.
12
<PAGE> 5
FINANCIAL DISCUSSION AND REPORT
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
Financial Commentary..............................................14
Performance Summary..............................................14
Net Interest Income..............................................18
Liquidity........................................................20
Interest Rate Sensitivity........................................22
Deposits.........................................................23
Short-Term Borrowed Funds
and Short-Term Investments..................................... 25
Capital Resources................................................25
Investments in Debt and Equity Securities........................28
Loans............................................................29
Risk Management and the
Reserve for Possible Loan Losses............................... 31
Non-Performing Assets............................................34
Off-Balance-Sheet Risk...........................................35
Other Income.....................................................36
Other Expense....................................................37
Income Taxes.....................................................39
Fourth Quarter Results...........................................40
Management Report on Consolidated
Financial Statements.............................................42
Audited Financial Statements
Independent Auditors' Report.....................................43
Mercantile Bancorporation Inc.
and Subsidiaries Consolidated
Financial Statements........................................... 44
Notes to Consolidated Financial Statements.......................48
Six Year Consolidated Financial Statements........................64
Investor Information..............................................68
</TABLE>
13
<PAGE> 6
FINANCIAL COMMENTARY
PERFORMANCE SUMMARY
Net income for Mercantile Bancorporation Inc. ("Corporation" or
"Mercantile") was a record $161,029,000 in 1994, a 35.5% improvement
from the $118,864,000 recorded in 1993. Per share net income was
$3.74, up 33.6% from the $2.80 earned last year. All prior year
figures have been restated to include the results of operations and
financial positions of Metro Bancorporation ("Metro") and United
Postal Bancorp, Inc. ("United Postal"), which were merged with
Mercantile on January 3, 1994 and February 1, 1994, respectively, in
transactions accounted for as poolings-of-interests. Included in
those restated 1993 figures was a $16.5 million after-tax charge for
these two acquired companies to conform their accounting and credit
policies regarding loan, other real estate and other asset valuations
to those of Mercantile. Compared with the originally reported 1993
figure, 1994 earnings per share improved by 12.7%.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 1
SELECTED FINANCIAL DATA
<CAPTION>
GROWTH RATES
---------------------
1994 1993 1992 1991 1990 1989 ONE YEAR FIVE YEARS
---- ---- ---- ---- ---- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income $ 3.74 $ 2.80 $ 2.36 $ 2.37 $ 2.18 $ .29 33.6% 66.8%
Dividends declared 1.12 .99 .93 .93 .93 .93 13.1 3.8
Book value at year-end 24.72 22.40 20.25 18.86 17.14 15.86 10.4 9.3
Market price at year-end 31 1/4 30 1/8 32 1/8 25 1/8 14 17 3/8 3.7 12.5
Average common shares
outstanding (thousands) 43,091 42,439 39,492 31,791 30,144 29,092 1.5 8.2
OPERATING RESULTS (THOUSANDS)
Taxable-equivalent net
interest income $519,777 $510,770 $465,659 $381,067 $341,293 $322,938 1.8 10.0
Tax-equivalent adjustment 9,114 9,574 9,570 8,512 11,376 14,500 (4.8) (8.9)
-------- -------- -------- -------- -------- --------
Net interest income 510,663 501,196 456,089 372,555 329,917 308,438 1.9 10.6
Provision for possible
loan losses 33,472 61,013 74,579 58,076 50,886 104,708 (45.1) (20.4)
Other income 188,296 199,158 183,944 155,696 137,356 150,038 (5.5) 4.6
Other expense 412,369 444,909 418,068 383,348 318,887 335,266 (7.3) 4.2
Income taxes (credits) 92,089 75,568 52,346 18,673 27,658 (1,804) 21.9 -
-------- -------- -------- -------- -------- ---------
Net income $161,029 $118,864 $ 95,040 $ 68,154 $ 69,842 $ 20,306 35.5 51.3
======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET (MILLIONS)
Total assets $12,242 $12,141 $12,273 $10,765 $10,137 $9,536 .8 5.1
Earning assets 11,261 11,114 11,186 9,827 9,016 8,477 1.3 5.8
Loans and leases 8,115 7,382 7,499 6,946 6,884 6,358 9.9 5.0
Investments in debt and
equity securities 3,034 3,401 3,401 2,475 1,886 1,904 (10.8) 9.8
Deposits 9,054 9,602 9,928 8,776 8,278 7,601 (5.7) 3.6
Long-term debt 287 273 299 203 233 308 5.3 (1.4)
Shareholders' equity 1,068 959 851 690 581 536 11.4 14.8
Reserve for possible
loan losses 171 169 166 146 149 149 1.4 2.7
AVERAGE BALANCE SHEET (MILLIONS)
Total assets $12,139 $12,216 $11,816 $10,196 $9,546 $8,886 (.6) 6.4
Earning assets 11,121 11,124 10,751 9,243 8,598 7,891 - 7.1
Loans and leases 7,622 7,413 7,444 6,789 6,485 6,000 2.8 4.9
Investments in debt and
equity securities 3,272 3,392 2,989 2,072 1,888 1,712 (3.5) 13.8
Deposits 9,590 10,003 9,750 8,386 7,802 7,184 (4.1) 5.9
Long-term debt 292 275 237 226 253 244 6.3 3.6
Shareholders' equity 1,018 914 796 648 558 532 11.3 13.8
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
14
<PAGE> 7
When compared with last year, 1994 results reflected continued
improvement in the levels of net interest income, and lower levels of
both operating expenses and the provision for loan losses, partially
offset by a small decrease in other income. The key measurements of
profitability also showed improvement in 1994, as return on average
assets was a record 1.33% compared with the 1993 restated .97% and
originally reported 1.11%, while return on equity was 15.82% versus
the prior year's restated 13.00% and originally reported 14.87%.
Financial highlights for the past six years are presented in Exhibits
1 and 2.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 2
SELECTED RATIOS
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Return on assets 1.33% .97% .80% .67% .73% .23%
Return on equity 15.82 13.00 11.95 10.52 12.51 3.81
Overhead ratio 58.24 62.67 64.36 71.42 66.62 70.88
Other expense to average assets 3.40 3.64 3.54 3.76 3.34 3.77
Dividend yield 3.58 3.29 2.89 3.70 6.64 5.35
Dividend payout 29.95 35.36 39.41 39.24 42.66 -
Equity to assets 8.73 7.90 6.94 6.41 5.73 5.62
Tier I capital to risk-adjusted
assets 11.87 11.06 9.75 8.33 6.52 6.41
Total capital to risk-adjusted
assets 15.78 14.54 14.32 10.39 8.38 8.37
Leverage 8.32 7.33 6.39 5.99 5.02 4.88
Loans to deposits (average) 79.48 74.11 76.35 80.96 83.13 83.52
Reserve for possible loan losses to
outstanding loans 2.11 2.28 2.21 2.10 2.16 2.35
Reserve for possible loan losses to
non-performing loans 675.57 293.39 156.85 113.14 119.68 121.55
Non-performing loans to
outstanding loans .31 .78 1.41 1.86 1.80 1.93
Non-performing assets to outstanding
loans and foreclosed assets .46 1.26 2.18 2.97 2.75 2.85
Net interest rate margin 4.67 4.59 4.33 4.12 3.97 4.09
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1994 Mercantile once again met its objective of emphasizing
profitability while remaining receptive to opportunities for growth.
Mercantile's corporate strategy for growth is to concentrate on its
existing natural markets. To this end, Mercantile continually
evaluates and pursues expansion opportunities to enhance its
competitive position in its existing markets of Missouri, Illinois,
Kansas and Iowa, as well as in major markets in the states contiguous
to Missouri. Such opportunities currently include the acquisition of
banks or thrift institutions, and the establishment of new branches.
On July 6, 1994, Mercantile announced plans to expand its banking
operations in southwestern Illinois through the acquisition of Wedge
Bank ("Wedge"), a $196 million-asset bank headquartered in Alton,
Illinois. One week later, the Corporation reached an agreement to
acquire UNSL Financial Corp of Lebanon, Missouri ("UNSL"), holding
company for the $508 million-asset United Savings Bank in
southwestern and central Missouri. On September 21, 1994, Mercantile
announced plans to acquire Central Mortgage Bancshares, Inc. of
Kansas City, Missouri ("Central"), a $650 million-asset bank holding
company with three banking subsidiaries, while on December 5, 1994,
the Corporation announced plans to expand into Arkansas through a
merger with TCBankshares, Inc. ("TCBankshares"), a $1.4 billion-
asset, six-bank holding company based in North Little Rock.
Additionally, on January 27, 1995, Mercantile signed a definitive
agreement to merge with Southwest Bancshares, Inc., headquartered in
Springfield, Missouri. All these transactions will be accounted for as
poolings-of-interests.
On December 23, 1994, the Corporation announced plans to further
expand in Iowa with the acquisition of Plains Spirit Financial
Corporation ("Plains Spirit"), a $439 million-asset savings bank in
Davenport, Iowa. That transaction is expected to close mid-year 1995
and will be accounted for as a purchase.
15
<PAGE> 8
FINANCIAL COMMENTARY (CONT'D)
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 3
ACQUISITIONS
<CAPTION>
ORIGINAL CONSIDERATION
INTANGIBLE ----------------- ACCOUNTING
DATE ASSETS DEPOSITS ASSET CASH SHARES METHOD
---- ------ -------- ---------- ---- ------ ----------
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
United Postal Bancorp, Inc. Feb. 1, 1994 $1,260,765 $1,025,252 $ - $ 39 5,631,953 Pooling
Metro Bancorporation Jan. 3, 1994 370,175 333,183 - 6 1,638,278 Pooling
Mt. Vernon Bancorp, Inc. Sept. 1, 1993 113,128 100,695 4,700 1,805 216,936 Purchase
First National Bank of Flora Apr. 1, 1993 70,725 61,661 2,549 3,004 232,503 Purchase
MidAmerican Corporation and Johnson
County Bankshares, Inc. Jan. 4, 1993 1,102,906 956,578 - 12 4,736,424 Pooling
Ameribanc, Inc. Apr. 30, 1992 1,177,825 1,035,561 - 8,851 1,975,421 Purchase
RESOLUTION TRUST CORPORATION
TRANSACTIONS COMPLETED
First State Savings Association of
Sedalia Apr. 3, 1992 156,818 163,055 2,186 2,186 - Purchase
Home Federal Savings Association
branches Mar. 27, 1992 470 222,304 3,227 3,227 - Purchase
RECENTLY COMPLETED ACQUISITIONS
UNSL Financial Corp Jan. 3, 1995 508,346 380,716 - 11 1,578,107 Pooling
Wedge Bank Jan. 3, 1995 195,716 152,865 - 1 969,954 Pooling
ACQUISITIONS PENDING
Central Mortgage Bancshares, Inc. Mar. 1995 650,214 565,986 - - 2,625,000<F1> Pooling
TCBankshares, Inc. 2nd Qtr. 1995 1,411,791 1,178,414 - - 4,750,000<F1>,<F2> Pooling
Plains Spirit Financial Corporation 2nd Qtr. 1995 438,679 265,822 N/A <F3> <F3> Purchase
Southwest Bancshares, Inc. 3rd Qtr. 1995 175,759 146,103 - - 675,000<F1> Pooling
<FN>
<F1> Estimated shares to be issued in acquisition.
<F2> In addition to Mercantile common stock issued, the Corporation
will assume, through an exchange, the outstanding, non-convertible
preferred stock of TCBankshares, Inc.
<F3> The value of the consideration will total $64 million, which
includes up to 1,400,000 shares of Mercantile common stock.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Wedge and UNSL transactions closed on January 3, 1995. Wedge
will be merged with the existing Mercantile Bank in Alton, Illinois,
and the UNSL merger will result in a new Mercantile bank
headquartered in Lebanon, Missouri and the integration of certain
other branches into Mercantile banks in other common markets. The
Central acquisition is anticipated to close during the first quarter
of 1995. Approximately two-thirds of the assets of Central are in the
Kansas City area and it is anticipated that those operations will be
merged into the Mercantile Bank in Kansas City, Missouri. The
TCBankshares merger is expected to be closed in the second quarter of
1995. These transactions should bring total assets at mid-year 1995
to approximately $15 billion.
Merger activity for the past three years is summarized in Exhibit 3.
It is not anticipated that any of the recently completed or pending
acquisitions will have a significant impact on liquidity, capital
ratios or expected trends in the results of operations of the
Corporation.
During 1994 the total number of banking offices increased from an
originally reported 220 to 249. There were 17 locations added from
mergers, 15 new offices opened and three offices closed during the
year, as the Corporation continued to monitor the profitability and
growth opportunities of each of its locations. After all announced
acquisitions previously discussed are closed during 1995, Mercantile
will be operating approximately 320 branches.
Net interest income for 1994 increased 1.9% over the prior year to
$510,663,000. The net interest rate margin was 4.67% in 1994 compared
with 4.59% in 1993, and it benefited primarily from continued wide
interest rate spreads, as average earning assets remained at the same
relative level as in 1993. Average loans grew by $209,315,000 or
2.8%, short-term investments decreased by $92,896,000 or 29.1% and
investment securities were down by $119,616,000 or 3.5%.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
16
<PAGE> 9
Other income was $188,296,000 in 1994, a decrease of $10,862,000 or
5.5% from a year ago. Modest growth in credit card and letters of
credit fees were offset by declines in all other categories of non-
interest income.
Other expense was down 7.3% from a year ago and totaled $412,369,000
compared with $444,909,000 last year. The reduction in expense levels
resulted primarily from the realization of synergies from mergers
completed in prior years, restructuring costs of $12,053,000 included
in 1993 results and significantly lower foreclosed property costs.
The result was an improvement in the overhead ratio to 58.24% in 1994
compared with 62.67% in 1993 and 64.36% in 1992.
The provision for possible loan losses for 1994 was $33,472,000
compared with $61,013,000 the prior year, a decline of 45.1%, and was
indicative of the improvements in the Corporation's credit quality.
The ratio of net charge-offs to average loans for 1994 was .41%
compared with .81% last year. The net charge-off figures were
$31,183,000 and $60,179,000, respectively. At December 31, 1994, the
reserve for possible loan losses was $170,940,000 and represented
2.11% of loans compared with 2.28% last year. The reserve covered
675.57% of non-performing loans versus the 293.39% coverage ratio at
December 31, 1993.
Non-performing loans as of December 31, 1994 declined by $32,180,000
or 56.0% to $25,303,000 or .31% of total loans from $57,483,000 or
.78% at December 31, 1993. Foreclosed assets, including in-substance
foreclosures, declined by $23,667,000 or 65.7% to $12,347,000
compared with $36,014,000 at the end of 1993.
Consolidated assets at December 31, 1994 were $12.2 billion compared
with $12.1 billion at year-end 1993. Core deposits declined by 8.2%
to $8.4 billion, loans were $8.1 billion, up 9.9% from last year, and
shareholders' equity of $1.1 billion was up 11.4% from year to year.
The 1994 year-end equity to assets ratio improved to 8.73% from 7.90%
the prior year, and the Tier I and Total risk-based capital ratios
increased to 11.87% and 15.78%, respectively, from 11.06% and 14.54%
at December 31, 1993.
Net income in the St. Louis Area (Mercantile Bank of St. Louis N.A.
and Mercantile Trust Company N.A.) for 1994 was $88,564,000 compared
with $60,677,000 in 1993, an increase of 46.0%. These results
reflected stable net interest income, and significant reductions in
operating and foreclosed property expenses and the provision for loan
losses, partially offset by reduced other income. Return on average assets
was 1.40% compared with .95% last year. Year-end assets were $6.4 billion,
up .7% from a year earlier, and loans of $3.9 billion increased 9.2%,
while deposits of $3.9 billion were down 10.9% from December 31, 1993.
The St. Louis Area represents approximately one-half of the Corporation's
assets.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 4
ORGANIZATIONAL CONTRIBUTION
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------------
KANSAS PARENT
ST. LOUIS CITY COMMUNITY COMPANY AND
AREA<F*> AREA BANKS ELIMINATIONS CONSOLIDATED
--------- ------ --------- -------------- ------------
($ in Thousands)
<S> <C> <C> <C> <C> <C>
Net income $ 88,564 $ 20,969 $ 67,371 $ (15,875) $ 161,029
Average assets 6,347,624 1,613,626 4,403,987 (226,323) 12,138,914
Return on assets 1.40% 1.30% 1.53% 1.33%
Net interest rate margin 4.14 4.82 5.23 4.67
Overhead ratio 55.00 59.11 54.41 58.24
Other expense to average assets 2.94 3.41 3.45 3.40
Equity to assets 8.36 8.96 8.76 8.73
Reserve for possible loan losses to outstanding
loans 1.98 2.17 2.24 2.11
Reserve for possible loan losses to non-
performing loans 748.62 598.80 632.17 675.57
Non-performing loans to outstanding loans .26 .36 .35 .31
Non-performing assets to outstanding loans and
foreclosed assets .41 .48 .45 .46
<FN>
<F*>Includes the results of Mercantile Bank of St. Louis N.A., Mercantile
Trust Company N.A., Mercantile Business Credit, Inc. (asset-based
lending), Mercantile Investment Services, Inc. (brokerage),
Mississippi Valley Advisors Inc. (investment management) and Merc
Mortgage (mortgage banking).
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 10
FINANCIAL COMMENTARY (CONT'D)
[EXHIBIT 5 NET INTEREST RATE MARGIN (%) GRAPH]
Net interest income in the St. Louis Area improved by .1% as the
volume of average earning assets declined by $18,326,000 or .3%,
while the net interest rate margin increased by one basis point to
4.14%. Average outstanding loans grew by $78,549,000 or 2.1%, while
the investment portfolio declined by 5.2%. Average core deposits
declined by $393,567,000 or 8.8%. Non-interest expenses were down
13.8%, while the overhead ratio improved to 55.00% from 61.73% for
the prior year. Other income declined $11,236,000 or 9.3%, due
largely to a higher level of securities gains during 1993 at United
Postal, which was merged into Mercantile Bank of St. Louis N.A. on
August 16, 1994.
The provision for possible loan losses in the St. Louis Area was
$11,300,000 compared with $29,281,000 in 1993, a decline of
$17,981,000 or 61.4%. During the fourth quarter of 1993, United
Postal recorded a $7,500,000 provision to conform its credit policies
to those of Mercantile. This factor, as well as significantly lower
levels of non-performing loans, allowed for the lower provision. The
reserve for possible loan losses as a percentage of total loans was
1.98% at December 31, 1994 versus 2.06% at December 31, 1993, while
the reserve coverage of non-performing loans was strengthened to
748.62% compared with 217.88% at December 31, 1993.
In the 35 Community Banks (all banks other than the three banks in
the Kansas City Area and the two in St. Louis), 1994 net income was
$67,371,000, a 15.2% improvement over the $58,492,000 earned in 1993.
Year-end assets were $4.5 billion, up 1.1%, while total deposits were
down 2.1% and loans increased by 9.0% or $267,042,000. Return on
average assets improved to 1.53% compared with 1.32% last year. The
Community Bank network only had three banks with a return on assets
less than one percent and two of those earned in the .90% range.
Net interest income in the Community Banks increased by $4,624,000
or 2.2% during 1994, as average earning assets were relatively flat
with 1993 and the net interest rate margin increased by eleven basis
points to 5.23%. The provision for possible loan losses in the
Community Banks declined by 33.5% to $18,421,000, as credit quality
significantly improved and some substantial recoveries on previously
charged-off loans were realized. The reserve as a percentage of loans
outstanding was 2.24% compared with 2.44% a year earlier, while the
reserve coverage of non-performing loans was 632.17% at the end of
1994 versus 400.95% at December 31, 1993. Other income grew by 3.2%,
led by improvements in service charge income and credit card fees.
Other expense growth was 1.2%, while the overhead ratio dropped to
54.41% versus 55.04% in 1993.
The three banks in the Kansas City Area, with year-end assets of
$1.6 billion, earned $20,969,000 in 1994, a 19.2% increase when
compared with the $17,590,000 earned in 1993. Return on average
assets grew to 1.30% compared with 1.09% the previous year. Net
interest income increased by $2,343,000 or 3.4% during 1994 as
average earning assets grew by $7,942,000 or .5% and the net interest
rate margin increased by 13 basis points to 4.82%. The provision for
possible loan losses declined by 6.7% to $3,751,000, and at year-end
1994, the reserve as a percentage of loans outstanding was 2.17%,
while the reserve coverage of non-performing loans was 598.80%
compared with 413.31% last year-end. Other income declined by 9.3%,
primarily due to declines in service charge income and trust
revenues. Operating expenses were well controlled, declining by 8.0%,
resulting in an overhead ratio of 59.11% compared with 64.39% in
1993. Exhibit 4 summarizes some key ratios representing the
organizational contribution and financial condition of the three
reporting Mercantile units.
The following financial commentary presents a more thorough
discussion and analysis of the results of operations and financial
condition of the Corporation. It should be read in conjunction with
the audited Consolidated Financial Statements and related notes.
NET INTEREST INCOME
Net interest income, the difference between total interest income on
earning assets and total interest expense, the cost of funds
supporting those assets, is Mercantile's primary source of earnings.
Representing the Corporation's gross profit from lending, investing,
deposit gathering and borrowing activities, net interest income is
affected by three variables: the volume of funds, the mix of those
funds, and the rates earned and paid on those funds. The net interest
rate margin is net interest income on a fully taxable-equivalent
basis as a percentage of average earning assets.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
18
<PAGE> 11
[EXHIBIT 7 TAXABLE-EQUIVALENT NET INTEREST INCOME GRAPH]
In 1994 net interest income was $510,663,000, a 1.9% increase
over the $501,196,000 earned last year. This improvement was attained
as a result of the widening of the net interest rate margin by eight
basis points from 4.59% in 1993 to 4.67%, while average earning
assets remained relatively stable. Specific factors contributing to
the higher net interest rate margin in 1994 included higher levels of
shareholders' equity, a continued decline in non-performing assets, a
decrease in higher-costing retail certificates of deposit as a
percentage of total funding, a contraction in lower-yielding short-
term investments, volume growth in the higher-yielding consumer loan
categories, and the generally upward trend in interest rates
throughout 1994.
Interest rates began increasing late in the first quarter of 1994
and continued to rise throughout the year as the prime rate rose to
8.50% at year-end from 6.00% in January 1994. Mercantile's asset/
liability management strategies and continued wide market spreads
allowed the Corporation to improve its net interest rate margin
during the current year to 4.67% compared with the 1991, 1992 and
1993 respective margins of 4.12%, 4.33% and 4.59%. Using 1995
budgeted balance sheet levels, current model projections indicate
that a 200 basis point change in market interest rates impact net
interest income by less than one percent when compared to a stable
rate environment.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 6
SUMMARY OF OPERATIONS RELATED
TO AVERAGE ASSETS
<CAPTION>
1994 1993 1992
---- ---- ----
(Taxable-equivalent Basis)
<S> <C> <C> <C>
NET INTEREST MARGIN 4.28% 4.18% 3.94%
PROVISION FOR POSSIBLE LOAN LOSSES .28 .50 .63
OTHER INCOME
Trust .49 .50 .49
Service charges .47 .48 .47
Credit card fees .20 .20 .18
Mortgage banking .05 .09 .06
Investment banking .07 .07 .08
Securities gains - .03 .02
Other .27 .26 .26
---- ---- ----
Total Other Income 1.55 1.63 1.56
OTHER EXPENSE
Personnel expense 1.82 1.76 1.63
Net occupancy and equipment .49 .51 .47
Other 1.09 1.37 1.44
---- ---- ----
Total Other Expense 3.40 3.64 3.54
---- ---- ----
TAXABLE-EQUIVALENT INCOME BEFORE
INCOME TAXES 2.15 1.67 1.33
Income taxes .75 .62 .45
Tax-equivalent adjustment .07 .08 .08
---- ---- ----
NET INCOME 1.33% .97% .80%
==== ==== ====
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average earning assets for 1994 were relatively flat compared with
1993. Average loans grew by $209,315,000 or 2.8%, funded by a decline
of $92,896,000 or 29.1% in short-term investments and a contraction
of $119,616,000 or 3.5% in the investment portfolio. As loan demand
increased, the ratio of loans to earning assets grew to 68.54% in
1994 compared with 66.64% in 1993, and from an overall yield
perspective the mix of loans continued to change favorably. As loans
are the highest yielding earning asset, this shift in mix aided the
net interest rate margin.
Average shareholders' equity grew by $103,455,000 or 11.3%,
providing the Corporation's banks with a supplemental source of non-
interest bearing funds, as non-interest bearing deposit volumes
contracted.
The cost to fund non-performing assets was down significantly once
again in 1994, thereby adding to the margin as declines in both the
absolute and relative levels of non-performing assets further reduced
the cost of funding those assets. As summarized in Exhibit 29,
$2,257,000 of interest income was not recognized during 1994 because
of the non-performing classification of certain loans. Interest lost
reduced the 1994 rate margin by only two basis points compared with a
reduction of four basis points in 1993, and reduced earnings per
share by only $.03 in 1994 compared with $.07 the previous year. The
interest-lost figures shown in the table were calculated only on non-
performing loans outstanding at the end of each year.
There were also significant changes in the mix of deposits,
reflecting the continued disintermediation of retail certificates of
deposit into savings and transaction accounts. Average core deposits
declined 5.1% and represented 94.08% of total deposits compared with
95.09% a year ago. Retail certificates of deposit, the most costly
source of core funds, declined by $414,482,000 and represented 33.99%
of total core deposits versus 36.60% in 1993, as customers preferred
maturity flexibility with their investments.
19
<PAGE> 12
FINANCIAL COMMENTARY (CONT'D)
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 8
AVERAGE BALANCE SHEET SUMMARY
<CAPTION>
AVERAGE VOLUME AVERAGE RATE<F1>
---------------------------------- --------------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases<F2> $ 7,622,125 $ 7,412,810 $ 7,443,980 8.52% 8.43% 8.80%
Investments in debt and equity
securities
Trading 10,947 14,008 11,510 5.12 5.32 5.75
Taxable 3,021,178 3,143,876 2,786,173 5.46 5.84 7.01
Tax-exempt 240,065 233,922 191,414 8.06 8.41 9.40
----------- ----------- -----------
Total 3,272,190 3,391,806 2,989,097 5.65 6.01 7.16
Short-term investments 226,325 319,221 317,425 4.22 3.37 4.41
----------- ----------- -----------
Total Earning Assets $11,120,640 $11,123,837 $10,750,502 7.59 7.55 8.21
=========== =========== ===========
ACQUIRED FUNDS
Core deposits $ 9,022,452 $ 9,511,535 $ 9,176,915 3.23 3.48 4.50
Purchased deposits 567,726 491,028 572,945 4.36 3.91 4.62
----------- ----------- -----------
Total Deposits 9,590,178 10,002,563 9,749,860 3.32 3.51 4.51
Short-term borrowings 1,043,482 817,989 821,028 4.24 2.90 3.70
Bank notes 12,603 - - 6.19 - -
Long-term debt 292,056 274,718 237,011 7.62 8.02 8.95
----------- ----------- -----------
Total Acquired Funds $10,938,319 $11,095,270 $10,807,899 3.57 3.59 4.55
=========== =========== ===========
NET INTEREST RATE SPREAD 4.02 3.96 3.66
NET INTEREST RATE MARGIN 4.67 4.59 4.33
<FN>
<F1> Taxable-equivalent basis. Includes tax-equivalent adjustments of
$9,114,000, $9,574,000 and $9,570,000 for 1994, 1993 and 1992,
respectively, based on Federal income tax rates of 35% for 1994
and 1993, and 34% for 1992.
<F2> Income from loans on non-accrual status is included in income on a
cash basis, while non-accrual loan balances are included in
average volume.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the St. Louis Area, net interest income improved by .1%. A one-
basis-point increase in the net interest rate margin to 4.14%, offset
by a .3% decline in the volume of average earning assets, accounted
for the slight increase. The effect of a 5.2% decline in average
investment securities was offset by an increase in average loans and
a more favorable mix of interest bearing liabilities.
In the Community Banks, net interest income improved by 2.2%.
Average earning assets grew by $1,781,000, while the net interest
rate margin expanded eleven basis points to 5.23%. Net interest
income for the three banks in the Kansas City Area for 1994 increased
by $2,343,000, an improvement of 3.4%. The net interest rate margin
increased by 13 basis points to 4.82%, while average earning assets
grew by $7,942,000 or .5%.
The subsequent discussions on liquidity and interest rate
sensitivity, deposits, securities, and loans further detail the
changes in net interest income and the net interest rate margin for
the years 1994, 1993 and 1992.
LIQUIDITY
Mercantile's Asset/Liability Management Committee meets weekly to
formulate guidelines for and to monitor the composition of assets and
liabilities. Its objective is to meet earnings goals by producing the
optimal yield and maturity mix consistent with interest rate
expectations and projected liquidity needs within the constraints of
capital levels. Key to these goals is liquidity management, which
ensures that Mercantile has ready access to sufficient funds at
reasonable rates to meet both existing commitments and future
financial obligations. Liquidity management also is necessary to
withstand fluctuations in deposit levels and to provide for
customers' credit needs in a timely and cost-effective manner.
Liquidity management is viewed from a long-term and short-term
perspective, as well as from a liability and asset perspective. There
are distinct approaches within policy guidelines being used by
Mercantile Bank of St. Louis N.A., the Community Banks and the Kansas
City Area banks individually, and the Parent Company.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
20
<PAGE> 13
Long-term liquidity is a function of a strong capital position and a
large core deposit base. Growth and stability of both of these
components during recent years formed the foundation for Mercantile's
long-term liquidity strength. Short-term liquidity needs arise from
the continuous fluctuations in the flow of funds on both sides of the
balance sheet, and to a lesser extent from seasonal and cyclical
customer demands.
The most important source of liquidity for Mercantile is liability
liquidity, which is the ability to raise new funds and renew maturing
liabilities in a variety of markets. The most critical factor in
assuring liability liquidity is maintaining the confidence of
suppliers of funds in Mercantile. The Corporation has a current
liability liquidity position in line with established strategic
objectives. Certain of these objectives emphasize significant core
deposit funding of subsidiary banks, corporate and subsidiary
performance goals, and capital positions well in excess of regulatory
guidelines.
A prime example of liability liquidity was a transaction structured
in the fourth quarter of 1994, whereby five of the larger Mercantile
banks, led by Mercantile Bank of St. Louis N.A., initiated a $1
billion bank note program. Through this program, bank notes can be
sold to institutional investors at various maturities, depending on
the liquidity and interest sensitivity needs of the Corporation. The
only borrowing to date under the program was $100,000,000 in November
1994 for two years at floating rates. The Corporation also has access
to the Federal Home Loan Bank for funds at a wide range of
maturities.
Asset liquidity is provided through the maturities of various
assets, the net cash flow of fee-based businesses, the ability to
convert quality loans and maturing investments into cash, the
availability of proceeds from the sale of investment securities
classified as available-for-sale, and securities that are available
for collateralized borrowing in repurchase agreements. Also, asset
securitization is currently being studied by Mercantile as yet
another potential source of asset liquidity.
The reputation of Mercantile Bank of St. Louis N.A., as well as its
financial strength and numerous long-term customer relationships,
enable it to raise funds as needed in various markets. Historically,
these funds have been purchased locally, nationally and
internationally in the federal funds market and via large
certificates of deposit and Eurodollar transactions, capitalizing on
relationships maintained with investment banks, money center banks
and money market funds. Mercantile Bank of St. Louis N.A.'s large
correspondent bank customer base is an important additional source of
funds in the local and regional markets.
The Community Banks and Kansas City Area banks control their own
asset/liability mixes with guidance from the Asset/Liability
Management Committee, and within the guidelines of corporate policy,
their individual loan demand and their deposit structures. As these
banks do not generally borrow funds from outside sources due to a
higher proportion of stable core deposits to total liabilities, their
short-term liquidity needs are provided by Mercantile Bank of St.
Louis N.A. or the Parent Company. Their core deposit base and
business mix also lessen their need to borrow federal funds or issue
certificates of deposit of $100,000 or more, other than in the normal
course of business from local customers.
Intra-company loan participations are a corporate strategy to
provide Mercantile banks with earning assets as an incentive for
gathering lower-cost retail core deposits in their local markets. As
core deposits are considered the most stable source of funds and are
generally the least costly, this strategy adds to liquidity and
benefits net interest income for the Corporation. The respective
ratios of average core deposits to earning assets for the Community
Banks and Kansas City Area were relatively stable at 87.97% and
86.15%, respectively, for 1994 compared with 89.24% and 89.35%,
respectively, in 1993.
At December 31, 1994, the Parent Company held $94,963,000 in cash,
liquid money market investments, U.S. Government securities and
available-for-sale securities compared with $64,973,000 the prior
year-end. The Parent Company's cash requirements consist primarily of
operating expenses, dividends to shareholders, and principal and
interest payments on debt. Operating expenses are funded by
subsidiary bank management fees, while shareholder dividends and debt
service are satisfied by quarterly subsidiary bank dividends. In
addition, at December 31, 1994, $326,911,000 in additional liquidity
from the subsidiary banks was available to the Parent Company as
dividends, without prior regulatory approval or without reducing the
capital of any subsidiary bank below current regulatory guidelines.
The Parent Company also borrows funds in the commercial paper market,
which are loaned to subsidiaries, and it also has access to long-term
capital markets. Maintaining favorable debt ratings is critical to
liquidity because these ratings affect the availability and cost of
funds to the Corporation. These public ratings are indicated in the
Investor Information summary on Page 68.
21
<PAGE> 14
FINANCIAL COMMENTARY (CONT'D)
Net cash provided by operating activities in 1994 was $287,535,000.
Net income of $161,029,000 and non-cash charges of $50,748,000
largely accounted for the net cash provided by operating activities.
Net cash used by investing activities was $511,429,000 in 1994. The
largest component of cash used by investing activities was a net
increase in loans of $1.03 billion. Investment securities totaling
$847,046,000 were purchased in 1994. Net cash used for financing
activities in 1994 was $17,272,000, with the largest component being
the net change in core deposits other than retail certificates and
other time deposits.
INTEREST RATE SENSITIVITY
Interest sensitivity is related to liquidity, as each is affected by
maturing assets and sources of funds. Interest sensitivity, however,
also takes into consideration those assets and liabilities with
interest rates which are subject to change prior to maturity. The
objective and primary focus of interest sensitivity management is to
optimize earnings results, while managing, within internal policy
constraints, interest rate risk. Mercantile's policy on rate
sensitivity is to manage exposure to potential risks associated with
changing interest rates by maintaining a balance sheet posture in
which annual net interest income is not significantly aided or
restricted by interest rate movements. The total absence of risk, as
well as excessive risk, will result in less than acceptable returns;
therefore, Mercantile manages its interest sensitivity risk between
those two extremes. The slight growth and stability of the net
interest rate margin throughout 1993 and 1994 were consistent with
this objective.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 9
INTEREST RATE SENSITIVITY
<CAPTION>
DECEMBER 31, 1994
TOTAL
VARIABLE 1-3 4-6 7-12 1 YEAR OVER
RATE MONTHS MONTHS MONTHS OR LESS 1 YEAR TOTAL
-------- ------ ------ ------ ------- ------ -----
($ in Millions)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases<F1> $1,409 $2,137 $637 $1,186 $5,369 $2,746 $ 8,115
Investments in debt and
equity securities 15 313 244 396 968 2,066 3,034
Short-term investments 104 8 - - 112 - 112
------ ------ ---- ------ ------ ------ -------
Total Earning Assets $1,528 $2,458 $881 $1,582 $6,449 $4,812 $11,261
====== ====== ==== ====== ====== ====== =======
ACQUIRED FUNDS
Interest bearing core
deposits<F2> $2,115 $ 673 $525 $520 $3,833 $3,035 $ 6,868
Purchased deposits - 448 75 71 594 63 657
Short-term borrowings 1,356 191 14 17 1,578 5 1,583
Bank notes - 100 - - 100 - 100
Long-term debt - - 9 - 9 278 287
------ ------ ---- ---- ------ ------ -------
Total Interest Bearing
Acquired Funds 3,471 1,412 623 608 6,114 3,381 9,495
Non-interest bearing deposits<F2> 294 - - - 294 1,235 1,529
------ ------ ---- ---- ------ ------ -------
Total Acquired Funds $3,765 $1,412 $623 $608 $6,408 $4,616 $11,024
====== ====== ==== ==== ====== ====== =======
GAP ANALYSIS
Interest sensitivity gap $(2,237) $1,046 $258 $974 $41
======= ====== ==== ==== ===
Cumulative interest
sensitivity gap $(2,237) $(1,191) $(933) $41
======= ======= ===== ===
Cumulative ratio of
interest-sensitive assets to
interest-sensitive liabilities .41 .77 .84 1.01
<FN>
<F1> Non-accrual loans are reported in the "Over 1 Year" category.
<F2> Mercantile's experience with interest bearing demand, money market
accounts, savings and non-interest bearing deposits has been that,
although these deposits are subject to immediate withdrawal, a
portion of the balances has remained relatively constant in
periods of both rising and falling rates. Therefore, a portion of
these deposits is included in the "Over 1 Year" category. If these
deposits were all included in the "Total 1 Year or Less" category,
the cumulative ratio of interest-sensitive assets to interest-
sensitive liabilities would be .69.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
22
<PAGE> 15
[EXHIBIT 11 SOURCES OF FUNDS GRAPH]
Interest rate risk at a given point in time can be represented by an
interest rate sensitivity position ("gap"). Exhibit 9 presents a
summary balance sheet at December 31, 1994 with an interest rate gap
analysis that shows the difference between the amount of assets and
liabilities maturing or subject to repricing in given time periods.
The cumulative gap represents the net position of assets and
liabilities subject to repricing over specified time periods. A
static gap report is one measure of the risk inherent in the existing
balance sheet structure as it relates to potential changes in net
interest income, and it indicates that the Corporation maintained a
relatively balanced position at December 31, 1994. Because that
portrayal does not capture many of the factors which determine
interest rate risk, Mercantile places more emphasis on the use of a
simulation model to measure changes in net interest income which
might occur due to changes in interest rates. Using future balance
sheet trends and different patterns of rate movements, these
projections enable the Corporation to adjust its strategies to
protect the net interest rate margin against significant interest
rate fluctuations. Uniform sensitivity reports and guidelines are
used by the St. Louis Area, Community and Kansas City Area banks.
Another tool Mercantile uses to control interest rate risk is an
extensive internal transfer pricing system at Mercantile Bank of St.
Louis N.A. This system basically centralizes the management of
interest rate risk, since the bank is the major corporate source of
managing short-term changes in interest rate sensitivity, due to its
access to external markets that can be used to rapidly adjust its
interest sensitivity position. The Community Banks and Kansas City
Area banks do not enjoy the overall flexibility of Mercantile Bank of
St. Louis N.A. in managing their interest-sensitivity positions
because of the basic retail and corporate middle-market nature of
their businesses and their high percentages of core deposits.
However, their positions are reviewed monthly by the corporate Asset/
Liability Management Committee and no individual bank is permitted to
maintain an overly sensitive position for an extended period. The
Corporation has been successful in meeting its interest sensitivity
objectives, primarily by adjusting the interest rate maturities of
its assets and liabilities, and not through the use of various off-
balance-sheet instruments such as derivatives.
Current model projections indicate minimal change in the level of
net interest income if interest rates should rise or fall moderately
from current levels. Within certain limits, in a declining interest
rate environment, net interest income will be enhanced with a
negative interest sensitivity gap position, while if rates trend
upward, net interest income will be negatively impacted. The
potential impacts on net interest income would be the opposite with a
positive gap position. Management believes the Corporation is
appropriately positioned for subsequent rate movements taking into
consideration the current economic environment.
DEPOSITS
Deposits are the primary funding source for the Corporation's banks
and are acquired from a broad base of local markets, including
individual and corporate customers. Total deposits at year-end were
$9.1 billion, a 5.7% decline from the $9.6 billion of a year ago. On
average, total deposits declined by $412,385,000 or 4.1%. The decline
is largely attributable to the disintermediation of deposits into
higher-yielding alternatives. Exhibit 10 details the components of
the Corporation's deposit mix at December 31 for the past five years.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 10
DEPOSITS
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Thousands)
<S> <C> <C> <C> <C> <C>
Non-interest bearing $1,529,052 $1,713,275 $1,532,477 $1,392,094 $1,490,726
Interest bearing demand 1,528,792 1,604,111 1,489,481 1,055,006 849,826
Money market accounts 1,457,832 1,642,448 1,696,595 1,280,410 1,094,242
Savings 845,311 902,849 813,403 587,643 479,865
Consumer time certificates
under $100,000 3,002,659 3,248,202 3,775,591 3,787,726 3,632,284
Other time 33,026 35,438 123,669 75,180 66,243
---------- ---------- ---------- ---------- ----------
Total Core Deposits 8,396,672 9,146,323 9,431,216 8,178,059 7,613,186
Time certificates $100,000 and over 438,052 429,675 477,093 584,425 653,753
Foreign 219,135 26,085 19,650 13,937 11,014
---------- ---------- ---------- ---------- ----------
Total Purchased Deposits 657,187 455,760 496,743 598,362 664,767
---------- ---------- ---------- ---------- ----------
Total Deposits $9,053,859 $9,602,083 $9,927,959 $8,776,421 $8,277,953
========== ========== ========== ========== ==========
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 16
FINANCIAL COMMENTARY (CONT'D)
[EXHIBIT 14 CORE DEPOSITS GRAPH]
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 12
FUNDING MIX
<CAPTION>
COMPONENTS OF SOURCES TO FUND EARNING ASSETS<F*>
ACQUIRED FUNDS 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Deposits
Non-interest bearing 16.52% 17.38% 15.25% 13.88% 14.93%
Interest bearing demand 14.06 13.55 11.94 10.02 9.77
Money market accounts 14.54 14.77 14.26 12.50 11.98
Savings 8.13 7.78 6.85 5.73 5.57
Consumer time certificates
under $100,000 27.58 31.30 36.07 40.92 39.18
Other time .30 .73 .99 .84 1.02
------ ------ ------ ------ ------
Total Core Deposits 81.13 85.51 85.36 83.89 82.45
Time certificates $100,000 and over 4.13 4.13 5.11 6.50 7.75
Foreign .98 .28 .22 .34 .55
------ ------ ------ ------ ------
Total Purchased Deposits 5.11 4.41 5.33 6.84 8.30
------ ------ ------ ------ ------
Total Deposits 86.24 89.92 90.69 90.73 90.75
Short-term borrowings 9.38 7.35 7.64 8.23 8.94
Bank notes .11 - - - -
Long-term debt 2.63 2.47 2.20 2.44 2.94
------ ------ ------ ------ ------
Total Acquired Funds 98.36 99.74 100.53 101.40 102.63
Other (7.51) (7.96) (7.93) (8.41) (9.12)
SHAREHOLDERS' EQUITY 9.15 8.22 7.40 7.01 6.49
------ ------ ------ ------ ------
Total Sources to Fund
Earning Assets 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
<FN>
<F*>Based on average balances.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Core deposits remain Mercantile's largest, most reliable and most
important funding source. Core deposits include both interest bearing
and non-interest bearing demand deposits, money market and savings
deposits, consumer certificates of deposit and other time deposits.
Average core deposits for 1994 decreased by $489,083,000 or 5.1% and
represented 81.13% of earning assets compared with 85.51% last year.
Changes in the mix of deposits reflected the continuing strategy to
be substantially funded by core deposits, and the disintermediation
of retail certificates of deposit into interest bearing demand and
savings accounts.
Due primarily to higher interest rates, and thus their greater value
as compensating balances, average non-interest bearing deposits
decreased by $97,052,000 or 5.0% in 1994 and represented only 16.52%
of average earning assets versus 17.38% in 1993.
Average savings and interest bearing demand accounts grew by
$39,279,000 or 4.5% and $56,775,000 or 3.8%, respectively. Average
money market accounts declined by $25,736,000 or 1.6%. These three
lower-cost sources of funds grew to 36.73% of earning assets from
36.10% in 1993. Other time deposits largely represent public funds
and declined by $47,867,000 or 58.5%. These funds are solicited
as an alternative source of market-priced funds.
Average consumer time certificates declined by $414,482,000 or 11.9%
and represented 27.58% of earning assets. The majority of the decline
in consumer certificates occurred early in 1994 when loan demand was
not as strong and Mercantile had elected not to aggressively price
these deposits. A portion of these funds also moved to savings and
interest-bearing demand accounts, as
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 13
MATURITY OF DOMESTIC TIME DEPOSITS
$100,000 AND OVER
<CAPTION>
DECEMBER 31, 1994
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS TOTAL
------------ ---------- -----
(Thousands)
<S> <C> <C> <C>
Three months or less $244,223 $11,028 $255,251
Over three through six months 59,845 7,587 67,432
Over six through twelve months 70,531 13,482 84,013
Over twelve months 63,453 - 63,453
-------- ------- --------
Total $438,052 $32,097 $470,149
======== ======= ========
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
24
<PAGE> 17
described above, and some left Mercantile and the banking system due
to a shift in customer preference towards alternative investments.
Mercantile investment products, such as the proprietary ARCH mutual
funds, attracted a portion of these deposits, benefiting future non-
interest income. In September 1994, when loan demand significantly
increased, the Corporation altered its pricing strategy and retail
certificates began to increase.
Purchased certificates of deposit greater than $100,000 and foreign
branch deposits increased by 15.6% to $567,726,000, and represented
5.11% of earning assets during 1994. Most of the large domestic
deposits were gathered from the local retail, commercial and
institutional customer base, which provided a natural access to
purchased funds and, accordingly, tended to be less volatile than
other categories of purchased funds. Exhibit 13 portrays the
maturities of domestic time deposits $100,000 and over.
SHORT-TERM BORROWED FUNDS AND SHORT-TERM INVESTMENTS
Average short-term borrowed funds increased by $225,493,000 or 27.6%
during 1994, while average short-term investments declined by
$92,896,000 or 29.1%. These funding changes coincided with the growth
in loans, the decline in core deposits, and with liquidity goals and
balance sheet management strategies which were consistent with the
strategies employed in prior years.
Short-term borrowings are an alternative to other funding sources,
such as large certificates of deposit and Eurodollar deposits, and
consist primarily of federal funds purchased, treasury tax and loan
note option accounts, securities sold under agreements to repurchase
and commercial paper. These sources of funding are utilized primarily
by Mercantile Bank of St. Louis N.A., and volumes are monitored by
the Asset/Liability Management Committee. As a major bank in the
Midwest with a significant correspondent bank network and corporate
account base, Mercantile Bank of St. Louis N.A. purchases excess
funds from correspondent banks and borrows on a short-term basis from
commercial customers. Accordingly, some of Mercantile's short-term
borrowings can be considered as a stable source of funds, similar to
core deposits. Depending on funding requirements and liquidity
strategies employed by the Asset/Liability Management Committee,
these funds are either used internally or redeployed as short-term
investments.
Mercantile's commercial paper is rated TBW-1 by Thomson BankWatch,
P-2 by Moody's and A-2 by Standard & Poor's, and has primarily been
used as an additional funding source for Mercantile Bank of St. Louis
N.A. The paper is issued principally in the local St. Louis market.
The average volume of paper issued in 1994 was $26,487,000. The
Corporation has backup lines of credit totaling $40,000,000 with
unaffiliated banks in support of its commercial paper.
Short-term investments include interest-bearing deposits, federal
funds sold and securities purchased under agreements to resell. The
1994 average volume of short-term investments decreased by
$92,896,000 or 29.1% from 1993, as the spread earned on these
investments compared with the rate paid on short-term borrowed funds
was a negative two basis points in contrast with a positive 47 in
1993. Short-term investments are primarily used for excess liquidity
or as investment vehicles to meet overall interest sensitivity
objectives. Short-term borrowings, net of short-term investments,
averaged $817,157,000 during 1994 compared with $498,768,000 in 1993,
and were 7.34% of 1994 average earning assets compared with 4.48% in
1993.
CAPITAL RESOURCES
Consistent with the objective of operating a premier banking
organization, Mercantile maintains a strong capital base which
provides a solid foundation for anticipated future asset growth and
promotes depositor and investor confidence. Capital management is a
continuous process at Mercantile, and ensures that capital is
provided for current needs and anticipated growth. Mercantile's
strong capital position has enabled it to profitably expand its asset
and deposit bases, while maintaining capital ratios at levels
comparable to that of other quality banking organizations, and
substantially in excess of regulatory standards.
Mercantile continued to strengthen its capital position during 1994,
as shareholders' equity grew to $1.1 billion, an increase of 11.4%
from last year-end. Retained earnings accounted for the majority of
the increase. Equity grew to 8.73% of assets at December 31, 1994
compared with 7.90% a year ago.
Mercantile's Tier I capital to risk-adjusted assets ratio was 11.87%
at December 31, 1994, while the Total capital ratio was 15.78%. These
ratios compared favorably with established regulatory minimums and
the December 31, 1993 ratios of 11.06% and 14.54%, respectively. The
regulatory leverage ratio, which places a constraint on the degree to
which a banking company can leverage its equity
25
<PAGE> 18
FINANCIAL COMMENTARY (CONT'D)
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 15
REGULATORY CAPITAL
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Thousands)
<S> <C> <C> <C> <C> <C>
Shareholders' equity $1,068,250 $ 958,557 $ 851,324 $690,262 $580,913
Total intangible assets (64,271) (71,759) (72,806) (64,716) (90,186)
Net fair value adjustment for securities
available-for-sale under FAS 115 4,546 (3,636) - - -
---------- ---------- ---------- -------- --------
Tier I capital 1,008,525 883,162 778,518 625,546 490,727
Tier II capital 332,821 277,909 365,608 154,147 139,448
---------- ---------- ---------- -------- --------
Total Risk-based Capital $1,341,346 $1,161,071 $1,144,126 $779,693 $630,175
========== ========== ========== ======== ========
Risk-adjusted assets $8,498,260 $7,985,847 $7,986,938 $7,506,103 $7,521,736
========== ========== ========== ========== ==========
Quarterly average tangible assets $12,120,864 $12,044,225 $12,185,092 $10,444,069 $9,767,705
=========== =========== =========== =========== ==========
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 16
CAPITAL RATIOS
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tier I capital to risk-adjusted assets 11.87% 11.06% 9.75% 8.33% 6.52%
Total capital to risk-adjusted assets 15.78 14.54 14.32 10.39 8.38
Leverage 8.32 7.33 6.39 5.99 5.02
Equity to assets
Consolidated 8.73 7.90 6.94 6.41 5.73
Combined bank subsidiaries 8.58 8.10 7.28 6.37 6.29
Double leverage 108.18 111.97 114.36 109.20 121.46
Long-term debt to total capitalization 21.20 22.15 26.00 22.75 28.66
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
capital base, was 8.32% at December 31, 1994, well in excess of the
regulatory minimum and an increase from last year's ratio of 7.33%.
Changes have been proposed to the risk-based capital computations to
incorporate interest rate risk. As currently proposed, the
Corporation does not believe these changes would have a material
impact on its capital ratios.
The equity to assets ratios for Mercantile Bank of St. Louis N.A.,
the Community Banks and the Kansas City Area banks at year-end 1994
were 8.25%, 8.76% and 8.96%, respectively. Tier I risk-based capital
at Mercantile Bank of St. Louis N.A. was 11.50% of risk-adjusted
assets, and in the Community Banks and Kansas City Area banks the
range was from 9.85% to 25.62% at December 31, 1994. The Total
capital ratio was 14.40% at Mercantile Bank of St. Louis N.A., with a
range of 11.10% to 26.89% in the Community Banks and Kansas City Area
banks. All were above the present levels required by regulatory
authorities and are monitored individually by the Corporation based
on risk and deposit growth potential. At December 31, 1994, all
Mercantile banks exceeded both the Tier I and Total "well-
capitalized" minimums of 6.0% and 10.0%, respectively.
Due to the strength of the capital base at the individual bank
subsidiaries, $326,911,000 was available for distribution through
dividends to the Parent Company without prior regulatory approval and
without reducing the capital of the respective subsidiary banks below
present minimum standards. An additional $93,310,000 would be
available in the form of loans to the Parent Company under current
regulations.
The ratio of long-term debt to total capitalization at December 31,
1994 declined to 21.20% from 22.15% at December 31, 1993.
A total of $54,753,000 of long-term debt was repaid during 1994 as
Mercantile Bank of St. Louis N.A. issued $75,000,000 of 10-year,
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
26
<PAGE> 19
[EXHIBIT 19 EARNING ASSETS GRAPH]
non-callable subordinated debt and used the proceeds to pay off
higher-coupon senior debt and a mortgage on its headquarters
building. No significant amount of debt is now scheduled to mature
until 1999, except for the $8,822,000 of convertible notes which
mature on April 1, 1995. Mercantile's publicly held debt ratings are
summarized on page 68 of this report.
The Parent Company's double leverage ratio, which measures the
extent to which the equity capital of its subsidiaries is supported
by Parent Company debt rather than equity, decreased to 108.18% from
111.97% at December 31, 1993, the lowest level in recent history.
Intangible assets, which consisted largely of goodwill, are summarized in
Exhibit 17, and totaled $64,271,000 at December 31, 1994 compared with
$71,759,000 a year ago, a decline of 10.4%.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 17
INTANGIBLE ASSETS
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Thousands)
<S> <C> <C> <C> <C> <C>
Goodwill $51,281 $56,882 $56,206 $48,719 $72,749
Core deposit premium 7,923 11,187 13,444 12,879 14,831
Other 5,067 3,690 3,156 3,118 2,606
------- ------- ------- ------- -------
Total $64,271 $71,759 $72,806 $64,716 $90,186
======= ======= ======= ======= =======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Book value per share at December 31, 1994 was $24.72 compared with
$22.40 at the prior year end, an increase of 10.4%. The equity
formation rate (defined as net income less dividends divided by
average equity) increased to 11.07% in 1994 from 8.73% in 1993. A
cash dividend totaling $1.12 per share was declared and paid, a 13.1%
increase from last year's dividend of $.99. In addition, on February
9, 1995, the quarterly dividend payable April 3, 1995 was increased
17.9% to $.33 per share. Additional data relating to Mercantile's
common stock is included in the Investor Information summary on Page
68 of this report.
Management has established financial objectives designed to generate
future capital through various means, including increasing the
returns on assets and equity. Mercantile's dividend policy is
influenced by the belief that most shareholders are interested in
long-term
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 18
EARNING ASSET MIX
<CAPTION>
COMPONENTS OF EARNING ASSETS<F*>
------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
LOANS AND LEASES
Commercial 18.68% 18.06% 19.08% 21.34% 22.96%
Real estate-commercial 11.33 11.69 12.24 12.52 10.92
Real estate-construction 1.56 1.40 1.55 1.63 2.32
Foreign - .01 .02 .02 -
------ ------ ------ ------ ------
Total Commercial-related Loans 31.57 31.16 32.89 35.51 36.20
Real estate-residential 20.97 21.10 22.93 23.70 23.15
Consumer 9.25 8.40 8.57 9.61 11.21
Credit card 6.75 5.98 4.85 4.63 4.87
------ ------ ------ ------ ------
Total Consumer-related Loans 36.97 35.48 36.35 37.94 39.23
------ ------ ------ ------ ------
Total Loans and Leases 68.54 66.64 69.24 73.45 75.43
INVESTMENTS IN DEBT AND EQUITY
SECURITIES
Trading .10 .13 .11 .21 .15
Taxable 27.16 28.26 25.92 20.66 19.76
Tax-exempt 2.16 2.10 1.78 1.56 2.05
------ ------ ------ ------ ------
Total 29.42 30.49 27.81 22.43 21.96
SHORT-TERM INVESTMENTS 2.04 2.87 2.95 4.12 2.61
------ ------ ------ ------ ------
Total Earning Assets 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
<FN>
<F*>Based on average balances.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 20
FINANCIAL COMMENTARY (CONT'D)
performance as well as current yield. The current dividend pay-out
level is considered sustainable given the Corporation's present cash
flow position, level of earnings, capital position and the strength
of its subsidiary banks' capital. Future dividends will be determined
based on Mercantile's results of operations, growth expectations,
financial condition, regulatory constraints and other factors deemed
relevant by the Board of Directors. Exhibits 15 and 16 summarize the
capital base of Mercantile and provide details of the five-year
history of capital and equity ratios, and the significant enhancement
of those ratios.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Mercantile's investment portfolio serves three important functions.
First, it is a vehicle for adjusting balance sheet rate sensitivity
and protecting against the impact of changes in interest rate
movements by managing the purchases and maturities of securities;
second, it is a means for investment of excess funds, depending on
loan demand; and, third, the available-for-sale portion provides
potential immediate liquidity. The investment portfolio is structured
to maximize the return on invested funds within acceptable interest
rate risk guidelines and to meet pledging requirements, while giving
consideration to loan demand, credit risk, future liquidity needs,
balance sheet strategies and the outlook for trends in interest
rates.
After loans, securities are the largest category of earning assets.
During 1994, average securities represented 29.42% of earning assets
compared with 30.49% for 1993 and 27.81% for 1992. Investment
securities totaled $3.0 billion at December 31, 1994 compared with
$3.4 billion at December 31, 1993, a decrease of $367,403,000 or
10.8%.
On December 31, 1993, Mercantile adopted Financial Accounting
Standard ("FAS") 115, "Accounting for Certain Investments in Debt and
Equity Securities." FAS 115 requires investment securities be
classified into three categories: trading, available-for-sale and
held-to-maturity. On December 31, 1994, $269,232,000 of securities,
primarily short-term U.S. Government, were identified for the
available-for-sale category. Such securities represented 8.87% of the
year-end investment portfolio and had an after-tax depreciation in
fair value of $8,182,000 during 1994, which was accounted for as a
reduction of shareholders' equity. Note E to the Consolidated
Financial Statements thoroughly describes FAS 115 and provides a
detailed breakout of the components of the investment portfolio.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 20
INVESTMENTS IN DEBT AND EQUITY SECURITIES<F*>
<CAPTION>
DECEMBER 31
1994 1993 1992
---- ---- ----
(Thousands)
<S> <C> <C> <C>
AVAILABLE-FOR-SALE (ESTIMATED FAIR VALUE)
U.S. government $213,070 $361,047 $89,424
State and political subdivisions-tax-exempt 12,704 15,173 -
Other 43,458 39,063 -
-------- -------- -------
Total $269,232 $415,283 $89,424
======== ======== =======
HELD-TO-MATURITY (AMORTIZED COST)
U.S. government $2,342,744 $2,492,458 $2,664,816
State and political subdivisions:
Tax-exempt 217,059 235,030 216,060
Taxable 157,912 101,467 12,195
---------- ---------- ----------
Total State and Political Subdivisions 374,971 336,497 228,255
Other 32,529 141,205 401,098
---------- ---------- ----------
Total $2,750,244 $2,970,160 $3,294,169
========== ========== ==========
<FN>
<F*>This exhibit excludes trading securities, which are reported at
estimated fair value on the Consolidated Balance Sheet. Trading
securities totaled $14,299,000, $15,735,000 and $17,684,000 at
December 31, 1994, 1993 and 1992, respectively.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
28
<PAGE> 21
[EXHIBIT 22 LOANS AND LEASES GRAPH]
The year-end held-to-maturity and available-for-sale portfolios were
composed of 84.64% in U.S. Treasury and other government agency
securities, including 18.79% in mortgage-related issues; 12.84% was
invested in state and municipal securities, and 2.52% consisted of
other miscellaneous securities, primarily high-grade asset-backed
securities. The comparable distributions at year-end 1993 were
84.29%, 10.39% and 5.32%, respectively.
The average stated maturity of the overall portfolio declined
slightly at the end of 1994 to two years from two years and two
months at year-end 1993. As loan demand increased and core funding
decreased, the overall size of the portfolio was reduced. Securities
were generally added with maturities of two to four years to match
the expected average maturity of retail deposits, and to fit within
the projected interest sensitivity position of the Corporation. The
overall tax-equivalent yield of the portfolio decreased during 1994
to 5.65% from 6.01% in 1993, but rose significantly to 6.01% during
the month of December 1994, due to both higher interest rates and a
steady volume of maturing securities.
Exhibit 21 presents the distribution of state and municipal
securities by investment grade. As noted, 86.40% of the state and
municipal securities held were rated A or higher by Moody's Investors
Service. Of the remaining securities, most were non-rated bonds
because of the smaller size of the issue and the expense associated
with obtaining a rating. These bonds generally represented local
issues purchased by subsidiary banks, which are evaluated internally
for creditworthiness on an ongoing basis, similar to loans.
Mercantile's commitment to its expanding region continued to be
reflected by the holdings of securities of Missouri, Illinois, Kansas
and Iowa, and their local governmental units, although securities of
many other states were also held in the portfolio. At December 31,
1994, investments in securities of those four states and their
political subdivisions amounted to $133,790,000 or 34.51% of total
state and municipal securities. However, securities of any one single
political subdivision in any of these states did not exceed 1.23% of
shareholders' equity at December 31, 1994. Outside of those four
states, securities of no single issuer exceeded 1.13% of
shareholders' equity.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 21
SECURITIES OF STATE AND POLITICAL SUBDIVISIONS
BY QUALITY RATING
<CAPTION>
DECEMBER 31
1994 1993 1992
------------------------ ---- ----
MOODY'S PAR
RATINGS VALUE PERCENT PERCENT PERCENT
-------- ----- ------- ------- -------
($ in Thousands)
<S> <C> <C> <C> <C>
Aaa $152,700 39.59 36.97 18.34
Aa 96,825 25.11 20.50 26.18
A1 54,235 14.07 15.62 19.63
A 29,405 7.63 11.14 13.92
-------- ------ ------ ------
Subtotal 333,165 86.40 84.23 78.07
Baa 1 2,860 .74 .98 1.79
Baa 2,045 .53 .73 .53
Ba - - - .10
Not rated 47,531 12.33 14.06 19.51
-------- ------ ------ ------
Total $385,601 100.00 100.00 100.00
======== ====== ====== ======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LOANS
Loans are the primary earning asset of the Corporation and were $8.1
billion at December 31, 1994, up $733,071,000 or 9.9% from year-end
1993. The growth was broad-based, with all classifications showing
increases except commercial real estate mortgages, which were even
with year-end 1993. The vast majority of the Corporation's loans are
extended in its natural trade areas, which now include four states.
The Corporation's diversified loan portfolio spreads the risk and
reduces exposure to economic downturns which may occur in different
segments of the economy or in different industries. At December 31,
1994, the portfolio was 44.17% commercial and 55.83% consumer-
related, compared with 45.55% and 54.45% at December 31, 1993. Note M
provides more details on concentrations of credit and the overall
loan portfolio. The portfolio mix has undergone a favorable shift in
recent years as business development efforts have focused on
expanding middle-market commercial and consumer loans. Lower-risk
residential mortgage loans are now the dominant asset, comprising
nearly one-third of the loan portfolio. This shift has been
complemented by consumer and middle-market portfolios added in
mergers.
29
<PAGE> 22
FINANCIAL COMMENTARY (CONT'D)
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 23
LOAN AND LEASE PORTFOLIO MATURITIES<F*>
<CAPTION>
ONE TO FIVE YEARS OVER FIVE YEARS
----------------- -----------------
UNDER FIXED FLOATING FIXED FLOATING DECEMBER 31
ONE YEAR RATE RATE RATE RATE 1994 1993 1992 1991 1990
-------- ----- -------- ----- -------- ---- ---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 809 $ 483 $ 414 $282 $ 132 $2,120 $1,933 $2,035 $2,011 $2,119
Real estate-commercial 316 390 308 78 168 1,260 1,267 1,351 1,175 1,053
Real estate-construction 97 17 73 15 2 204 163 164 159 146
Real estate-residential 127 184 63 368 1,794 2,536 2,315 2,404 2,242 2,188
Consumer 170 844 31 93 12 1,150 941 935 876 929
Credit card - 432 413 - - 845 763 610 483 449
------ ------ ------ ---- ------ ------ ------ ------ ------ ------
Total Loans and Leases $1,519 $2,350 $1,302 $836 $2,108 $8,115 $7,382 $7,499 $6,946 $6,884
====== ====== ====== ==== ====== ====== ====== ====== ====== ======
<FN>
<F*>Non-accrual loans are reported at contractual maturities and rates.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 average loan to deposit ratios for the Corporation,
Mercantile Bank of St. Louis N.A., the Community Banks and Kansas
City Area banks were 79.48%, 84.77%, 76.93% and 62.10%, respectively,
all up from 1993. Exhibit 18 portrays the components of earning
assets and indicates the relative size of the loan portfolio as a
percentage of earning assets over the last five years.
During 1994 commercial loans averaged $2.08 billion and represented
27.24% of the loan portfolio compared with $2.01 billion and 27.10%
for 1993. From year-end 1993 to year-end 1994, commercial loan volume
grew by $188,039,000 or 9.7%. The growth was across the system with
notable growth recorded in asset-based lending and regional banking
in St. Louis, and at Mercantile Bank of Northern Iowa and Mercantile
Bank of Springfield.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 24
REAL ESTATE COMMERCIAL AND CONSTRUCTION LOAN PORTFOLIO
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------------------
MISSOURI ILLINOIS KANSAS IOWA OTHER TOTAL
-------- -------- ------ ---- ----- -----
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
Land and land developments $ 49,797 $ 442 $ 21,670 $ 958 $ 1,426 $ 74,293
Hotels 33,954 5,529 1,423 2,000 12,139 55,045
Apartments 95,573 6,748 28,809 458 10,534 142,122
Retail/shopping centers 90,106 4,358 23,903 3,470 29,468 151,305
Office buildings and warehouses 177,766 5,913 69,002 3,234 24,515 280,430
Nursing homes, restaurants and
other 278,516 13,122 60,391 11,178 12,243 375,450
---------- ------- -------- ------- ------- ----------
Total Urban Banks 725,712 36,112 205,198 21,298 90,325 1,078,645
Total Rural Banks 349,517 35,726 - - - 385,243
---------- ------- -------- ------- ------- ----------
Total $1,075,229 $71,838 $205,198 $21,298 $90,325 $1,463,888
========== ======= ======== ======= ======= ==========
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commercial real estate mortgage and construction loans
decreased by $23,159,000 or 1.6%, and contracted to 18.81% of the
total loan portfolio compared to 19.65% in 1993. Commercial mortgage
and construction loans held by Mercantile Bank of St. Louis N.A.
represented 30.58% of the portfolio, with the rest, relating largely
to projects in Missouri, Illinois, Kansas and Iowa, originated by the
Corporation's other banks. Once again, few construction loans were
made in 1994 as excess office and industrial capacity, while
contracting, still existed in most of the Corporation's markets. The
stronger economy in the second half of the year began to reverse this
trend. Commercial mortgage loans continued to pay down in 1994 as
well, although new loans offset the paydowns, resulting in an average
balance relatively even in comparison with 1993. Commercial real
estate loans are generally secured by the underlying property at a
75% to 80% loan-to-appraised value, and are typically supported by
guarantees from the project developers. Additional collateral may be
taken as deemed necessary. Exhibit 24 summarizes the distribution of
commercial and construction real estate loans by collateral and
state.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
30
<PAGE> 23
Average residential real estate mortgage loan volume was relatively
flat with 1993 and represented 30.60% of the loan portfolio compared
with 31.66% during 1993. From year-end 1993 to year-end 1994,
however, residential mortgage loan volume grew significantly by
$220,924,000 or 9.5%. The integration of the Mercantile Bank of St.
Louis N.A. and United Postal mortgage operations significantly added
market power in St. Louis in the second half of the year. Also,
rising interest rates in that period led customers to switch from
fixed-rate loans, which were sold, to adjustable-rate loans that were
held in the loan portfolio. Mercantile currently services a
residential real estate loan portfolio of $3.4 billion and generated
approximately $1 billion in new servicing volume during 1994. The
mortgage operations of Central, UNSL and Plains Spirit will add
significantly to Mercantile's servicing portfolio and loan production
potential as they are integrated in 1995.
Average consumer loans increased $94,365,000 or 10.1% to $1.03
billion and represented 13.50% of the loan portfolio compared with
12.60% last year. The major component of this category was indirect
auto lending. Mercantile Bank of St. Louis N.A. has a leadership
position in the St. Louis market and has moved into the Kansas City,
Springfield, and Columbia, Missouri markets, where most of the growth
occurred. Mercantile Bank of Northern Iowa also experienced growth in
its indirect loan portfolio. Average indirect consumer loans were up
$154,225,000 or 31.2% to $648,432,000 from 1993, while direct
consumer loans decreased 13.6% due to consumer preference for auto
leasing, utilization of home equity lines and the availability of
higher credit limits on credit card loans.
Average credit card loan volume was up $85,729,000 or 12.9% when
compared with 1993, and represented 9.85% of the total loan portfolio
in 1994 compared with 8.98% the prior year. Selective increases in
line limits, cross-selling to existing customers and favorable
response to direct mail campaigns in selected Mercantile markets
accounted for the growth. Mercantile has plans to establish a credit
card bank during 1995 to centralize its core credit card business, as
well as the activities of a recently announced co-branded credit card
arrangement.
The overall tax-equivalent yield of the loan portfolio increased by
nine basis points to 8.52% in 1994. As shown in Exhibit 23, which
portrays the maturity and interest sensitivity of the portfolio,
60.74% of loans were priced at floating rates or maturing within one
year. Certain loan categories are more rate-sensitive than others and
follow general rate changes more closely.
RISK MANAGEMENT AND THE RESERVE FOR POSSIBLE LOAN LOSSES
The underlying objectives of Mercantile's credit management are to
identify and manage credit exposure, and to support the growth of a
profitable and high quality loan portfolio. At Mercantile these
functions are performed centrally by corporate Credit Administration,
which provides management with extensive information on risk levels,
trends, delinquencies, portfolio concentrations and internal ratings.
Credit Administration includes corporate Credit Policy, approval of
large credits and corporate Credit Review. At Mercantile Bank of St.
Louis N.A., Credit Administration also provides special asset teams
that promptly concentrate on identified problem loans and workout
situations when necessary, as well as the management of foreclosed
property. Mercantile utilizes a lender-initiated system of rating
credits, which is subsequently tested by Credit Review, external
auditors and bank regulators. Adversely rated credits are included on
a watch list, and are reviewed at the bank level and centrally on at
least a quarterly basis.
The reserve for possible loan losses represents the aggregate
reserves of the Corporation's banking subsidiaries and at December
31, 1994 was $170,940,000 compared with $168,651,000 at the end of
1993. Loans outstanding increased by 9.9%, which resulted in a year-
end 1994 ratio of the reserve for possible loan losses to outstanding
loans of 2.11% compared with 2.28% at December 31, 1993. The reserve
as a percentage of non-performing loans, however, grew to 675.57%
compared with 293.39% last year, as non-performing loans decreased by
56.0% from last year-end.
In 1994 the provision for possible loan losses decreased by
$27,541,000 or 45.1% to $33,472,000, compared with $61,013,000 last
year. The provision is the annual cost of providing a reserve for
anticipated future loan losses. In any accounting period, the amount
of provision is dependent upon many factors including loan growth,
net charge-offs, changes in the composition of the loan portfolio,
delinquencies, management's assessments of loan quality, general
economic factors and collateral values. All of these factors were
considered in determining the Corporation's provision level, which as
a percentage of average loans was .44% in 1994 versus .82% in 1993.
This lower 1994 provision reflected improved asset quality, lower
actual loan losses and declining levels of non-performing loans.
Also, the 1993 provision included $8,750,000 to conform Metro's and
United Postal's reserve policies to those of Mercantile.
31
<PAGE> 24
FINANCIAL COMMENTARY (CONT'D)
[EXHIBIT 26 NON-PERFORMING LOAN COVERAGE (%) GRAPH]
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 25
RESERVE FOR POSSIBLE LOAN LOSSES
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
($ in Thousands)
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE $168,651 $165,575 $146,078 $148,660 $149,282
PROVISION 33,472 61,013 74,579 58,076 50,886
CHARGE-OFFS
Commercial 3,826 15,644 21,889 19,082 20,991
Real estate-commercial 5,640 30,701 35,696 26,343 14,281
Real estate-construction 2,171 344 1,487 1,158 2,075
Real estate-residential 4,253 1,690 2,197 1,500 1,155
Consumer 4,440 4,517 6,476 7,519 6,263
Credit card 41,237 30,915 20,642 21,530 17,406
-------- -------- -------- -------- --------
Total Charge-offs 61,567 83,811 88,387 77,132 62,171
RECOVERIES
Commercial 6,623 11,281 5,235 6,049 5,755
Real estate-commercial 15,994 4,474 3,095 674 962
Real estate-construction 248 682 154 461 192
Real estate-residential 572 374 1,271 144 196
Consumer 2,401 2,428 2,665 1,712 1,334
Credit card 4,481 3,463 2,514 1,521 989
Foreign 65 930 383 1,216 1,235
-------- -------- -------- -------- --------
Total Recoveries 30,384 23,632 15,317 11,777 10,663
-------- -------- -------- -------- --------
NET CHARGE-OFFS 31,183 60,179 73,070 65,355 51,508
ACQUIRED RESERVES - 2,242 17,988 4,697 -
-------- -------- -------- -------- --------
ENDING BALANCE $170,940 $168,651 $165,575 $146,078 $148,660
======== ======== ======== ======== ========
LOANS AND LEASES
December 31 balance $8,114,845 $7,381,774 $7,499,221 $6,945,537 $6,883,722
========== ========== ========== ========== ==========
Average balance $7,622,125 $7,412,810 $7,443,980 $6,789,408 $6,485,453
========== ========== ========== ========== ==========
RATIOS
Reserve balance to outstanding loans 2.11% 2.28% 2.21% 2.10% 2.16%
Reserve balance to non-performing loans 675.57 293.39 156.85 113.14 119.68
Net charge-offs to average loans .41 .81 .98 .96 .79
Earnings coverage of net charge-offs 9.19X 4.24x 3.04x 2.22x 2.88x
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The ratio of net charge-offs to average loans for 1994 was .41%
compared with .81% in 1993. The actual net charge-off figures were
$31,183,000 and $60,179,000, respectively. Net charge-offs for 1994
consisted primarily of credit card net losses of $36,756,000, write-
downs on three United Postal commercial real estate credits totaling
$3,965,000, and a fraud perpetrated by a mortgage loan broker
resulting in a net charge-off of $2,664,000 on residential mortgages.
These losses were partially offset by recoveries of $13,841,000 on
four commercial real estate credits at Mercantile Bank of St. Louis
N.A. In 1993 net charge-offs were almost entirely attributable to
three borrowers of Mercantile Bank of St. Louis N.A. and from the
credit card portfolio. Exhibit 25 provides the details of charge-offs
and recoveries for the past five years. In 1994 all losses were
insignificant, except for those enumerated above.
At Mercantile Bank of St. Louis N.A., the ratio of net charge-offs
to average loans for 1994 was .19% compared with .92% in 1993. In the
Kansas City Area, the ratio of net charge-offs to average loans was
.59% versus .47% last year. For the Community Banks as a group, the
comparative ratios were .63% and .77% during 1994 and 1993,
respectively. Credit card losses had a significant impact on all
these ratios.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
32
<PAGE> 25
Credit card losses were 4.89% of average credit card loans for 1994
compared with 4.13% in 1993, as net credit card charge-offs were
$36,756,000 for 1994 compared with $27,452,000 last year. By credit
policy, losses are taken after six cycles of non-payment or notice of
personal bankruptcy, if earlier. Exclusive of credit card losses,
Mercantile had net recoveries of $5,573,000 in 1994.
The Corporation evaluates the reserves of all banks quarterly to
ensure the timely charge-off of loans and the adequacy of each bank's
reserve for possible loan losses. This review is performed by each
bank preliminarily, and is validated by both corporate Credit Review
and a Credit Committee chaired by the Chief Credit Officer. Factors
considered include: volumes and trends in delinquencies and non-
performing loans; specific loan ratings and outstandings; historical
and projected loss experience based on volumes and types of loans;
the results of independent internal loan ratings or external credit
reviews; industrial or geographic concentrations; national, regional
and/or specific industry economic conditions; off-balance-sheet risk;
and other subjective factors.
Every significant criticized credit is reviewed initially by the
respective bank, and a secondary review is performed quarterly to
confirm the risk rating, proper accounting, adequacy of strategy and
loan loss reserve. In addition to specific allocations, reserve
allocations are made based on percentage guidelines for all
individually rated loans, whether criticized or not. Additionally,
allocations are made for unrated loans, such as residential mortgage,
credit card and other consumer loans, based on historical loss
experience adjusted for portfolio activity and current economic
trends. These allocated reserves are further supplemented by
unallocated reserves in each bank based on judgments regarding risk
of error, local economic conditions and any other relevant factors.
At December 31, 1994, the level of the individual Community Bank
reserves as a percentage of total loans outstanding ranged from 1.47%
to 6.48% with a combined ratio of 2.24%. The coverage of non-
performing loans was 632.17%. The Mercantile Bank of St. Louis N.A.
reserve was 1.98% of loans with a coverage ratio of 748.62%, while
the Kansas City Area combined reserve was 2.17% with a coverage ratio
of 598.80%.
In Exhibit 27, the Corporation has estimated an allocation of the
reserve for possible loan losses to the various loan categories.
Consideration for making such allocations is consistent with the
factors discussed above, and all of those factors are subject to
change; thus the allocation is not necessarily indicative of the loan
categories in which future losses will occur. The total reserve is
available to absorb losses from any portion of the loan portfolio.
Management believes the consolidated reserve of 2.11% of total loans
outstanding and 675.57% of non-performing loans was adequate based on
the risks identified at such date in the loan portfolios, and is not
aware of any significant risks in the loan portfolio due to
concentrations within any particular industry.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 27
ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
-------------------- --------------------- -------------------- --------------------- --------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL
RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 23,389 26.13 $ 19,431 26.18 $ 29,138 27.14 $ 27,072 28.94 $ 31,694 30.77
Real estate-
commercial 28,215 15.52 32,044 17.17 38,983 18.01 46,381 16.92 43,633 15.30
Real estate-
construction 2,254 2.52 1,579 2.20 4,296 2.18 5,244 2.29 5,506 2.13
Real estate-
residential 6,847 31.25 4,752 31.36 4,020 32.06 2,789 32.28 2,119 31.79
Consumer 6,438 14.17 5,678 12.75 8,266 12.47 6,849 12.61 5,825 13.49
Credit card 36,827 10.41 31,285 10.34 25,169 8.14 16,861 6.96 17,102 6.52
Unallocated 66,970 N/A 73,882 N/A 55,703 N/A 40,882 N/A 42,781 N/A
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total $170,940 100.00 $168,651 100.00 $165,575 100.00 $146,078 100.00 $148,660 100.00
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 26
FINANCIAL COMMENTARY (CONT'D)
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, renegotiated
loans and foreclosed property. A summary of these assets for the past
five years is presented in Exhibit 28. Effective January 1, 1995, the
Corporation will adopt FAS 114, "Accounting by Creditors for
Impairment of a Loan," as amended by FAS 118. As a result of applying
the new rules, certain impaired loans will be reported at the present
value of future cash flows. Mercantile does not expect the adoption
of this standard to have a material impact on its financial condition
or results of operations. By the Corporation's definition, all non-
accrual and renegotiated commercial loans will be considered
impaired.
Non-performing loans (non-accrual and renegotiated) declined
$32,180,000 or 56.0% to $25,303,000 at December 31, 1994 and
represented .31% of total loans. Foreclosed assets, including
in-substance foreclosures, at December 31, 1994 declined by 65.7% to
$12,347,000 compared with $36,014,000 last year. The ratio of non-
performing assets to outstanding loans plus foreclosed assets
declined to .46% at December 31, 1994 compared with 1.26% last year.
These reductions were indicative of the continued effectiveness of
Credit Administration and the asset workout teams, and reflected a
favorable trend in credit quality, as non-performing asset levels
have trended downward for the past three years.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 28
NON-PERFORMING ASSETS
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
($ in Thousands)
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial $ 4,102 $11,949 $ 36,528 $ 37,816 $ 41,850
Real estate-commercial 10,171 25,059 36,776 69,092 47,947
Real estate-construction 129 785 4,457 4,031 1,564
Real estate-residential 6,792 9,407 11,458 13,450 12,490
Consumer 1,447 1,818 2,460 1,115 2,726
------- ------- -------- -------- --------
TOTAL NON-ACCRUAL LOANS 22,641 49,018 91,679 125,504 106,577
RENEGOTIATED LOANS 2,662 8,465 13,881 3,606 17,634
------- ------- -------- -------- --------
TOTAL NON-PERFORMING LOANS $25,303 $57,483 $105,560 $129,110 $124,211
======= ======= ======== ======== ========
FORECLOSED ASSETS
Foreclosed real estate $ 8,661 $16,771 $51,603 $63,031 $51,657
In-substance foreclosures 1,546 18,044 4,412 11,351 12,524
Other foreclosed assets 2,140 1,199 3,229 4,822 2,676
------- ------- ------- ------- -------
TOTAL FORECLOSED ASSETS $12,347 $36,014 $59,244 $79,204 $66,857
======= ======= ======= ======= =======
TOTAL NON-PERFORMING ASSETS $37,650 $93,497 $164,804 $208,314 $191,068
======= ======= ======== ======== ========
PAST-DUE LOANS (90 DAYS OR MORE) $18,160 $14,096 $12,325 $8,712 $14,560
======= ======= ======= ====== =======
RATIOS
Non-performing loans to outstanding loans .31% .78% 1.41% 1.86% 1.80%
Non-performing assets to outstanding loans
and foreclosed assets .46 1.26 2.18 2.97 2.75
Non-performing assets to total assets .31 .77 1.34 1.94 1.88
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Non-accrual loans are those for which, in the opinion of management,
the timely or ultimate collection of principal and/or interest is
unlikely or problematic. Note A to the Consolidated Financial
Statements further details the Corporation's policy on accounting for
non-accrual loans. As noted in Exhibit 28, non-accrual loans declined
by $26,377,000 or 53.8% from last year and totaled $22,641,000 at
year-end 1994. Paydowns and some restructurings in both the
commercial and commercial real estate categories at Mercantile Bank
of St. Louis N.A. largely accounted for the change in 1994, although
non-accrual loan levels in the Community Banks and the Kansas City
Area likewise declined to historical low levels. The largest non-
accrual loan at year-end was $912,000, and only two other non-accrual
loans have balances owed in excess of $500,000.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
34
<PAGE> 27
Renegotiated loans are those for which the terms have been
restructured beyond those available in the market, in order to aid
the borrower by providing a reduction or deferral of interest and/or
principal. Renegotiations usually result from a deterioration in the
financial condition of the borrower. Renegotiated loans have declined
to $2,662,000 from $8,465,000 at year-end 1993, a decline of 68.6%. All
loans classified as renegotiated were paying in accordance with
their modified terms.
Loans past due 90 days or more and still accruing interest were
$18,160,000 compared with $14,096,000 last year. This classification
consisted largely of credit card loans and residential mortgage
loans. Credit card loans are fully charged off after six cycles or
180 days of delinquency and losses on residential mortgage loans
generally are minimal.
Foreclosed assets and in-substance foreclosures declined to
$12,347,000 at December 31, 1994 from the 1993 year-end level of
$36,014,000, due primarily to sales. Foreclosed assets consisted
primarily of real estate and were recorded at the lower of cost or
fair value less estimated costs to sell. At year-end 1994, the carrying
values of all properties were less than appraised value and the
Corporation did not hold any properties with book values in excess of
$2,000,000. With the adoption of FAS 114 in 1995, the in-substance
foreclosure classification will no longer be utilized.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 29
INTEREST NOT RECORDED ON
NON-PERFORMING LOANS
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Thousands except per share data)
<S> <C> <C> <C> <C> <C>
Interest not accrued $2,338 $4,404 $8,432 $11,385 $9,510
Less cash-basis
income 81 153 399 1,849 419
------ ------ ------ ------- ------
Effect on income before
income taxes $2,257 $4,251 $8,033 $ 9,536 $9,091
====== ====== ====== ======= ======
Effect on net income $1,467 $2,763 $5,302 $6,294 $6,000
====== ====== ====== ====== ======
Effect on net income
per share $.03 $.07 $.13 $.20 $.20
==== ==== ==== ==== ====
Interest collected
applied to principal $851 $2,984 $4,424 $2,738 $2,037
==== ====== ====== ====== ======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
"Potential problem loans" at December 31, 1994 amounted to
$24,502,000. These are defined as loans and commitments not included
in any of the three basic non-performing loan categories discussed
above, but about which management, through normal internal credit
review procedures, has developed information regarding possible
credit problems which could cause the borrowers future difficulties
in complying with present loan repayment terms. There were no loans
classified for regulatory purposes as loss or doubtful that were not
included above or which caused management to have serious doubts as
to the ability of such borrowers to comply with repayment terms. In
addition, there were no material commitments to lend additional funds
to borrowers whose loans were classified as non-performing.
OFF-BALANCE-SHEET RISK
In the normal course of business, there are various commitments and
contingent liabilities outstanding which are properly not recorded on
the balance sheet, such as letters of credit, commitments under
operating leases, commitments to extend credit and interest rate
swaps. Many of these arrangements are complementary to the loan and
deposit products which are accounted for on the balance sheet. The
Corporation's activities in foreign exchange, interest rate swaps,
futures contracts and forward commitments are minimal. Mercantile
offers these products as a financial intermediary, yet at present it
does not use any financial derivatives to manage its own interest
rate exposure other than three interest rate swaps with a notional
value of $21,000,000 acquired in the United Postal merger and
$4,299,000 in forward delivery contracts to partially hedge fixed-
rate production in the residential loan pipeline.
Standby letters of credit and similar arrangements issued primarily
to support corporate obligations commit Mercantile to make payments
on behalf of customers contingent upon the occurrence of future
specified events. Standbys outstanding were primarily related to
customer obligations, such as industrial revenue financings, as well
as other financial and performance-related obligations. At December
31, 1994, the Corporation's commitments under standbys aggregated
approximately $201,585,000, with $126,927,000 expiring within one
year, $48,555,000 expiring within one to five years and $26,103,000
expiring after five years.
35
<PAGE> 28
FINANCIAL COMMENTARY (CONT'D)
[EXHIBIT 32 OTHER INCOME GRAPH]
At year-end 1994, Mercantile subsidiary banks had outstanding unused
loan commitments of $5.60 billion, including $3.35 billion in credit
card lines and $337 million in home equity credit lines. The
remaining commitments were largely to commercial customers in the
primary service area of Missouri and its contiguous states.
Management does not anticipate any losses which would materially affect
the financial position or results of operations of the Corporation
as a result of such commitments and contingent liabilities. Note N to
the Consolidated Financial Statements provides further discussion
on these off-balance-sheet activities and information as to the
estimated fair values of all financial instruments, including the new
disclosure related to the adoption of FAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments."
OTHER INCOME
Non-interest income for 1994 was $188,296,000, down $10,862,000 or
5.5% from the $199,158,000 reported in 1993. Non-interest income as a
percentage of average assets was 1.55% compared with 1.63% in 1993
and 1.56% in 1992, and was 26.59% of total adjusted operating income
in 1994 versus 28.05% last year. As shown in Exhibit 30, credit card
and letters of credit fees both improved from last year, while trust
fees, service charges, investment banking revenue, mortgage banking
income and miscellaneous income declined. Net securities gains were
only $405,000 this year compared with $3,742,000 last year.
Trust fees continued to be the largest source of non-interest
income in 1994 and were $59,824,000, decreasing $1,314,000 or 2.1%
from the $61,138,000 reported in 1993. This follows a 6.3% growth
rate in 1993 over 1992. Personal trust fees generated in the St.
Louis Area were the largest source of trust revenue in 1994 at
$19,559,000 and represented 32.69% of trust income, while declining
2.4% from 1993. The decline is due to reduced termination fees and
weaknesses in the stock and bond markets during the second half of
the year that lowered the value of assets managed, a significant
basis for fees. Trust fees in the Kansas City Area and Community
Banks, which accounted for 27.20% of total trust revenues, are also
largely personal trust fees and declined by 3.6% in 1994, also due to
the lower asset values. Personal trust assets under management
totaled $6.4 billion at December 31, 1994.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 30
OTHER INCOME
<CAPTION>
1994 1993 CHANGE 1992
---- ---- ------ ----
($ in Thousands)
<S> <C> <C> <C> <C>
Trust $ 59,824 $ 61,138 (2.1)% $ 57,501
Service charges 57,593 58,511 (1.6) 55,399
Credit card fees 24,691 24,060 2.6 21,487
Mortgage banking 6,580 10,541 (37.6) 7,452
Investment banking 8,057 8,486 (5.1) 8,918
Letters of credit fees 6,679 6,223 7.3 6,774
Foreclosed property income 2,297 2,283 .6 4,341
Securities gains 405 3,742 (89.2) 2,909
Other 22,170 24,174 (8.3) 19,163
-------- -------- --------
Total Other Income $188,296 $199,158 (5.5) $183,944
======== ======== ========
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Trust income generated by Mississippi Valley Advisors Inc., the
investment management subsidiary of Mercantile Bank of St. Louis
N.A., fell by 1.2% as fund management fees, new business and revenues
from investment services continued to meet growth objectives, but
were offset by the loss of business due to corporate mergers and
lower asset values. These fees represented 21.00% of 1994 trust
income. Mississippi Valley Advisors Inc. manages the nine Mercantile
proprietary mutual funds-the ARCH Funds. These funds had assets of
$1.675 billion at December 31, 1994. Fund results once again
experienced good performance relative to popular
market indices and peer group comparisons.
Institutional and corporate trust service fees were even when
compared with last year and represented 19.11% of total trust fees
for 1994. At December 31, 1994, the Corporation held $12.0 billion in
assets under investment management and $4.6 billion in non-managed
assets, decreases of .8% and 4.2%, respectively, from year-end 1993.
Exhibit 31 further details comparative trust revenue by line of
business for the last three years.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 31
TRUST INCOME
<CAPTION>
1994 1993 CHANGE 1992
---- ---- ------ ----
($ in Thousands)
<S> <C> <C> <C> <C>
Personal trust--St. Louis Area banks $19,559 $20,044 (2.4)% $20,539
Mississippi Valley Advisors Inc. 12,566 12,721 (1.2) 11,117
Corporate and institutional services 11,430 11,491 (.5) 9,899
Kansas City Area banks and
Community Banks 16,269 16,882 (3.6) 15,946
------- ------- -------
Total Trust Income $59,824 $61,138 (2.1) $57,501
======= ======= =======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
36
<PAGE> 29
Service charge income of $57,593,000 decreased 1.6% from 1993 to
1994, following a 5.6% growth in 1993. Deposit volumes were below
1993 levels and some corporate customers opted to use compensating
deposit balances in the higher rate environment to offset account
analysis charges rather than pay fees.
Credit card fees were $24,691,000 in 1994, a 2.6% increase from
1993. Credit card income primarily represents fees charged merchants
for processing credit card transactions, fees received on
transactions of Mercantile cardholders and cardholders' annual fees.
Competitive market factors have tightened credit card fee and
transaction pricing significantly.
Mortgage banking is now a significant line of business for
Mercantile, with the merger of United Postal; total mortgage loans
serviced exceeded $3.4 billion at December 31, 1994. Mortgage banking
revenues decreased by $3,961,000 or 37.6% from
1993 due to lower origination volume and decreased net gains on
the sale of loans; both factors were attributable to higher interest
rates in 1994. Servicing fee revenue grew by 12.1%, however. A
breakout of mortgage banking revenues is provided in Exhibit 33.
Investment banking fees and commissions were $8,057,000 for 1994,
down 5.1% from 1993 after a 4.8% decline in 1993. This income
represents fees for services performed as a dealer bank for
individual customers and corporate customers, including sales of
annuities and mutual funds, profits earned on limited trading
positions, and foreign exchange commissions. This source of revenue
can vary depending on movements in interest rates and overall market
conditions. In the third quarter of 1994, Mercantile discontinued
providing institutional bond sales services and revenue was impacted
accordingly. Also, higher interest rates made certificates of deposit
more attractive to retail customers, slowing mutual fund sales.
The 7.3% increase in letters of credit fees was due largely to a
volume increase in standby letters of credit fees during 1994. Note N
to the Consolidated Financial Statements and the discussion of Off-
Balance-Sheet Risk on Page 35 summarize the Corporation's commitments
under letters of credit.
<TABLE>
----------------------------------------------------------------------
Exhibit 33
MORTGAGE BANKING INCOME
<CAPTION>
1994 1993 CHANGE 1992
---- ---- ------ ----
($ in Thousands)
<S> <C> <C> <C> <C>
Servicing fees $5,013 $ 4,472 12.1 % $3,114
Gains on sales of loans 383 4,572 (91.6) 1,992
Origination fees 336 625 (46.2) 1,400
Other 848 872 (2.8) 946
------ ------- ------
Total Mortgage Banking Income $6,580 $10,541 (37.6) $7,452
====== ======= ======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities gains declined by $3,337,000 from 1993, when United
Postal sold significant volumes of securities at gains in a portfolio
restructuring prior to the merger. All other non-interest income was
down 7.5%, as 1993 included significant lease termination gains.
OTHER EXPENSE
Non-interest expenses decreased 7.3% in 1994 following a 6.4%
increase in 1993. Total operating expenses were 3.40% of average
assets in 1994 compared with 3.64% in 1993 and 3.54% in 1992, while
the overhead ratio, defined as operating expenses as a percentage of
taxable-equivalent net interest income and other income, improved to
58.24% in 1994 versus the restated 62.67% last year and 64.36% in
1992. Further reduction of both ratios over time remains a key
strategic objective of the Corporation.
Included in fourth quarter 1993 other expense is $12,053,000 of
restructuring costs and conforming accounting entries, such as
investment banking fees, foreclosed property write-downs and various
synergy-related accruals for United Postal and Metro. If those costs
were excluded from the 1993 restated figures, non-interest expenses
declined by 4.7% in 1994.
The largest category of non-interest expense was personnel costs,
which in 1994 accounted for 53.58% of total non-interest expense and
amounted to $220,950,000 compared with 48.40% and $215,333,000 last
year. Salaries increased 2.9% and reflected the costs of staffing
additional offices, higher incentive pay and merit increases, offset
by lower relative headcount due to productivity gains. Benefit costs
were well controlled and rose 1.5%, in line with the increase in
salaries.
37
<PAGE> 30
FINANCIAL COMMENTARY (CONT'D)
[EXHIBIT 35 OTHER EXPENSE GRAPH]
At December 31, 1994, Mercantile employed 5,656 full-time equivalent
staff compared with the originally reported 5,261 at year-end 1993
and 4,839 at December 31, 1992. On a restated basis, staff count has
declined from 5,901 at December 31, 1992 and 5,978 last year-end to
5,656 at December 31, 1994. These decreases were principally due to
staff reductions derived both from acquisition-related synergies and
increasing economies of scale. Net income per average employee, on an
originally reported basis, grew to $28,000 in 1994 from $22,000 in
1993 and $18,000 in 1992, while average assets per average employee
improved to $2,105,000 in 1994 from $2,053,000 last year and
$2,043,000 in 1992.
FAS 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," which was adopted in 1993, required the recording of
the unrecognized transitional obligation for postretirement benefits
other than pensions. That liability approximated $28,470,000 at
December 31, 1994 and will be amortized over the next 18 years. FAS
112, "Employers' Accounting for Postemployment Benefits," was
effective in 1994 and it relates to accounting for benefits provided
to former or inactive employees after employment, but before
retirement. The adoption of this statement was immaterial to the
financial condition or results of operations of Mercantile.
Occupancy and equipment expenses declined 5.3% in 1994, reflecting
both productivity gains, as duplicative equipment was eliminated, and
overlapping United Postal offices were closed. The savings were
partially offset by the costs of opening additional offices, as well
as a consistent program to upgrade systems and equipment to further
enhance productivity. Total capital expenditures were $35,101,000,
$26,551,000 and $29,589,000 in 1994, 1993 and 1992, respectively.
The major components of all other operating expenses for the past
three years are shown in Exhibit 34. Advertising declined for the
second year in a row as Mercantile continued to assess the
appropriate level of this discretionary expense. Office supplies
declined due to the rebidding of services and consolidated
purchasing. Postage increased due to the volume of customer accounts
and increased direct mail promotions. Investment in
telecommunications technology accounted for the increase in 1994
communications expense levels. Legal and professional fees declined
with the drop in foreclosed property. Credit card processing expenses
declined due to the selection of a new low cost provider. FDIC
insurance costs decreased as the assessable deposit base declined and
all Mercantile banks in 1994 are paying premiums at the lowest $.23
rate.
Net foreclosed property costs reflected a recovery of $4,636,000 in
1994 compared with an expense of $10,497,000 in 1993 for a change of
$15,133,000. Excluding net foreclosed property expenses from both
years and restructuring costs from 1993, there was a $5,354,000 or
1.3% decline in non-interest expenses for 1994 compared with the 7.3%
decrease reported.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 34
OTHER EXPENSE
<CAPTION>
1994 1993 CHANGE 1992
---- ---- ------ ----
($ in Thousands)
<S> <C> <C> <C> <C>
Salaries $176,957 $171,970 2.9% $158,390
Employee benefits 43,993 43,363 1.5 33,625
-------- -------- --------
Total Personnel
Expense 220,950 215,333 2.6 192,015
Net occupancy 26,319 27,628 (4.7) 24,511
Equipment 32,987 35,010 (5.8) 31,077
Advertising/business
development 9,611 10,426 (7.8) 11,120
Postage and freight 14,750 13,605 8.4 12,516
Office supplies 8,266 9,018 (8.3) 8,887
Communications 6,897 6,563 5.1 6,237
Legal and professional 9,274 10,382 (10.7) 11,510
Credit card 10,710 11,205 (4.4) 7,347
FDIC insurance 20,877 21,487 (2.8) 21,488
Foreclosed property expense (4,636) 10,497 - 13,474
Intangible asset amortization 6,843 6,732 1.6 9,056
Other 49,521 67,023 (26.1) 68,830
-------- -------- --------
Total Other Expense $412,369 $444,909 (7.3) $418,068
======== ======== ========
RATIOS
Overhead ratio 58.24% 62.67% 64.36%
Other expense to average assets 3.40 3.64 3.54
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
38
<PAGE> 31
INCOME TAXES
For the year ended December 31, 1994, the Corporation recorded
income tax expense of $92,089,000 compared with $75,568,000 in 1993
and $52,346,000 in 1992. The effective tax rate for 1994 was 36.38%
compared with 38.87% last year and 35.52% in 1992. The 1993 expense
and effective rate both were impacted by a $6,070,000 additional
provision for the statutory recapture of the United Postal reserve
for loan losses. No deferred taxes had been previously provided.
Excluding that provision, the effective tax rate would have been
35.74% in 1993. Both tax expense and the higher effective tax rates
were indicative of the combined effects of growing levels of taxable
income and a continued reduction in tax-exempt income as a percentage
of pre-tax income.
During the first quarter of 1993, the Corporation adopted FAS
109,"Accounting for Income Taxes." FAS 109 modified the accounting
and reporting for the effects of income taxes. This standard mandates
an asset and liability approach that requires recognition of the
amount of taxes payable or refundable in the current year, and
deferred tax assets and liabilities for the tax consequences of
future events that have been previously recognized differently in
financial statements and tax returns. The adoption of FAS 109
resulted in a reduction to retained earnings of $6,900,000 for the
tax effects of transactions that occurred prior to January 1, 1988.
FAS 109 had no material impact on income tax expense for the years
1992, 1993 or 1994.
A three-year summary of significant income tax data is presented in
Note J to the Consolidated Financial Statements, which provides an
analysis of deferred income taxes, as well as a reconciliation
between the amount of taxes computed using the statutory rate and the
amount actually recorded. As disclosed, Mercantile had a net deferred
asset of $12,983,000 at December 31, 1994. Due to the significant
amount of taxes paid for the past three years and the forecast for
1995, no valuation reserve is deemed necessary. The Corporation's
federal returns have been reviewed through 1990 by the Internal
Revenue Service.
39
<PAGE> 32
FINANCIAL COMMENTARY (CONT'D)
FOURTH QUARTER RESULTS
Mercantile earned $40,928,000 in the fourth quarter of 1994, which
was more than double the $16,391,000 earned last year. On a per share
basis, earnings increased to $.95 from $.38 the prior year. The
return on average assets was 1.34% during the quarter compared with
.54% in 1993's fourth quarter, while return on equity was 15.45%
versus 6.85% last year. Prior year figures included after-tax charges
of approximately $16.5 million to conform the accounting and credit
policies of United Postal and Metro to those of Mercantile. Exhibit
36 presents condensed quarterly financial data for the last two
years.
A more meaningful comparison of the financial indicators would be
with originally reported fourth quarter 1993 results. Earnings per
share of $.95 was up 6.7% from the $.89 originally reported last
year, while return on assets of 1.34% in the current quarter compared
with 1.20% in 1993.
Net interest income improved by $3,128,000 or 2.5% to $128,927,000,
as the net interest rate margin increased from 4.64% to 4.67%, and
the volume of average earning assets increased by 1.8%. Average loan
volume was up $600,924,000 or 8.2%, as loan demand improved in all
sectors except commercial real estate. This loan growth was partially
funded by a decline of $289,486,000 or 8.5% in the investment
portfolio, and a drop in short-term investments of $107,159,000.
Other income decreased by 9.4% from the fourth quarter of 1993, as
the growth in credit card fees and letters of credit fees were more
than offset by declines in all other categories of fee income. Other
operating expenses were down $21,110,000 or 17.1% from a year ago,
which included $12,053,000 of non-recurring restructuring charges
related to the mergers. The overhead ratio was 57.93% in the current
quarter compared with 69.23% last year and 61.83% on an originally
reported basis.
The provision for possible loan losses for the fourth quarter was
$8,563,000 compared with $19,573,000 the prior year. Last year's
provision included $8,750,000 to conform the acquired companies'
reserve policies to those of Mercantile. Net charge-offs were
$9,314,000 or .47% of average loans for the quarter compared with the
year-earlier $11,054,000 or .60%.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
40
<PAGE> 33
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Exhibit 36
QUARTERLY FINANCIAL SUMMARY
<CAPTION>
1993 1994
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income $ .79 $ .80 $ .84 $ .38 $ .91 $ .93 $ .95 $ .95
Dividends declared .24 3/4 .24 3/4 .24 3/4 .24 3/4 .28 .28 .28 .28
Book value at period-end 20.83 21.50 22.19 22.40 22.94 23.49 24.12 24.72
Market price at period-end 34 5/8 32 7/8 33 5/8 30 1/8 31 7/8 35 1/8 36 7/8 31 1/4
Average common shares
outstanding (thousands) 42,078 42,406 42,527 42,737 42,858 43,037 43,204 43,260
OPERATING RESULTS (THOUSANDS)
Taxable-equivalent net
interest income $126,877 $128,299 $127,455 $128,139 $127,702 $129,013 $131,854 $131,208
Tax-equivalent adjustment 2,497 2,307 2,430 2,340 2,309 2,288 2,236 2,281
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 124,380 125,992 125,025 125,799 125,393 126,725 129,618 128,927
Provision for possible loan
losses 14,049 14,485 12,906 19,573 8,383 8,015 8,511 8,563
Other income 49,640 50,232 49,063 50,223 48,922 47,016 46,851 45,507
Other expense 107,361 108,015 106,057 123,476 103,824 102,663 103,516 102,366
Income taxes 19,545 19,877 19,564 16,582 23,253 22,860 23,399 22,577
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 33,065 $ 33,847 $ 35,561 $ 16,391 $ 38,855 $ 40,203 $ 41,043 $ 40,928
======== ======== ======== ======== ======== ======== ======== ========
AVERAGE BALANCE SHEET (MILLIONS)
Total assets $12,265 $12,230 $12,254 $12,115 $12,214 $12,047 $12,109 $12,186
Earning assets 11,198 11,114 11,139 11,046 11,144 10,987 11,099 11,250
Loans and leases 7,452 7,495 7,349 7,357 7,361 7,460 7,702 7,958
Investments in debt and
equity securities 3,433 3,397 3,342 3,397 3,381 3,363 3,241 3,107
Deposits 10,051 10,014 9,985 9,961 9,938 9,712 9,543 9,177
Long-term debt 277 274 274 274 299 292 289 288
Shareholders' equity 865 903 931 957 976 1,002 1,033 1,060
SELECTED RATIOS
Return on assets 1.08% 1.11% 1.16% .54% 1.27% 1.33% 1.36% 1.34%
Return on equity 15.29 14.99 15.28 6.85 15.93 16.05 15.89 15.45
Overhead ratio 60.82 60.50 60.08 69.23 58.78 58.32 57.93 57.93
Other expense to average assets 3.50 3.53 3.46 4.08 3.40 3.41 3.42 3.36
Net interest rate margin 4.53 4.62 4.58 4.64 4.58 4.70 4.75 4.67
Equity to assets 7.40 7.75 7.96 7.90 8.26 8.49 8.52 8.73
Tier I capital to risk-adjusted
assets 10.30 10.53 11.02 11.06 11.56 11.58 11.64 11.87
Total capital to risk-adjusted
assets 13.92 14.05 14.56 14.54 15.68 15.61 15.58 15.78
Leverage 6.61 6.93 7.19 7.33 7.52 7.90 8.14 8.32
Loans to deposits (average) 74.14 74.84 73.59 73.86 74.07 76.81 80.71 86.73
Reserve for possible loan
losses to outstanding loans 2.09 2.03 2.17 2.28 2.20 2.26 2.18 2.11
Reserve for possible loan
losses to non-performing loans 194.45 238.41 286.22 293.39 404.93 495.20 585.44 675.57
Non-performing loans to
outstanding loans 1.07 .85 .76 .78 .54 .46 .37 .31
Non-performing assets to
outstanding loans and
foreclosed assets 1.68 1.60 1.39 1.26 1.00 .87 .76 .46
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 34
MANAGEMENT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
MERCANTILE BANK
The management of Mercantile Bancorporation Inc. is responsible for
the preparation, and the integrity and objectivity of the
accompanying financial statements. These statements were prepared in
accordance with generally accepted accounting principles and
practices applicable to the banking industry applied on a consistent
basis and reflect, in all material respects, the substance of all
reportable events and transactions occurring during the periods
presented. Related financial information in other sections of this
annual report, which has been prepared consistently with the content
of the financial statements, is similarly the responsibility of
management.
The financial statements necessarily include amounts that are based
on management's best estimates and judgments. Future economic
conditions and events, and the economic prospects of the
Corporation's borrowers, create the possibility that such estimates
and judgments may be subject to review and revision.
The financial statements were audited by KPMG Peat Marwick LLP,
independent auditors, in accordance with generally accepted auditing
standards. Management has made available to the independent auditors
the Corporation's financial records and related data, as well as
minutes of the meetings of shareholders and the Board of Directors.
The Corporation maintains an accounting system and related internal
controls that have been deemed sufficient to provide reasonable
assurance that the financial records are reliable for preparing the
financial statements and maintaining accountability for assets. The
concept of reasonable assurance is based upon the recognition that
the cost of a system of internal control must be related to the
benefits derived, and that the balancing of those factors requires
estimates and judgments. The system of internal controls includes
written policies and procedures, proper delegation of authority, and
segregation of duties. In addition, written Standards of Conduct
adopted by the Corporation help to ensure the highest standards of
ethical conduct by all employees.
Management continually monitors compliance with the system of
internal controls, primarily through an extensive program of internal
audits. The system of internal controls and compliance therewith are
considered by independent auditors, in accordance with generally
accepted auditing standards, to the extent necessary to render an
opinion on the financial statements, and by regulatory examiners.
The Board of Directors discharges its responsibility for the
financial statements through its Audit Committee. The committee,
composed solely of outside directors, meets with the independent
auditors, internal auditors and management periodically to review the
work of each and to ensure that each is properly discharging its
responsibilities. To ensure complete independence, the independent
auditors meet with the Audit Committee, without management
representatives present, to discuss the results of their audit and
their opinions on the adequacy of internal controls and the quality
of financial reporting. The independent auditors and the internal
auditors each have unrestricted access to the Audit Committee.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
42
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
1010 Market Street
St. Louis, MO 63101-2085
Shareholders and Board of Directors
Mercantile Bancorporation Inc.:
We have audited the accompanying consolidated balance sheets of
Mercantile Bancorporation Inc. and subsidiaries as of December 31,
1994, 1993 and 1992, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the years
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Mercantile Bancorporation Inc. and subsidiaries as of
December 31, 1994, 1993 and 1992, and the results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 12, 1995
43
<PAGE> 36
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
---- ---- ----
(Thousands except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $647,004 $621,986 $651,616
Investments in debt and equity securities
Trading 527 678 593
Taxable 164,746 183,233 194,932
Tax-exempt 13,189 13,289 12,319
-------- -------- --------
Total 178,462 197,200 207,844
Due from banks-interest bearing 1,857 2,609 5,900
Federal funds sold and repurchase agreements 7,683 8,135 8,087
-------- -------- --------
Total Interest Income 835,006 829,930 873,447
INTEREST EXPENSE
Interest bearing deposits 251,635 281,621 364,897
Foreign deposits 5,397 1,363 870
Short-term borrowings 44,281 23,709 30,368
Bank notes 780 - -
Long-term debt 22,250 22,041 21,223
-------- -------- --------
Total Interest Expense 324,343 328,734 417,358
-------- -------- --------
NET INTEREST INCOME 510,663 501,196 456,089
PROVISION FOR POSSIBLE LOAN LOSSES 33,472 61,013 74,579
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 477,191 440,183 381,510
OTHER INCOME
Trust 59,824 61,138 57,501
Service charges 57,593 58,511 55,399
Credit card fees 24,691 24,060 21,487
Mortgage banking 6,580 10,541 7,452
Investment banking 8,057 8,486 8,918
Securities gains 405 3,742 2,909
Other 31,146 32,680 30,278
-------- -------- --------
Total Other Income 188,296 199,158 183,944
OTHER EXPENSE
Salaries 176,957 171,970 158,390
Employee benefits 43,993 43,363 33,625
Net occupancy 26,319 27,628 24,511
Equipment 32,987 35,010 31,077
Other 132,113 166,938 170,465
-------- -------- --------
Total Other Expense 412,369 444,909 418,068
-------- -------- --------
INCOME BEFORE INCOME TAXES 253,118 194,432 147,386
INCOME TAXES 92,089 75,568 52,346
-------- -------- --------
NET INCOME $161,029 $118,864 $ 95,040
======== ======== ========
PER SHARE DATA
Average common shares outstanding 43,091,152 42,439,298 39,492,237
Net income $3.74 $2.80 $2.36
Dividends declared 1.12 .99 .93
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
44
<PAGE> 37
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31
1994 1993 1992
---- ---- ----
(Thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 683,259 $ 705,673 $ 686,352
Due from banks-interest bearing 234 144,538 43,184
Federal funds sold and repurchase agreements 112,514 186,962 241,972
Investments in debt and equity securities
Trading 14,299 15,735 17,684
Available-for-sale 269,232 415,283 89,424
Held-to-maturity (Estimated fair value of $2,669,460, $3,020,591
and $3,366,147, respectively) 2,750,244 2,970,160 3,294,169
----------- ----------- -----------
Total 3,033,775 3,401,178 3,401,277
Loans held-for-sale 17,398 117,290 20,925
Loans and leases, net of unearned income 8,097,447 7,264,484 7,478,296
----------- ----------- -----------
Total Loans and Leases 8,114,845 7,381,774 7,499,221
Reserve for possible loan losses (170,940) (168,651) (165,575)
----------- ----------- -----------
Net Loans and Leases 7,943,905 7,213,123 7,333,646
Bank premises and equipment 202,889 199,363 200,552
Due from customers on acceptances 6,609 11,923 7,451
Other assets 258,609 278,367 358,594
----------- ----------- -----------
Total Assets $12,241,794 $12,141,127 $12,273,028
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 1,529,052 $ 1,713,275 $ 1,532,477
Interest bearing 7,305,672 7,862,723 8,375,832
Foreign 219,135 26,085 19,650
----------- ----------- -----------
Total Deposits 9,053,859 9,602,083 9,927,959
Federal funds purchased and repurchase agreements 1,382,519 602,997 744,101
Other short-term borrowings 200,180 520,650 241,293
Bank notes 100,000 - -
Long-term debt 287,345 272,778 299,109
Bank acceptances outstanding 6,609 11,923 7,451
Other liabilities 143,032 172,139 201,791
----------- ----------- -----------
Total Liabilities 11,173,544 11,182,570 11,421,704
Commitments and contingent liabilities - - -
SHAREHOLDERS' EQUITY
1994 1993 1992
---- ---- ----
Preferred stock-
no par value
Shares authorized 5,000 5,000 5,000
Shares issued - - - - - -
Common stock-
$5.00 par value
Shares authorized 100,000 70,000 70,000
Shares issued 43,208 42,802 42,032 216,506 214,012 210,160
Capital surplus 170,083 164,448 148,089
Retained earnings 684,615 580,097 493,075
Treasury stock, at cost 94 - - (2,954) - -
----------- ----------- -----------
Total Shareholders' Equity 1,068,250 958,557 851,324
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $12,241,794 $12,141,127 $12,273,028
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
45
<PAGE> 38
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
COMMON STOCK
------------------------ TOTAL
OUTSTANDING CAPITAL RETAINED TREASURY SHAREHOLDERS'
SHARES DOLLARS SURPLUS EARNINGS STOCK EQUITY
----------- ------- ------- -------- ------- ----------
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991
AS REPORTED 32,013,551 $160,068 $ 96,347 $349,823 $ - $ 606,238
Adjustment to reflect poolings-of-
interests 1,625,697 8,128 (1,223) 77,119 84,024
---------- -------- -------- -------- ------ ----------
BALANCE AT DECEMBER 31, 1991
AS RESTATED 33,639,248 168,196 95,124 426,942 - 690,262
Net income 95,040 95,040
Dividends declared
Mercantile Bancorporation Inc.-
$.93 per share (27,506) (27,506)
Pooled companies prior to
acquisition (2,923) (2,923)
Issuance of common stock
Acquisition of Ameribanc, Inc. 1,975,421 9,877 41,418 51,295
Employee incentive plans 195,679 978 2,854 3,832
Warrants and convertible notes 347,143 1,736 7,272 9,008
Change in valuation allowance
for marketable equity securities 1,522 1,522
Initial public offering of
United Postal Bancorp, Inc. 5,537,405 27,688 (818) 26,870
Other pre-merger transactions of
pooled companies 337,077 1,685 2,239 3,924
---------- -------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1992 42,031,973 210,160 148,089 493,075 - 851,324
Net income 118,864 118,864
Dividends declared
Mercantile Bancorporation Inc.-
$.99 per share (34,840) (34,840)
Pooled companies prior to
acquisition (4,195) (4,195)
Issuance of common stock
Acquisition of First National
Bank of Flora 232,503 1,162 6,879 8,041
Acquisition of Mt. Vernon
Bancorp, Inc. 216,936 1,085 6,056 7,141
Employee incentive plans 161,912 809 1,929 2,738
Convertible notes 73,360 367 1,536 1,903
Change in valuation allowance for
marketable equity securities prior
to the adoption of FAS 115 3,554 3,554
Net fair value adjustment for
available-for-sale securities 3,636 3,636
Pre-merger transactions of pooled
companies and other 85,638 429 (41) 3 391
---------- -------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1993 42,802,322 214,012 164,448 580,097 - 958,557
NET INCOME 161,029 161,029
DIVIDENDS DECLARED-$1.12 PER SHARE (48,329) (48,329)
ISSUANCE OF COMMON STOCK
EMPLOYEE INCENTIVE PLANS 308,112 1,541 1,683 3,224
CONVERTIBLE NOTES 181,092 905 3,793 4,698
NET FAIR VALUE ADJUSTMENT FOR
AVAILABLE-FOR-SALE SECURITIES (8,182) (8,182)
PURCHASE OF TREASURY STOCK (93,500) (2,954) (2,954)
PRE-MERGER TRANSACTIONS OF POOLED
COMPANIES AND OTHER 9,498 48 159 207
---------- -------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1994 43,207,524 $216,506 $170,083 $684,615 $(2,954) $1,068,250
========== ======== ======== ======== ======= ==========
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
46
<PAGE> 39
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
---- ---- ----
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 161,029 $ 118,864 $ 95,040
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible loan losses 33,472 61,013 74,579
Depreciation and amortization 26,668 26,491 24,809
Provision for deferred income taxes (credits) (9,392) 6,241 1,248
Net change in trading securities 1,436 1,949 5,953
Net change in loans held-for-sale 99,892 (96,365) 22,255
Net change in accrued interest receivable (12,506) 8,505 8,844
Net change in accrued interest payable (505) (7,396) (18,922)
Net change in accrued taxes payable (9,572) (10,515) 10,038
Other, net (2,987) 58,976 33,653
----------- ----------- -----------
Net Cash Provided by Operating Activities 287,535 167,763 257,497
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading securities
Purchases (847,046) (1,435,988) (1,693,288)
Proceeds from maturities 1,110,446 1,464,157 1,010,084
Proceeds from sales of:
Held-to-maturity securities - 27,970 166,118
Available-for-sale securities 1,358 27,141 7,953
Securities from acquired entities 79,388 14,491 58,219
Net change in loans and leases (1,032,861) (13,994) 84,718
Purchases of loans and leases (20,063) (84,134) (113,311)
Proceeds from sales of loans and leases 156,243 258,769 81,410
Purchases of premises and equipment (35,101) (26,551) (29,589)
Proceeds from sales of premises and equipment 4,936 480 2,722
Proceeds from sales of foreclosed property 40,887 44,974 5,559
Cash and cash equivalents from acquisitions, net of cash paid - 11,085 401,312
Other, net 30,384 23,632 15,317
----------- ----------- -----------
Net Cash Provided (Used) by Investing Activities (511,429) 312,032 (2,776)
FINANCING ACTIVITIES
Net change in time certificates of deposit under $100,000 (245,543) (572,890) (819,135)
Net change in time certificates of deposit $100,000 and over 8,377 (58,082) (143,041)
Net change in other time deposits (2,412) (88,231) 45,411
Net change in foreign deposits 193,050 6,435 5,713
Net change in other deposits (501,696) 238,651 514,545
Sale of branch deposits, net of premium received - (14,130) -
Net change in short-term borrowings 459,052 138,253 35,377
Issuance of bank notes 100,000 - -
Issuance of long-term debt 75,000 - 163,152
Principal payments on long-term debt (54,753) (27,738) (83,324)
Cash dividends paid (48,329) (39,035) (30,429)
Proceeds from issuance of common stock
Employee incentive plans and warrants 2,729 2,203 3,904
Initial public offering of United Postal Bancorp, Inc. - - 26,870
Purchase of treasury stock (2,954) - -
Other, net 207 434 1,724
----------- ----------- -----------
Net Cash Used by Financing Activities (17,272) (414,130) (279,233)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (241,166) 65,665 (24,512)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,037,173 971,508 996,020
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 796,007 $ 1,037,173 $ 971,508
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
47
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") and
its subsidiaries follow generally accepted accounting principles and
reporting practices applicable to the banking industry. The
significant accounting policies are summarized below.
Basis of Presentation:
Consolidation: The Consolidated Financial Statements include the
accounts of Mercantile Bancorporation Inc. and its subsidiaries. All
subsidiaries are wholly-owned. Material intercompany transactions
are eliminated.
Restatements: On January 3, 1994, Mercantile acquired Metro
Bancorporation ("Metro") and on February 1, 1994, the Corporation
acquired United Postal Bancorp, Inc. ("United Postal"), in
transactions accounted for as poolings-of-interests. Accordingly,
prior period financial statements have been restated as if the
combining entities had been consolidated for all periods.
Reclassification: Certain reclassifications have been made to the
1993 and 1992 historical financial statements to conform with the
1994 presentation.
New Accounting Standards:
Financial Accounting Standard ("FAS") 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments," effective for fiscal years ending after December 15,
1994, has been adopted by the Corporation with the related
disclosure included in Note N to the Consolidated Financial
Statements.
FAS 114, "Accounting by Creditors for Impairment of a Loan," as
amended by FAS 118, effective for fiscal years beginning after
December 15, 1994, requires impaired loans to be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate. The adoption of FAS 114 is not
expected to have a material impact on the Corporation's financial
condition or results of operations.
Earnings per Common Share:
Earnings per common share data is based on the weighted average
number of common shares outstanding during the period.
Earnings of United Postal are excluded from the earnings per share
calculation from January 1, 1992 through March 20, 1992, which is
the date United Postal made its initial public offering of common
stock. Also on March 20, 1992, United Postal Savings Association
("UPSA"), a wholly-owned subsidiary of United Postal, converted from
a Missouri state-chartered mutual savings association to a Missouri
state-chartered stock association.
Investments in Debt and Equity Securities:
Trading securities, which include any security held primarily for
near-term sale, are valued at fair value. Gains and losses on
trading securities, both realized and unrealized, are recorded in
investment banking income.
Available-for-sale securities, which include any security for which
the Corporation has no immediate plan to sell but which may be sold
in the future under different circumstances, are valued at fair
value. Realized gains and losses, based on the amortized cost of the
specific security, are included in other income as securities gains.
Unrealized gains and losses are recorded, net of related income tax
effects, in retained earnings.
Held-to-maturity securities, which include any security for which
the Corporation has the positive intent and ability to hold until
maturity, are valued at historical cost adjusted for amortization of
premiums and accretion of discounts computed by the level-yield
method. Prior to December 31, 1993, realized gains and losses, based
on the amortized cost of the specific security, were included in
other income as securities gains.
Prior to December 31, 1993, marketable equity securities were
stated at the lower of cost or fair value. Changes in the valuation
of marketable equity securities which were considered to be
temporary were recorded as adjustments to retained earnings. Since
December 31, 1993, these securities have been classified as
available-for-sale and accounted for as stated above.
Loans Held-for-Sale:
In its lending activities, the Corporation originates residential
and student loans with the intent to be sold in the secondary
market. Loans held-for-sale are carried at the lower of cost or fair
value which is determined on an aggregate basis. Gains or losses on
the sale of loans held-for-sale are determined on a specific
identification method.
Loans and Leases:
Interest income on loans not discounted is generally accrued on a
simple interest basis. Interest income on discounted loans is
computed on the sum-of-the-months'-digits method, which approximates
the interest method.
Loan fees and direct costs of loan originations are deferred and
amortized over the life of the loans under methods approximating the
interest method.
The finance method is used to account for direct and leveraged
equipment lease contracts. Income is recorded over the lease periods
in proportion to the unrecovered investment in the leases after
consideration of investment tax credits and other related income tax
effects.
When, in management's opinion, the collection of interest on a loan
is unlikely, or when either principal or interest is past due over
90 days, that loan is generally placed on non-accrual status. When a
loan is placed on non-accrual status, accrued interest for the
current year is reversed and charged against current earnings, and
accrued interest from prior years is
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
48
<PAGE> 41
charged against the reserve for possible loan losses. Interest
payments received on non-accrual loans are applied to principal if
there is doubt as to the collectibility of such principal;
otherwise, these receipts are recorded as interest income. A loan
remains on non-accrual status until the loan is current as to
payment of both principal and interest, and/or the borrower
demonstrates the ability to pay and remain current.
Reserve for Possible Loan Losses:
The reserve for possible loan losses is increased by provisions
charged to expense and reduced by loans charged off, net of
recoveries. The reserve is maintained at a level considered adequate
to provide for potential loan losses based on management's
evaluation of current economic conditions, changes in the character
and size of the portfolio, past experience, expected future losses,
and other pertinent factors.
Foreclosed Assets:
Foreclosed assets include real estate and other assets acquired
through foreclosure or other proceedings, and in-substance
foreclosures. In-substance foreclosures represent loans accounted
for as foreclosed assets due to the borrower having limited equity
in the underlying collateral, anticipated repayment only through the
operation or sale of the collateral, or the borrower either formally
or effectively abandoning control of the collateral. With the
adoption of FAS 114 in 1995, the in-substance foreclosure
classification will no longer be utilized. Foreclosed assets are
included in other assets in the Consolidated Balance Sheet.
Foreclosed assets are valued at the lower of cost or fair value
less estimated costs to sell. Losses arising at the time of transfer
from loans are charged to the reserve for possible loan losses.
Subsequent reductions in valuation based upon periodic appraisals
are charged against current earnings.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Provisions for depreciation are computed principally
by the straight-line method and are based on estimated useful lives
of the assets. The carrying value of assets sold or retired and the
related accumulated depreciation are eliminated from the accounts,
and the resulting gains or losses are reflected in income.
Expenditures for maintenance and repairs are charged to expense,
while expenditures for major renewals are capitalized.
Intangible Assets:
Intangible assets, consisting primarily of goodwill and core
deposit premium, are included in other assets in the Consolidated
Balance Sheet.
Goodwill, the excess of cost over the net assets acquired in
business combinations accounted for as purchases, is amortized using
the straight-line method over the estimated period to be benefited,
most recently 15 years, but not exceeding 40 years.
Core deposit premium represents the premiums paid, net of any
rebate on assets acquired, plus the insurance funds' entrance and
exit fees, for deposits acquired from failed thrift institutions in
Resolution Trust Corporation-assisted transactions. This intangible
asset is amortized, on an accelerated basis, over the estimated life
of the core deposit base acquired, but not exceeding 10 years.
Income Taxes:
Deferred income taxes, computed using the asset and liability
method, are provided on temporary differences between the financial
reporting basis and the tax basis of the assets and liabilities of
the Corporation.
Treasury Stock:
The purchase of the Corporation's common stock is recorded at cost.
Upon subsequent reissue, the treasury stock account will be reduced
by the average cost basis of such stock.
Cash Equivalents:
Cash and due from banks, federal funds sold, and repurchase
agreements are considered cash equivalents for purposes of the
Consolidated Statement of Cash Flows.
Financial Instruments:
Financial instruments include cash, evidence of an ownership
interest in an entity or a contract that both (a) imposes on the
Corporation a contractual obligation, (1) to deliver a financial
instrument to another party or (2), to exchange other financial
instruments on potentially unfavorable terms with another party; and
(b) conveys to another party a contractual right, (1) to receive a
financial instrument from the Corporation or (2), to exchange other
financial instruments on potentially favorable terms with the
Corporation.
NOTE B
SUBSIDIARIES
Acquisitions:
Effective January 3, 1995, the Corporation acquired UNSL Financial
Corp ("UNSL"), holding company for Lebanon, Missouri-based United
Savings Bank, with assets totaling $508 million. A total of
1,578,107 shares of Mercantile common stock was issued in the UNSL
transaction, which was accounted for as a pooling-of-interests. This
acquisition will not have a material impact on the financial
condition or results of operations of the Corporation.
Also effective January 3, 1995, Mercantile completed a merger with
Wedge Bank ("Wedge"), an Alton, Illinois-based bank with assets
totaling $196 million. A total of 969,954 shares of Mercantile
common stock was
49
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
issued in the Wedge transaction. The Wedge transaction meets the
requirements for treatment as a pooling-of-interests; however, due
to the immateriality of Wedge's financial condition and results of
operations to that of Mercantile's, the historical financial
statements of the Corporation will not be restated for the Wedge
pooling-of-interests transaction.
Effective February 1, 1994, the Corporation acquired United Postal,
holding company for St. Louis, Missouri-based UPSA, with assets
totaling $1.3 billion. Effective January 3, 1994, Mercantile
completed a merger with Metro, a Waterloo, Iowa-based holding
company for The Waterloo Savings Bank, with assets totaling $370
million. A total of 5,631,953 and 1,638,278 shares of Mercantile
common stock were issued in the United Postal and Metro
transactions, respectively, which were accounted for as poolings-of-
interests.
Net income and net income per share for the Corporation and the
pooled companies prior to restatement were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992
($ in Thousands except
per share data)
<S> <C> <C>
Corporation
Net income $116,972 $85,295
Net income per share 3.32 2.53
United Postal
Net income (loss) $ (58) $7,259
Net income (loss) per share (.01) 1.21
Metro
Net income $1,950 $2,486
Net income per share 3.76 4.81
</TABLE>
During the fourth quarter of 1993, certain adjustments were
recorded by United Postal and Metro to conform their accounting and
credit policies regarding loan, other real estate and other asset
valuations to those of the Corporation. These adjustments amounted
to $16.5 million on an after-tax basis.
On September 1, 1993, Mercantile completed a merger with Mt. Vernon
Bancorp, Inc., a $113,128,000-asset holding company for First Bank
and Trust Co. in Mt. Vernon, Illinois. The total cost of the
acquisition was $1,805,000 in cash and 216,936 shares of Mercantile
common stock. The excess of the purchase price over the fair value
of net assets acquired was $4,700,000. On April 1, 1993, Mercantile
completed the merger with the $70,725,000-asset First National Bank
of Flora in Clay County, Illinois. The total cost of the acquisition
was $3,004,000 in cash and 232,503 shares of Mercantile common
stock. The excess of the purchase price over the fair value of net
assets acquired was $2,549,000. Both transactions were accounted for
as purchases and, accordingly, the results of operations were
included in the Consolidated Financial Statements from the
respective acquisition dates.
On January 4, 1993, the Corporation acquired MidAmerican
Corporation and Johnson County Bankshares, Inc., two northeast
Kansas-based holding companies with assets totaling $1.1 billion. A
total of 4,736,424 shares of Mercantile common stock was issued in
the transaction, which was accounted for as a pooling-of-interests.
Net income and net income per share for the Corporation,
MidAmerican Corporation and Johnson County Bankshares, Inc. prior to
restatement were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1992
($ in Thousands except
per share data)
<S> <C>
Corporation
Net income $85,003
Net income per share 2.91
MidAmerican Corporation
Net income $1,007
Net income per share .30
Johnson County Bankshares, Inc.
Net loss $ (715)
Net loss per share (36.70)
</TABLE>
During the fourth quarter of 1992, certain adjustments were
recorded by MidAmerican Corporation and Johnson County Bankshares,
Inc. to conform their accounting and credit policies regarding loan,
other real estate and other asset valuations to those of the
Corporation. These adjustments amounted to $8 million on an after-
tax basis.
MidAmerican Corporation acquired Jayhawk Bancshares, Inc., a
$52,000,000-asset, one-bank holding company in Lawrence, Kansas, in
July 1992. This acquisition was accounted for as a purchase and,
accordingly, the results of operations, which were not material,
were included in the Consolidated Financial Statements from the
acquisition date. The total cost of the acquisition was $10,872,000
in cash and $2,200,000 in notes. Upon maturity of the final
$1,900,000 in notes in August 1994, $1,391,000 was offset against
the fair value of net assets acquired, based upon the outcome of
certain losses in the loan portfolio of the acquired bank
subsidiary. The excess of the purchase price over the fair value of
net assets acquired was $7,956,000.
On April 30, 1992, the Corporation acquired Ameribanc, Inc., a $1.2
billion-asset, 11-bank holding company headquartered in St. Joseph,
Missouri. This acquisition was accounted for as a purchase and,
accordingly, the results of operations were included in the
Consolidated Financial Statements from the acquisition date. The
total cost of the acquisition was $8,851,000 in cash and 1,975,421
shares of Mercantile common stock.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
50
<PAGE> 43
The following unaudited pro forma combined consolidated financial
information gives effect to the April 30, 1992 acquisition of
Ameribanc, Inc. as if it had been consummated on January 1, 1992.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1992
($ in Thousands except
per share data)
<S> <C>
Net interest income $468,362
Other income 188,053
Net income 95,115
Net income per share 2.32
</TABLE>
For all acquisitions accounted for as purchases, the unamortized
excess of cost over the fair value of assets acquired was
$51,281,000, $56,882,000 and $56,206,000 at December 31, 1994, 1993
and 1992, respectively.
RTC Transactions:
During 1992, certain subsidiaries of the Corporation acquired from
the Resolution Trust Corporation the deposits and certain assets of
failed thrift institutions. Transactions included: Mercantile Bank
of Joplin and Mercantile Bank of Kansas City acquired $222,304,000
in deposits of two branches of the former Home Federal Savings
Association in Joplin and Kansas City, Missouri in March 1992;
Mercantile Bank of West Central Missouri acquired $163,055,000 in
deposits and $156,818,000 in assets of First State Savings
Association of Sedalia in April 1992; and UPSA acquired $79,000,000
in deposits and $80,000,000 in assets of First Federal Savings and
Loan Association in Manchester, Missouri in December 1992.
Unamortized core deposit premium was $7,923,000, $11,187,000 and
$13,444,000 at December 31, 1994, 1993 and 1992, respectively.
The effect of the Mt. Vernon, Flora, Jayhawk and Resolution Trust
Corporation acquisitions on the Corporation's operating results from
January 1, 1992 through the respective acquisition dates and for the
years ended December 31, 1994, 1993 and 1992, was not material.
Subsidiary Mergers:
During 1994, the Corporation effected several reorganization
transactions among certain subsidiaries. On December 9, 1994,
Mercantile Bank of Table Rock Lake was merged with Mercantile Bank
of Springfield. On August 16, 1994, certain assets and liabilities
of UPSA, primarily those associated with its Arnold and Crystal
City, Missouri branches, were sold to Mercantile Bank of Jefferson
County. On the same date, UPSA was merged with Mercantile Bank of
St. Louis N.A. On July 21, 1994, certain assets and liabilities of
the Troy, Missouri agency office of UPSA were sold to Mercantile
Bank of Pike County.
Pending Acquisitions:
The Corporation has entered into an agreement dated December 23,
1994 to acquire the capital stock of Plains Spirit Financial
Corporation, holding company for the $439 million-asset First
Federal Savings Bank of Iowa headquartered in Davenport, Iowa. The
acquisition, to be accounted for as a purchase transaction, is
expected to be consummated in the second quarter of 1995.
The Corporation has entered into an agreement dated December 2,
1994 to acquire the capital stock of TCBankshares, Inc., a six-bank
holding company with assets totaling $1.4 billion, headquartered in
North Little Rock, Arkansas. The acquisition, to be accounted for as
a pooling-of-interests, is expected to be consummated in the second
quarter of 1995.
Mercantile has also entered into an agreement dated September 21,
1994 to acquire the capital stock of Central Mortgage Bancshares,
Inc., a three-bank holding company with $650 million in assets,
headquartered in Kansas City, Missouri. The acquisition, to be
accounted for as a pooling-of-interests, is expected to be completed
in March 1995.
NOTE C
CASH FLOWS
The Corporation paid interest on deposits, short-term borrowings,
bank notes and long-term debt of $324,848,000, $335,574,000 and
$429,793,000 in 1994, 1993 and 1992, respectively. The Corporation
paid Federal income taxes of $91,842,000, $61,493,000 and
$45,174,000 in 1994, 1993 and 1992, respectively.
The following details cash and cash equivalents from acquisitions
accounted for as purchases, net of cash paid:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Fair value of assets purchased $- $(186,391) $(1,679,456)
Liabilities assumed - 166,400 1,603,529
Issuance of common stock - 15,182 51,295
-- --------- -----------
Net cash paid for acquisitions - (4,809) (24,632)
Cash and cash equivalents acquired - 15,894 425,944
-- --------- -----------
CASH AND CASH EQUIVALENTS FROM ACQUISITIONS, NET OF
CASH PAID $- $ 11,085 $ 401,312
== ========= ===========
</TABLE>
NOTE D
CASH AND DUE FROM BANKS RESTRICTIONS
The Corporation's subsidiary banks are required to maintain average
reserve balances which place withdrawal and/or usage restrictions on
cash and due from banks balances. The average amount of these
restricted balances for the year ended December 31, 1994 was
$169,280,000.
51
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE E
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective December 31, 1993, the Corporation adopted FAS 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
and its cumulative effect was recorded on the Consolidated Balance
Sheet on that date. The most significant impact of the new
accounting requirements is that unrealized holding gains and losses,
net of applicable income taxes, on securities classified as
available-for-sale are recorded as an adjustment to retained
earnings. In 1992 these securities were classified as held-for-sale,
and were carried at the lower of amortized cost or fair value,
determined on an aggregate basis, with adjustments recorded in
current year earnings. The adoption of FAS 115 did not have a
material effect on the financial condition or results of operations
for the year ended December 31, 1993, and prior year Consolidated
Financial Statements have not been restated.
On December 31, 1993, debt securities with an amortized cost of
$2,970,160,000 were classified as held-to-maturity; and debt and
equity securities with an amortized cost of $409,688,000 were
classified as available-for-sale. A market valuation account of
$5,595,000 was established for the available-for-sale securities to
increase the recorded balance of such securities at December 31,
1993 to their estimated fair value on that date. A tax liability of
$1,959,000 established the deferred tax effect of the market
valuation account. The net increase resulting from the market
valuation adjustment at December 31, 1993 was recorded as an
adjustment to retained earnings.
Available-for-Sale:
The amortized cost, estimated fair values, and unrealized gains and
losses of available-for-sale securities were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. government $219,316 $ 114 $6,360 $213,070
State and political subdivisions-tax-exempt 12,572 156 24 12,704
Other 44,338 1,263 2,143 43,458
-------- ------ ------ --------
Total $276,226 $1,533 $8,527 $269,232
======== ====== ====== ========
DECEMBER 31, 1993
U.S. government $359,362 $2,289 $ 604 $361,047
State and political subdivisions-tax-exempt 14,259 925 11 15,173
Other 36,067 4,240 1,244 39,063
-------- ------ ------ --------
Total $409,688 $7,454 $1,859 $415,283
======== ====== ====== ========
DECEMBER 31, 1992
U.S. government $89,424 $2,672 $ - $92,096
======= ====== === =======
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
52
<PAGE> 45
Held-to-Maturity:
The amortized cost, estimated fair values, and unrealized gains and
losses of held-to-maturity securities were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. government $2,342,744 $ 7,832 $77,366 $2,273,210
State and political subdivisions
Tax-exempt 217,059 2,348 4,063 215,344
Taxable 157,912 49 9,067 148,894
---------- ------- ------- ----------
Total State and Political Subdivisions 374,971 2,397 13,130 364,238
Other 32,529 - 517 32,012
---------- ------- ------- ----------
Total $2,750,244 $10,229 $91,013 $2,669,460
========== ======= ======= ==========
DECEMBER 31, 1993
U.S. government $2,492,458 $42,756 $3,492 $2,531,722
State and political subdivisions
Tax-exempt 235,030 10,290 272 245,048
Taxable 101,467 338 671 101,134
---------- ------- ------ ----------
Total State and Political Subdivisions 336,497 10,628 943 346,182
Other 141,205 1,809 327 142,687
---------- ------- ------ ----------
Total $2,970,160 $55,193 $4,762 $3,020,591
========== ======= ====== ==========
DECEMBER 31, 1992
U.S. government $2,664,816 $67,137 $7,055 $2,724,898
State and political subdivisions
Tax-exempt 216,060 7,839 1,052 222,847
Taxable 12,195 317 131 12,381
---------- ------- ------ ----------
Total State and Political Subdivisions 228,255 8,156 1,183 235,228
Other 401,098 5,782 859 406,021
---------- ------- ------ ----------
Total $3,294,169 $81,075 $9,097 $3,366,147
========== ======= ====== ==========
</TABLE>
Securities with a carrying value of $1,810,635,000 at December 31,
1994, $1,963,837,000 at December 31, 1993 and $2,084,829,000 at
December 31, 1992 were pledged to secure public and trust deposits,
securities sold under agreements to repurchase, and for other
purposes required by law.
Included in other held-to-maturity securities at December 31, 1992
were marketable equity securities with a cost of $16,675,000 and a
carrying value of $13,121,000. At December 31, 1993 and 1994, these
same securities were classified as available-for-sale upon the
adoption of FAS 115. Additional securities with carrying values of
$752,000 became marketable equity securities during 1993, and at
December 31, 1993 and 1994, these securities were classified as
available-for-sale.
The following table presents proceeds from sales of securities and
the components of net securities gains. There were no securities
classified as held-to-maturity during 1994 that were transferred to
available-for-sale securities or sold. Held-to-maturity securities
gains and losses in 1994 resulted from portfolio restructurings in
connection with subsidiary bank acquisitions or calls by the
security issuer prior to maturity.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Proceeds from sales of:
Held-to-maturity securities $ - $27,970 $166,118
Available-for-sale securities 1,358 27,141 7,953
Securities from acquired entities 79,388 14,491 58,219
Securities gains on:
Held-to-maturity securities $ 471 $ 1,013 $4,141
Available-for-sale securities 2,328 5,230 1,001
------ ------- ------
Total Securities Gains 2,799 6,243 5,142
Securities losses on:
Held-to-maturity securities 262 863 1,362
Available-for-sale securities 2,132 1,638 871
------ ------- ------
Total Securities Losses 2,394 2,501 2,233
------ ------- ------
Net Securities Gains
Before Income Taxes 405 3,742 2,909
Applicable income taxes (142) (1,310) (989)
------ ------- ------
Net Securities Gains $ 263 $ 2,432 $1,920
====== ======= ======
</TABLE>
53
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE F
LOANS AND LEASES
Loans and leases consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Commercial $2,120,155 $1,932,116 $2,033,191
Real estate-commercial 1,259,587 1,267,085 1,350,775
Real estate-construction 204,301 162,765 163,764
Real estate-residential 2,535,983 2,315,059 2,403,917
Consumer 1,149,732 941,044 935,471
Credit card 844,662 763,243 610,429
Foreign 425 462 1,674
---------- ---------- ----------
Loans and Leases $8,114,845 $7,381,774 $7,499,221
========== ========== ==========
</TABLE>
Changes in the reserve for possible loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Beginning Balance $168,651 $165,575 $146,078
Provision 33,472 61,013 74,579
Charge-offs (61,567) (83,811) (88,387)
Recoveries 30,384 23,632 15,317
-------- -------- --------
Net Charge-offs (31,183) (60,179) (73,070)
Acquired Reserves - 2,242 17,988
-------- -------- --------
Ending Balance $170,940 $168,651 $165,575
======== ======== ========
</TABLE>
Non-performing loans consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Non-accrual $22,641 $49,018 $ 91,679
Renegotiated 2,662 8,465 13,881
------- ------- --------
Non-performing Loans $25,303 $57,483 $105,560
======= ======= ========
</TABLE>
Certain directors and executive officers of the Corporation and
Mercantile Bank of St. Louis N.A. were loan customers of the
Corporation's banks during 1994, 1993 and 1992. Such loans were made
in the ordinary course of business at normal terms, including
interest rate and collateralization, and did not represent more than
a normal risk. Loans to those persons, their immediate families and
companies in which they were principal owners were $6,067,000,
$7,122,000 and $39,133,000 at December 31, 1994, 1993 and 1992,
respectively. During 1994, $25,225,000 of new loans were made to
these persons; repayments totaled $26,280,000.
NOTE G
BANK PREMISES AND EQUIPMENT
Bank premises and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Land $ 35,763 $ 35,993 $ 33,901
Bank premises 201,509 200,552 194,605
Leasehold improvements 17,760 17,907 17,129
Furniture and equipment 179,786 167,856 156,658
--------- --------- ---------
Total Cost 434,818 422,308 402,293
Accumulated depreciation (231,929) (222,945) (201,741)
--------- --------- ---------
Net Carrying Value $ 202,889 $ 199,363 $ 200,552
========= ========= =========
</TABLE>
At December 31, 1994, the Corporation had certain long-term leases,
none of which were considered to be capital leases, which were
principally related to the use of land, buildings and equipment. The
following table summarizes the future minimum rental commitments for
all noncancelable operating leases which had initial or remaining
noncancelable lease terms in excess of one year:
<TABLE>
<CAPTION>
PERIOD MINIMUM RENTAL
(Thousands)
<S> <C>
1995 $ 2,837
1996 2,681
1997 2,494
1998 1,250
1999 866
2000 and later 5,079
-------
Total $15,207
=======
</TABLE>
Net rental expense for all operating leases was $6,245,000 in 1994,
$6,775,000 in 1993 and $7,165,000 in 1992.
NOTE H
SHORT-TERM BORROWINGS
Short-term borrowings were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Federal funds purchased and repurchase agreements $1,382,519 $ 602,997 $744,101
Treasury tax and loan notes 160,379 502,260 215,521
Commercial paper 26,800 18,390 9,198
Other short-term borrowings 13,001 - 16,574
---------- ---------- --------
Total $1,582,699 $1,123,647 $985,394
========== ========== ========
</TABLE>
The Corporation had unused lines of credit arrangements with
unaffiliated banks in support of commercial paper outstanding of
$40,000,000 at December 31, 1994.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
54
<PAGE> 47
NOTE I
BANK NOTES AND LONG-TERM DEBT
Bank Notes:
Beginning in 1994, Mercantile Bank of St. Louis N.A., Mercantile
Bank of Illinois N.A., Mercantile Bank of Kansas City, Mercantile
Bank of Kansas and Mercantile Bank of Springfield may offer
unsecured bank notes in aggregate principal amounts of up to $1
billion. Note maturities can range from 30 days to 15 years from the
date of issue and can be issued with fixed or floating interest
rates. Each bank note issued will be an obligation solely of that
issuing bank and will not be an obligation of, or otherwise
guaranteed by, the other issuing banks or the Corporation. The bank
notes are being offered and sold only to institutional investors,
and are not insured by the Federal Deposit Insurance Corporation or
any other governmental agency.
On November 16, 1994, Mercantile Bank of St. Louis N.A. issued
$100,000,000 of two-year bank notes, with a floating interest rate
equal to the three-month LIBOR plus 1/8%. The coupon rate on the
issued bank notes was 5.9375% at December 31, 1994.
Long-term Debt:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
MERCANTILE BANCORPORATION INC. (PARENT COMPANY ONLY)
7.625% subordinated notes, due 2002 $150,000 $150,000 $150,000
8.500% debentures, due 2004 - 30,550 31,171
8.000% convertible subordinated
capital notes, due 1995 8,822 13,522 15,426
Notes issued in acquisitions - - 120
-------- -------- --------
Total 158,822 194,072 196,717
SECOND-TIER HOLDING COMPANIES - 1,905 24,850
BANKS AND OTHER SUBSIDIARIES
6.375% subordinated debt, due 2004 75,000 - -
9.000% mortgage-backed notes, due 1999 53,450 53,041 52,966
Mortgage payable - 23,653 24,337
Other 73 107 239
-------- -------- --------
Total 128,523 76,801 77,542
-------- -------- --------
Total Long-term Debt $287,345 $272,778 $299,109
======== ======== ========
</TABLE>
On October 15, 1992, the Corporation issued $150,000,000 of
subordinated notes with a 10-year maturity and a coupon rate of
7.625% to yield 7.741%. These notes qualify as Tier II capital under
current regulatory guidelines.
On January 25, 1994, Mercantile Bank of St. Louis N.A. issued
$75,000,000 of 6.375% 10-year, non-callable subordinated debt, due
January 15, 2004. This debt qualifies as Tier II capital. The
Corporation used the proceeds of this subordinated debt issue to:
(1) prepay in full on February 23, 1994 the $30,550,000 8.500%
unsecured debentures of the Corporation; and (2) prepay in full on
February 1, 1994 the $23,653,000 8.250% mortgage secured by the
Corporation's headquarters building.
The 8.000% convertible subordinated capital notes were issued by
Ameribanc, Inc. prior to its acquisition by the Corporation. At
December 31, 1994, these notes were convertible into approximately
339,000 shares of the Corporation's common stock.
Notes issued in acquisitions by the parent company with an interest
rate of 6.500% matured in November 1993.
All second-tier holding company debt was issued by either
MidAmerican Corporation or Johnson County Bankshares, Inc. prior to
their acquisition by the Corporation. Except for the notes issued in
acquisitions, all second-tier holding company debt was paid off on
January 5, 1993. Notes issued in acquisitions by a second-tier
holding company were issued at a variable rate and matured in 1994.
In July 1989, UPSA issued $100 million of 9.000% fixed-rate
mortgage-backed notes with a maturity of July 1999. United Postal
Savings Association used a portion of the proceeds from the sale of
the notes as, or to purchase, eligible collateral which was pledged
to the trustee simultaneously with the initial sale of the notes.
During 1990, $46,550,000 of the mortgage-backed notes were
repurchased on the open market at a discount. In 1994 the mortgage-
backed securities collateralizing these notes were replaced with
U.S. government securities of a like amount.
55
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
A summary of annual principal reductions of long-term debt is
presented below:
<TABLE>
<CAPTION>
ANNUAL
PERIOD PRINCIPAL REDUCTIONS
(Thousands)
<S> <C>
1995 $ 8,857
1996 38
1997 -
1998 -
1999 53,450
2000 and later 225,000
--------
Total $287,345
========
</TABLE>
NOTE J
INCOME TAXES
The Corporation's results include income tax expense as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
(Thousands)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
U.S. FEDERAL $ 90,786 $(9,036) $81,750
STATE AND LOCAL 10,695 (356) 10,339
-------- ------- -------
TOTAL $101,481 $(9,392) $92,089
======== ======= =======
Year ended December 31, 1993
U.S. Federal $58,989 $5,479 $64,468
State and local 10,338 762 11,100
------- ------ -------
Total $69,327 $6,241 $75,568
======= ====== =======
Year ended December 31, 1992
U.S. Federal $44,020 $ 915 $44,935
State and local 7,078 333 7,411
------- ------ -------
Total $51,098 $1,248 $52,346
======= ====== =======
</TABLE>
The tax effects of temporary differences that gave rise to the
deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Deferred tax assets
Reserve for possible loan losses $ 55,008 $ 53,507 $ 54,245
Foreclosed property 2,460 2,172 2,745
Deferred compensation 2,447 2,792 1,874
Net operating losses from pooled subsidiary 1,494 4,527 10,377
Expenses not currently allowable for tax purposes 10,697 7,598 5,802
State tax liabilities 2,239 1,266 1,567
Investments in debt and equity securities-FAS 115 2,448 - -
Retirement expenses in excess of tax deduction 5,182 2,312 1,578
Other 5,792 754 9,869
-------- -------- --------
Total Gross Deferred Tax Assets 87,767 74,928 88,057
Deferred tax liabilities
Leasing (56,776) (55,050) (55,187)
Pension settlement gain (6,005) (6,005) (5,833)
Intangible assets (8,285) (8,369) (8,355)
Depreciation (1,090) (2,542) (2,793)
Investments in debt and equity securities-FAS 115 - (1,959) -
Other (2,628) (1,819) (8,505)
-------- -------- --------
Total Gross Deferred Tax Liabilities (74,784) (75,744) (80,673)
-------- -------- --------
Net Deferred Tax Assets/(Liabilities) $ 12,983 $ (816) $ 7,384
======== ======== ========
</TABLE>
The 1992 and 1993 net deferred tax assets/(liabilities) reflect
amounts attributable to entities acquired in purchase transactions.
Income tax expense as reported differs from the amounts computed by
applying the statutory U.S. Federal income tax rate to pretax income
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense $88,591 $68,051 $50,112
Increase (reduction) in income taxes resulting from
Tax-exempt income (5,196) (5,565) (4,023)
State and local income taxes, net of federal income tax benefit 6,721 7,214 4,892
Thrift bad debt recapture - 6,070 -
Other, net 1,973 (202) 1,365
------- ------- -------
Total Tax Expense $92,089 $75,568 $52,346
======= ======= =======
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
56
<PAGE> 49
NOTE K
RETIREMENT PLANS
Pension Plans:
The Corporation maintains both qualified and nonqualified
noncontributory pension plans which cover all employees meeting
certain age and service requirements.
The qualified plan provides pension benefits based on the
employee's length of service and compensation earned during the five
years prior to retirement. The Corporation's funding policy is to
contribute annually at least the minimum amount required by
government funding standards but not more than is tax deductible. No
contribution was required during 1994, 1993 or 1992.
The net periodic pension expense related to the qualified plan
included in the Consolidated Statement of Income is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ 6,228 $ 4,762 $ 3,661
Interest cost on projected benefit obligation 7,926 7,293 5,811
Actual (return) loss on plan assets 1,713 (9,839) (7,807)
Net amortization and deferral (13,542) (959) (1,547)
-------- ------- -------
Net Periodic Pension Expense $ 2,325 $ 1,257 $ 118
======== ======= =======
</TABLE>
The table below sets forth the funded status and amounts recognized
in the Consolidated Balance Sheet for the qualified plan:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Actuarial present value of Vested benefit obligation $74,545 $77,877 $63,328
======= ======= =======
Accumulated benefit obligation $82,994 $84,795 $67,862
======= ======= =======
Projected benefit obligation $ 99,366 $103,744 $ 83,237
Plan assets at fair value 116,496 118,159 112,087
-------- -------- --------
Plan assets in excess of projected benefit obligation (17,130) (14,415) (28,850)
Unrecognized net gain (loss) (7,896) (10,671) 1,885
Unrecognized prior service cost 2,876 1,843 1,608
Unrecognized net asset at December 31 5,653 6,865 8,078
-------- -------- --------
Prepaid Pension $(16,497) $(16,378) $(17,279)
======== ======== ========
</TABLE>
Assumptions used were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate in determining benefit obligations 8.50% 7.50% 8.00%
Rate of increase in compensation levels 5.00 5.00 5.25
Expected long-term rate on assets 9.00 9.00 8.50
</TABLE>
At December 31, 1994, approximately 58% of the plan's assets were
invested in listed common stocks, 36% were invested in government
and corporate bonds rated A or better, and the remaining 6% were
invested in short-term cash equivalents. A nominal amount of common
stock of the Corporation was held by the plan.
The nonqualified plans provide pension benefits 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 Corporation's funding policy is to fund benefits as they are
paid. Contributions under the nonqualified plans were not material
for the three years ended December 31, 1994, 1993 and 1992. The
expense related to these plans was $1,612,000 in 1994, $1,641,000 in
1993, $1,337,000 in 1992.
Other Postretirement Benefits:
In addition to the pension plans described above, the Corporation
provides other postretirement benefits, largely medical benefits and
life insurance, to its retirees.
The Corporation adopted FAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in the first quarter
of 1993, which required the recording of the unrecognized transition
obligation for postretirement benefits other than pensions. That
liability is being amortized over a 20-year period. The net periodic
postretirement benefit expense included in the Consolidated
Statement of Income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
(Thousands)
<S> <C> <C>
Service cost-benefits earned during the period $ 734 $ 591
Interest cost on accumulated postretirement benefit obligation 2,539 2,647
Net amortization and deferral 1,633 1,679
------ ------
Net Periodic Postretirement
Benefit Cost $4,906 $4,917
====== ======
</TABLE>
The cash basis postretirement benefit cost prior to the adoption of
FAS 106 was $2,225,000 in 1992.
57
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The table below sets forth the funded status and the amount
recognized in the Consolidated Balance Sheet regarding other
postretirement benefits:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation ("APBO")
Retirees $24,423 $ 25,893 $ 25,900
Active employees fully eligible for benefits 1,014 1,359 1,149
Other active employees 6,500 7,747 6,523
------- -------- --------
Total 31,937 34,999 33,572
Assets at fair value - - -
------- -------- --------
APBO in excess of assets 31,937 34,999 33,572
Unrecognized net gain (loss) 2,436 (1,268) -
Unrecognized service cost (155) - -
Unrecognized transition obligation at December 31 (28,470) (30,393) (33,572)
------- -------- --------
APBO $ 5,748 $ 3,338 $ -
======= ======== ========
</TABLE>
Assumptions used were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate in determining benefit obligations 8.50% 7.50% 8.00%
Health care cost trend
First year 11.00 12.00 13.00
Ultimate (2001 and after) 6.00 6.00 6.00
</TABLE>
An increase in the health care cost trend of one percent would
increase the aggregate of service and interest cost components of
net periodic postretirement benefit costs by $120,000 in 1994
compared with $136,000 in 1993. The APBO as of December 31 would
increase by $1,430,000 in 1994 compared with $1,660,000 in 1993.
NOTE L
SHAREHOLDERS' EQUITY
Common Stock:
The authorized common stock of the Corporation consists of
100,000,000 shares as of December 31, 1994 and 70,000,000 shares as
of December 31, 1993 and 1992, $5.00 par value, of which 43,207,524,
42,802,322 and 42,031,973 shares were outstanding at December 31,
1994, 1993 and 1992, respectively.
The Corporation's Dividend Reinvestment Plan allows shareholders of
record to reinvest dividends and/or make voluntary cash
contributions to purchase additional shares of the Corporation's
common stock. Under the Plan, stock is purchased in the open market
by the Plan Trustee with no service charge to the shareholder.
Preferred Stock:
The authorized preferred stock of the Corporation consists of
5,000,000 shares, no par value, of which none were issued or
outstanding at December 31, 1994, 1993 and 1992, although 1,000,000
shares were reserved at December 31, 1994 for issuance pursuant to
the Preferred Share Purchase Rights Plan. The preferred stock, which
is issuable in series, shall have specific terms, preferences and
other rights as determined by the Board of Directors for each
series.
Preferred Share Purchase Rights Plan:
One Preferred Share Purchase Right ("Right") is attached to each
share of common stock and trades automatically with such shares. The
Rights, which can be redeemed by the Board of Directors in certain
circumstances and expire by their terms on June 3, 1998, have no
voting rights.
The Rights become exercisable and will trade separately from the
common stock 10 days after a person or a group either becomes the
beneficial owner or announces an intention to commence a tender
offer for 20% or more of the Corporation's outstanding common stock.
When exercisable, each Right entitles the registered holder to
purchase from the Corporation 1/100 of a share of Series A Junior
Participating Preferred Stock for $100 per 1/100 of a preferred
share.
In the event a person acquires beneficial ownership of 20% or more
of the Corporation's common stock, holders of Rights (other than the
acquiring person or group) may purchase, at the Rights' then current
exercise price, common stock of the Corporation having a value at
that time equal to twice the exercise price. In the event the
Corporation merges into or otherwise transfers 50% or more of its
assets or earnings power to any person after the Rights become
exercisable, holders of Rights may purchase, at the then current
exercise price, common stock of the acquiring entity having a value
at that time equal to twice the exercise price.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
58
<PAGE> 51
Stock Options:
The Corporation had stock options outstanding under various plans
at December 31, 1994, including plans assumed in acquisitions. The
original Mercantile plans provide for the granting to employees of
the Corporation and its subsidiaries of options to purchase shares
of common stock of the Corporation over periods of up to 10 years at
a price not less than the market value of the shares at the date the
options are granted. The plans provide for the granting of options
which either qualify or do not qualify as Incentive Stock Options as
defined by Section 422 of the Internal Revenue Code of 1986, as
amended. A summary of the plans follows:
<TABLE>
<CAPTION>
SHARES PRICE
------ -----
<S> <C> <C>
AT DECEMBER 31, 1994
Available for grant 1,836,130
Outstanding 2,607,285 $5.41-38.88
Exercisable 1,323,272 5.41-34.33
</TABLE>
Changes in options outstanding were as follows:
<TABLE>
<CAPTION>
SHARES PRICE
------ -----
<S> <C> <C>
1,146,711 $11.19-$21.78
BALANCE AT DECEMBER 31, 1991
Granted 1,146,347 5.41- 29.00
Exercised (320,565) 5.41- 24.09
Canceled (60,582) 17.00- 26.33
Assumed 72,223 14.60- 25.83
---------
1,984,134 5.41- 29.00
BALANCE AT DECEMBER 31, 1992
Granted 580,419 18.01- 34.33
Exercised (261,225) 5.41- 26.33
Canceled (40,225) 17.17- 32.67
---------
2,263,103 5.41- 34.33
BALANCE AT DECEMBER 31, 1993
GRANTED 718,489 18.44- 38.88
EXERCISED (319,080) 5.41- 32.50
CANCELED (55,227) 12.50- 32.67
---------
BALANCE AT DECEMBER 31, 1994 2,607,285 5.41- 38.88
=========
</TABLE>
No amounts have been charged to expense in connection with any
plan.
Debt and Dividend Restrictions:
Consolidated retained earnings at December 31, 1994 were not
restricted under any debenture agreement as to payment of dividends
or reacquisition of common stock.
The primary source of funds for dividends paid by the Corporation
to its shareholders is dividends received from bank subsidiaries. At
December 31, 1994, approximately $326,911,000 of the equity of bank
subsidiaries was available for distribution as dividends to the
Parent Company without prior regulatory approval or without reducing
the capital of the respective subsidiary banks below present minimum
standards. An additional $93,310,000 would be available for loans to
the Parent Company under Federal Reserve regulations. The remaining
equity of bank subsidiaries approximating $668,846,000 was
restricted as to transfers to the Parent Company.
NOTE M
CONCENTRATIONS OF CREDIT
The Corporation's primary market area is the state of Missouri and
the lower Midwest. At December 31, 1994, approximately 92% of the
total loan portfolio, and 89% of the commercial and commercial real
estate loan portfolio, were to borrowers within this region. The
diversity of the region's economic base tends to provide a stable
lending environment.
Real estate lending constituted the only other significant
concentration of credit risk. Real estate-related financial
instruments (loans, commitments and standby letters of credit)
comprised 33% of all such instruments of the Corporation. However,
of this total, approximately 64% was consumer-related in the form of
residential real estate mortgages and home equity lines of credit.
The Corporation is, in general, a secured lender. At December 31,
1994, approximately 83% of the loan portfolio was secured.
Collateral is required in accordance with the normal credit
evaluation process based upon the creditworthiness of the customer
and the credit risk associated with the particular transaction.
NOTE N
FINANCIAL INSTRUMENTS
Fair Values:
Fair values for financial instruments are management's estimates of
the values at which the instruments could be exchanged in a
transaction between willing parties. These estimates are subjective
and may vary significantly from amounts that would be realized in
actual transactions. In addition, certain financial instruments and
all non-financial instruments are excluded from the fair value
disclosure requirements of FAS 107. Therefore, the fair values
presented below should not be construed as the underlying value of
the Corporation.
The following methods and assumptions were used in estimating fair
values for financial instruments.
Cash and Due from Banks, Short-term Investments and Short-term
Borrowings: The carrying values reported in the Consolidated
Balance Sheet approximated fair values.
Investments in Debt and Equity Securities: Fair values for held-
to-maturity and available-for-sale securities were based upon
quoted market prices where available. Fair values for trading
securities, which also were the amounts reported in the
Consolidated Balance Sheet, were based on quoted market prices
where available. If quoted market prices were not available, fair
values were based upon quoted market prices of comparable
instruments.
59
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Loans and Leases: The fair values for most fixed-rate loans were
estimated by utilizing discounted cash flow analysis, applying
interest rates currently being offered for similar loans to
borrowers with similar risk profiles. The discount rates used
therefore include a credit risk premium. The fair values of
variable-rate loans and residential mortgages were estimated by
utilizing the same type of discounted cash flows, but over a range
of interest rate scenarios, in order to incorporate the value of
the options imbedded in these assets. Loans with similar
characteristics were aggregated for purposes of these
calculations. The fair value of credit card loans was assumed to
be the same as the par value. The fair value estimate of the
credit card portfolio does not include any value attributable to
the ongoing cardholder relationship. That component was estimated
to be approximately $150,000,000 to $185,000,000 in excess of the
fair value at December 31, 1994.
Deposits: The fair values disclosed for deposits generally payable
on demand (i.e., interest bearing and non-interest bearing demand,
savings, and money market accounts) were considered equal to their
respective carrying amounts as reported in the Consolidated
Balance Sheet. Fair values for certificates of deposit and foreign
deposits were estimated using a discounted cash flow calculation
that applied interest rates generally offered on similar
certificates to a schedule of aggregated expected monthly
maturities of time deposits. The fair value estimate of the
deposit portfolio has not been adjusted for any value derived from
the retention of those deposits for an expected future period of
time. That component, commonly referred to as core deposit
premium, was estimated to be approximately $165,000,000 to
$250,000,000 at December 31, 1994 and was neither considered in
the fair value amounts below nor recorded as an intangible asset
on the Consolidated Balance Sheet.
Bank Notes and Long-term Debt: The fair value of publicly traded
debt was based upon quoted market prices, where available, or upon
quoted market prices of comparable instruments. The fair values of
bank notes and long-term debt were estimated using discounted cash
flow analysis, based on the Corporation's current incremental
borrowing rates for similar types of borrowing arrangements.
Off-Balance-Sheet Instruments: Fair values of foreign exchange
contracts and interest rate contracts were determined from quoted
market prices. Fair values of commitments to extend credit,
standby letters of credit and commercial letters of credit were
based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standings.
The estimated fair values of the Corporation's financial
instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
--------------------- --------------------- ---------------------
(Thousands)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks and short-term
investments $ 796,007 $ 796,007 $1,037,173 $1,037,173 $ 971,508 $ 971,508
Trading securities 14,299 14,299 15,735 15,735 17,684 17,684
Held-to-maturity securities 2,750,244 2,669,460 2,970,160 3,020,591 3,294,169 3,366,147
Available-for-sale securities 269,232 269,232 415,283 415,283 89,424 92,096
Net loans and leases 7,943,905 8,014,823 7,213,123 7,467,333 7,333,646 7,605,933
FINANCIAL LIABILITIES
Deposits 9,053,859 9,050,634 9,602,083 9,658,117 9,927,959 10,007,100
Short-term borrowings 1,582,699 1,582,699 1,123,647 1,123,647 985,394 985,394
Bank notes and long-term debt 387,345 367,150 272,778 301,669 299,109 302,112
OFF-BALANCE-SHEET
Foreign exchange contracts purchased $ 6,641 $ 5,375 $(2,034)
Foreign exchange contracts sold (6,199) (6,890) 1,392
Interest rate contracts (184) (4,125) (5,300)
Commitments to extend credit (8,817) (11,950) (9,307)
Standby letters of credit (1,955) (2,247) (2,051)
Commercial letters of credit (3,988) (4,321) (4,774)
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
60
<PAGE> 53
Off-Balance-Sheet Risk:
The Corporation is, in the normal course of business, a party to
certain off-balance-sheet financial instruments with inherent credit
and/or market risk. These instruments, which include commitments to
extend credit, standby letters of credit, interest options written,
interest futures contracts and foreign exchange contracts, are used
by the Corporation to meet the financing needs of its customers and,
to a lesser degree, to reduce its own exposure to interest rate
fluctuations. These instruments involve, to varying degrees, credit
and market risk in excess of the amount recognized in the
Consolidated Balance Sheet.
Financial instruments with off-balance-sheet credit risk for which
the contract amounts represent potential credit risk were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Commitments to extend credit
Commercial $1,795,720 $1,589,036 $1,567,572
Consumer 3,799,589 2,988,382 2,585,768
---------- ---------- ----------
Total $5,595,309 $4,577,418 $4,153,340
========== ========== ==========
Standby letters of credit $201,585 $231,647 $212,179
======== ======== ========
Interest rate contracts $21,000 $37,500 $71,000
======= ======= =======
</TABLE>
The Corporation's maximum exposure to credit loss under commitments
to extend credit and standby letters of credit is the equivalent of
the contractual amount of those instruments. The same credit
policies are used by the Corporation in granting commitments and
conditional obligations as are used in the extension of credit.
Commitments to extend credit are legally binding agreements to lend
to a borrower as long as the borrower performs in accordance with
the terms of the contract. Commitments generally have fixed
expiration dates or other termination clauses, and may require
payment of a fee. As many of the commitments are expected to expire
without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. Included in consumer
commitments are the unused portions of lines of credit for credit
card and home equity credit line loans.
Standby letters of credit are commitments issued by the Corporation
to guarantee specific performance of a customer to a third party.
Collateral is required for both commitments and standby letters of
credit in accordance with the normal credit evaluation process based
upon the creditworthiness of the customer and the credit risk
associated with the particular transaction. Collateral held varies,
but may include commercial real estate, accounts receivable,
inventory or equipment.
Included in interest rate contracts are interest rate exchange
agreements with major investment banking firms to convert short-
term, variable-rate liabilities into long-term, fixed-rate
liabilities, to secure interest margins and to hedge against
interest rate movements.
Derivative Financial Instruments:
Held or Issued for Trading Purposes:
In the normal course of business, the Corporation maintains minimal
trading positions in a variety of derivative financial instruments.
Most of the Corporation's trading activities are customer oriented,
with trading positions established to meet the financing and foreign
exchange transaction needs of customers. This activity complements
the Corporation's traditional money and capital markets trading
business, which also exists to meet customers' demands.
Net revenue recognized on interest rate contracts and foreign
exchange contracts totaled $2,558,000 in 1994. For interest options
written, foreign exchange contracts purchased and foreign exchange
contracts sold, the notional amounts of $62,725,000, $184,079,000
and $173,378,000, respectively, at December 31, 1994, do not
represent exposure to credit loss. These commitments are generally
entered into on behalf of customers and result in the Corporation
being in a matched position. Credit risk in the transactions is
minimal. The Corporation manages the potential credit exposure
through established credit approvals, risk control limits and other
monitoring procedures. Market risk to the Corporation could result
from non-performance by a counterparty to a contract.
Held or Issued for Purposes Other Than Trading:
Of the commitments to extend credit discussed in the preceding
paragraphs, $74,966,000 and $35,289,000 were entered into with fixed
rates at December 31, 1994 for commercial and consumer (residential
mortgage) loan customers, respectively. Fixed-rate commitments to
extend credit are defined as fixed-rate commercial loan commitments
with remaining maturities greater than one year, fixed-rate
residential mortgage loan commitments, and adjustable-rate
residential mortgage loan commitments for loans with adjustment
periods greater than one year.
Fixed-rate mortgage loans held for resale are partially hedged with
contracts for forward delivery in the secondary mortgage market.
This hedging activity is designed to protect the Corporation from
changes in interest rates. Gains and losses from the hedging
transactions on mortgage loans held for resale are deferred and
included in the cost of the loans for determining the gain or loss
when the loans are sold. As of December 31, 1994, the Company had
$4,299,000 of forward delivery contracts outstanding.
61
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE O
CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal
proceedings pending against the Corporation and its subsidiaries.
Management, after consultation with legal counsel, is of the opinion
that the ultimate resolution of these proceedings will have no
material adverse effect on the consolidated financial condition or
results of operations of the Corporation.
NOTE P
PARENT COMPANY FINANCIAL INFORMATION
Following are the condensed financial statements of Mercantile
Bancorporation Inc. (Parent Company Only) for the periods indicated.
For the Statement of Cash Flows (Parent Company Only), cash and
short-term investments were considered cash equivalents. Interest
paid on commercial paper and long-term debt was $15,099,000,
$15,881,000 and $10,618,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
<TABLE>
STATEMENT OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
INCOME
Dividends from banking subsidiaries $104,950 $ 77,548 $44,077
Other interest and dividends 4,644 5,538 3,320
Management fees 13,879 13,392 12,320
Other 3,546 2,687 2,994
-------- -------- -------
Total Income 127,019 99,165 62,711
EXPENSE
Interest on commercial paper 1,199 733 416
Interest on long-term debt 12,607 15,157 12,497
Personnel expense 14,463 11,544 10,489
Other operating expenses 16,019 14,301 15,743
-------- -------- -------
Total Expense 44,288 41,735 39,145
INCOME BEFORE INCOME TAX CREDITS AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 82,731 57,430 23,566
Income tax credits 6,482 6,708 6,469
-------- -------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 89,213 64,138 30,035
Equity in undistributed income of subsidiaries 71,816 54,726 65,005
-------- -------- -------
NET INCOME $161,029 $118,864 $95,040
======== ======== =======
</TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
62
<PAGE> 55
<TABLE>
BALANCE SHEET
<CAPTION>
DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
ASSETS
Cash $ 11 $ 628 $ 175
Short-term investments 82,413 47,776 63,766
Available-for-sale securities 12,539 16,569 -
Marketable equity securities - - 13,121
Investment in subsidiaries 1,104,351 1,016,395 917,403
Goodwill 48,557 45,912 27,383
Loans and advances to subsidiaries 26,849 53,390 44,248
Other assets 3,849 7,865 12,265
---------- ---------- ----------
Total Assets $1,278,569 $1,188,535 $1,078,361
========== ========== ==========
LIABILITIES
Commercial paper $ 26,800 $ 18,390 $ 9,198
Long-term debt 158,822 194,072 196,717
Other liabilities 24,697 17,516 21,122
---------- ---------- ----------
Total Liabilities 210,319 229,978 227,037
SHAREHOLDERS' EQUITY 1,068,250 958,557 851,324
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $1,278,569 $1,188,535 $1,078,361
========== ========== ==========
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 161,029 $ 118,864 $ 95,040
Adjustments to reconcile net income
to net cash provided by operating
activities
Net income of subsidiaries (176,766) (132,274) (109,082)
Dividends from subsidiaries 98,666 62,430 44,077
Other, net 14,263 2,038 4,023
--------- --------- ---------
Net Cash Provided by
Operating Activities 97,192 51,058 34,058
INVESTING ACTIVITIES
Investments in debt and equity
securities
Purchases (948) (2,054) (1,858)
Proceeds from maturities 5,417 5,878 1,807
Contributions of capital to subsidiaries (21,505) (31,705) (31,209)
Investment in note from banking subsidiary - - (35,000)
Other, net 25,143 (9,280) (1,412)
--------- --------- ---------
Net Cash Provided (Used) by
Investing Activities 8,107 (37,161) (67,672)
FINANCING ACTIVITIES
Cash dividends paid by Mercantile Bancorporation Inc. (48,329) (34,840) (27,506)
Issuance of common stock
Employee incentive plans and warrants 2,923 2,203 3,904
Purchase of treasury stock (2,954) - -
Issuance of long-term debt - - 150,000
Principal payments on
long-term debt (30,552) (742) (60,207)
Acquisitions - (4,809) (8,347)
Net change in commercial paper 8,410 9,192 1,271
Other, net (777) (438) (4,305)
--------- --------- ---------
Net Cash Provided (Used) by
Financing Activities (71,279) (29,434) 54,810
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 34,020 (15,537) 21,196
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 48,404 63,941 42,745
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 82,424 $ 48,404 $ 63,941
========= ========= =========
</TABLE>
63
<PAGE> 56
<TABLE>
SIX YEAR CONSOLIDATED STATEMENT OF INCOME
($ in Thousands except per share data)
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $647,004 $621,986 $651,616
Investments in debt and equity securities
Trading 527 678 593
Taxable 164,746 183,233 194,932
Tax-exempt 13,189 13,289 12,319
-------- -------- --------
Total 178,462 197,200 207,844
Due from banks-interest bearing 1,857 2,609 5,900
Federal funds sold and repurchase agreements 7,683 8,135 8,087
-------- -------- --------
Total Interest Income 835,006 829,930 873,447
Tax-equivalent adjustment<F*> 9,114 9,574 9,570
-------- -------- --------
TAXABLE-EQUIVALENT INTEREST INCOME 844,120 839,504 883,017
INTEREST EXPENSE
Deposits 257,032 282,984 365,767
Borrowed funds 67,311 45,750 51,591
-------- -------- --------
Total Interest Expense 324,343 328,734 417,358
-------- -------- --------
TAXABLE-EQUIVALENT NET INTEREST INCOME 519,777 510,770 465,659
PROVISION FOR POSSIBLE LOAN LOSSES 33,472 61,013 74,579
OTHER INCOME
Trust 59,824 61,138 57,501
Service charges 57,593 58,511 55,399
Credit card fees 24,691 24,060 21,487
Investment banking 8,057 8,486 8,918
Securities gains 405 3,742 2,909
Other 37,726 43,221 37,730
-------- -------- --------
Total Other Income 188,296 199,158 183,944
OTHER EXPENSE
Salaries 176,957 171,970 158,390
Employee benefits 43,993 43,363 33,625
Net occupancy 26,319 27,628 24,511
Equipment 32,987 35,010 31,077
Other 132,113 166,938 170,465
-------- -------- --------
Total Other Expense 412,369 444,909 418,068
-------- -------- --------
TAXABLE-EQUIVALENT INCOME BEFORE
INCOME TAXES 262,232 204,006 156,956
INCOME TAXES
Income taxes (credits) 92,089 75,568 52,346
Tax-equivalent adjustment<F*> 9,114 9,574 9,570
-------- -------- --------
Adjusted Income Taxes 101,203 85,142 61,916
-------- -------- --------
NET INCOME $161,029 $118,864 $ 95,040
======== ======== ========
PER SHARE DATA
Net income $ 3.74 $ 2.80 $ 2.36
Dividends declared 1.12 .99 .93
Book value 24.72 22.40 20.25
<FN>
<F*>TAX-EQUIVALENT ADJUSTMENT
Loans $2,724 $2,795 $3,459
Investments in debt and equity securities 6,390 6,779 6,111
------ ------ ------
Total Tax-equivalent Adjustment $9,114 $9,574 $9,570
====== ====== ======
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
64
<PAGE> 57
<CAPTION>
1991 1990 1989
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $679,319 $696,687 $666,152
Investments in debt and equity securities
Trading 1,288 981 945
Taxable 164,628 154,178 139,911
Tax-exempt 10,315 12,145 12,989
-------- -------- --------
Total 176,231 167,304 153,845
Due from banks-interest bearing 11,075 8,621 6,379
Federal funds sold and repurchase agreements 12,846 9,536 10,070
-------- -------- --------
Total Interest Income 879,471 882,148 836,446
Tax-equivalent adjustment<F*> 8,512 11,376 14,500
-------- -------- --------
TAXABLE-EQUIVALENT INTEREST INCOME 887,983 893,524 850,946
INTEREST EXPENSE
Deposits 443,282 467,505 436,453
Borrowed funds 63,634 84,726 91,555
-------- -------- --------
Total Interest Expense 506,916 552,231 528,008
-------- -------- --------
TAXABLE-EQUIVALENT NET INTEREST INCOME 381,067 341,293 322,938
PROVISION FOR POSSIBLE LOAN LOSSES 58,076 50,886 104,708
OTHER INCOME
Trust 49,400 47,133 39,722
Service charges 47,504 39,464 35,064
Credit card fees 20,636 19,465 19,600
Investment banking 7,463 4,063 3,474
Securities gains 4,334 1,478 31,744
Other 26,359 25,753 20,434
-------- -------- --------
Total Other Income 155,696 137,356 150,038
OTHER EXPENSE
Salaries 140,877 133,445 127,428
Employee benefits 31,278 28,206 24,527
Net occupancy 20,965 20,020 19,130
Equipment 29,133 28,059 25,601
Other 161,095 109,157 138,580
-------- -------- --------
Total Other Expense 383,348 318,887 335,266
-------- -------- --------
TAXABLE-EQUIVALENT INCOME BEFORE
INCOME TAXES 95,339 108,876 33,002
INCOME TAXES
Income taxes (credits) 18,673 27,658 (1,804)
Tax-equivalent adjustment<F*> 8,512 11,376 14,500
-------- -------- --------
Adjusted Income Taxes 27,185 39,034 12,696
-------- -------- --------
NET INCOME $ 68,154 $ 69,842 $ 20,306
======== ======== ========
PER SHARE DATA
Net income $ 2.37 $ 2.18 $ .29
Dividends declared .93 .93 .93
Book value 18.86 17.14 15.86
<FN>
<F*>TAX-EQUIVALENT ADJUSTMENT
Loans $4,179 $ 6,136 $ 8,223
Investments in debt and equity securities 4,333 5,240 6,277
------ ------ ------
Total Tax-equivalent Adjustment $8,512 $11,376 $14,500
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
GROWTH RATES
--------------------------------
ONE YEAR FIVE YEARS
-------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases
Investments in debt and equity securities
Trading
Taxable
Tax-exempt
Total
Due from banks-interest bearing
Federal funds sold and repurchase agreements
Total Interest Income
Tax-equivalent adjustment<F*>
TAXABLE-EQUIVALENT INTEREST INCOME
INTEREST EXPENSE
Deposits
Borrowed funds
Total Interest Expense
TAXABLE-EQUIVALENT NET INTEREST INCOME 1.8% 10.0%
PROVISION FOR POSSIBLE LOAN LOSSES (45.1) (20.4)
OTHER INCOME
Trust (2.1) 8.5
Service charges (1.6) 10.4
Credit card fees 2.6 4.7
Investment banking (5.1) 18.3
Securities gains (89.2) (58.2)
Other (12.7) 13.0
Total Other Income (5.5) 4.6
OTHER EXPENSE
Salaries 2.9 6.8
Employee benefits 1.5 12.4
Net occupancy (4.7) 6.6
Equipment (5.8) 5.2
Other (20.9) (1.0)
Total Other Expense (7.3) 4.2
TAXABLE-EQUIVALENT INCOME BEFORE
INCOME TAXES 28.5 51.4
INCOME TAXES
Income taxes (credits) 21.9 -
Tax-equivalent adjustment<F*> (4.8) (8.9)
Adjusted Income Taxes 18.9 51.5
NET INCOME 35.5 51.3
PER SHARE DATA
Net income 33.6 66.8
Dividends declared 13.1 3.8
Book value 10.4 9.3
<FN>
<F*>TAX-EQUIVALENT ADJUSTMENT
Loans (2.5) (19.8)
Investments in debt and equity securities (5.7) .4
Total Tax-equivalent Adjustment (4.8) (8.9)
</TABLE>
65
<PAGE> 58
<TABLE>
SIX YEAR CONSOLIDATED AVERAGE BALANCE SHEET
($ in Thousands)
<CAPTION>
1994 1993 1992
---------------------- --------------------- ---------------------
VOLUME RATE<F*> VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 2,076,486 7.23% $ 2,008,674 6.54% $ 2,051,614 6.99%
Real estate-commercial 1,260,198 8.18 1,300,835 8.00 1,315,342 8.25
Real estate-construction 173,170 8.39 155,692 7.28 167,123 7.76
Real estate-residential 2,332,233 7.55 2,346,937 7.90 2,464,935 8.72
Consumer 1,028,692 8.33 934,327 9.01 921,234 9.77
Credit card 751,047 16.01 665,318 16.27 521,343 16.31
Foreign 299 6.69 1,027 6.72 2,389 6.91
----------- ----------- -----------
Total Loans and Leases 7,622,125 8.52 7,412,810 8.43 7,443,980 8.80
Investments in debt and equity securities
Trading 10,947 5.12 14,008 5.32 11,510 5.75
Taxable 3,021,178 5.46 3,143,876 5.84 2,786,173 7.01
Tax-exempt 240,065 8.06 233,922 8.41 191,414 9.40
----------- ----------- -----------
Total 3,272,190 5.65 3,391,806 6.01 2,989,097 7.16
Short-term investments
Federal funds sold and repurchase agreements 182,311 4.21 245,606 3.31 200,213 4.04
Due from banks-interest bearing 44,014 4.22 73,615 3.54 117,212 5.03
----------- ----------- -----------
Total Short-term Investments 226,325 4.22 319,221 3.37 317,425 4.41
----------- ----------- -----------
Total Earning Assets 11,120,640 7.59 11,123,837 7.55 10,750,502 8.21
Non-earning Assets
Cash and due from banks 705,178 721,508 659,594
Bank premises and equipment 201,258 200,338 186,334
Due from customers on acceptances 9,080 10,939 9,608
Other assets 274,669 320,119 369,267
Reserve for possible loan losses (171,911) (161,227) (159,446)
----------- ----------- -----------
Total Assets $12,138,914 $12,215,514 $11,815,859
=========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 1,836,742 $ 1,933,794 $ 1,639,044
Interest bearing demand 1,563,946 1.87 1,507,171 2.11 1,283,485 2.95
Money market accounts 1,616,863 2.92 1,642,599 2.76 1,533,129 3.41
Savings 904,218 2.32 864,939 2.57 736,693 3.35
Consumer time certificates under $100,000 3,066,731 4.36 3,481,213 4.66 3,878,024 5.68
Other time 33,952 3.18 81,819 2.75 106,540 3.88
----------- ----------- -----------
Total Core Deposits 9,022,452 3.23 9,511,535 3.48 9,176,915 4.50
Time certificates $100,000 and over 458,740 4.22 459,935 3.88 549,512 4.66
Foreign 108,986 4.95 31,093 4.38 23,433 3.72
----------- ----------- -----------
Total Purchased Deposits 567,726 4.36 491,028 3.91 572,945 4.62
----------- ----------- -----------
Total Deposits 9,590,178 3.32 10,002,563 3.51 9,749,860 4.51
Short-term borrowings 1,043,482 4.24 817,989 2.90 821,028 3.70
Bank notes 12,603 6.19 - - - -
Long-term debt 292,056 7.62 274,718 8.02 237,011 8.95
----------- ----------- -----------
Total Acquired Funds 10,938,319 3.57 11,095,270 3.59 10,807,899 4.55
Other Liabilities
Bank acceptances outstanding 9,080 10,939 9,608
Other liabilities 173,725 194,970 202,820
----------- ----------- -----------
Total Liabilities 11,121,124 11,301,179 11,020,327
SHAREHOLDERS' EQUITY 1,017,790 914,335 795,532
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $12,138,914 $12,215,514 $11,815,859
=========== =========== ===========
<FN>
<F*> Taxable-equivalent basis.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
66
<PAGE> 59
<CAPTION>
1991 1990 1989
---------------------- --------------------- ---------------------
VOLUME RATE<F*> VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 1,972,117 8.73% $1,974,283 10.45% $2,061,611 11.12%
Real estate-commercial 1,157,604 9.67 938,630 10.24 741,141 10.34
Real estate-construction 150,920 9.41 199,347 10.67 306,111 10.92
Real estate-residential 2,190,296 10.08 1,990,631 10.50 1,729,018 11.07
Consumer 888,526 10.74 963,975 11.07 801,878 11.37
Credit card 427,809 16.06 418,528 15.14 349,173 14.62
Foreign 2,136 9.46 59 10.17 11,088 13.28
----------- ----------- -----------
Total Loans and Leases 6,789,408 10.07 6,485,453 10.84 6,000,020 11.24
Investments in debt and equity securities
Trading 19,041 6.95 12,528 8.22 11,621 8.34
Taxable 1,909,620 8.64 1,699,301 9.10 1,506,331 9.31
Tax-exempt 143,756 9.90 176,355 9.61 194,317 9.70
----------- ----------- -----------
Total 2,072,417 8.71 1,888,184 9.14 1,712,269 9.35
Short-term investments
Federal funds sold and repurchase agreements 222,333 5.78 124,407 7.67 106,494 9.46
Due from banks-interest bearing 158,721 6.98 99,591 8.66 72,168 8.84
----------- ----------- -----------
Total Short-term Investments 381,054 6.28 223,998 8.11 178,662 9.21
----------- ----------- -----------
Total Earning Assets 9,242,879 9.61 8,597,635 10.39 7,890,951 10.78
Non-earning Assets
Cash and due from banks 564,550 633,588 626,800
Bank premises and equipment 159,073 161,673 161,327
Due from customers on acceptances 12,759 10,544 7,288
Other assets 364,493 296,209 319,212
Reserve for possible loan losses (147,972) (153,661) (119,840)
----------- ----------- -----------
Total Assets $10,195,782 $9,545,988 $8,885,738
=========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 1,283,222 $1,283,795 $1,258,647
Interest bearing demand 926,023 4.53 839,688 4.98 788,996 5.20
Money market accounts 1,155,414 5.27 1,030,315 6.23 861,288 6.56
Savings 529,452 4.77 479,276 5.07 471,854 5.21
Consumer time certificates under $100,000 3,781,945 7.23 3,368,866 8.14 2,964,177 8.25
Other time 78,376 4.80 85,938 6.11 75,118 6.31
----------- ----------- -----------
Total Core Deposits 7,754,432 6.26 7,087,878 7.06 6,420,080 7.19
Time certificates $100,000 and over 600,830 6.02 666,506 8.11 730,055 8.52
Foreign 30,986 6.14 47,427 8.09 33,446 8.76
----------- ----------- -----------
Total Purchased Deposits 631,816 6.02 713,933 8.11 763,501 8.53
----------- ----------- -----------
Total Deposits 8,386,248 6.24 7,801,811 7.17 7,183,581 7.37
Short-term borrowings 760,626 5.56 768,870 7.46 770,554 8.37
Bank notes - - - - - -
Long-term debt 225,852 9.44 252,899 10.84 244,380 11.06
----------- ----------- -----------
Total Acquired Funds 9,372,726 6.27 8,823,580 7.32 8,198,515 7.61
Other Liabilities
Bank acceptances outstanding 12,759 10,544 7,288
Other liabilities 162,499 153,793 147,548
----------- ----------- -----------
Total Liabilities 9,547,984 8,987,917 8,353,351
SHAREHOLDERS' EQUITY 647,798 558,071 532,387
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $10,195,782 $9,545,988 $8,885,738
=========== =========== ===========
<FN>
<F*> Taxable-equivalent basis.
</TABLE>
<TABLE>
<CAPTION>
GROWTH RATES
-----------------------
ONE YEAR FIVE YEARS
-------- ----------
<S> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial 3.4 % .1 %
Real estate-commercial (3.1) 11.2
Real estate-construction 11.2 (10.8)
Real estate-residential (.6) 6.2
Consumer 10.1 5.1
Credit card 12.9 16.6
Foreign (70.9) (51.5)
Total Loans and Leases 2.8 4.9
Investments in debt and equity securities
Trading (21.9) (1.2)
Taxable (3.9) 14.9
Tax-exempt 2.6 4.3
Total (3.5) 13.8
Short-term investments
Federal funds sold and repurchase agreements (25.8) 11.4
Due from banks-interest bearing (40.2) (9.4)
Total Short-term Investments (29.1) 4.8
Total Earning Assets - 7.1
Non-earning Assets
Cash and due from banks (2.3) 2.4
Bank premises and equipment .5 4.5
Due from customers on acceptances (17.0) 4.5
Other assets (14.2) (3.0)
Reserve for possible loan losses 6.6 7.5
Total Assets (.6) 6.4
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing (5.0) 7.9
Interest bearing demand 3.8 14.7
Money market accounts (1.6) 13.4
Savings 4.5 13.9
Consumer time certificates under $100,000 (11.9) .7
Other time (58.5) (14.7)
Total Core Deposits (5.1) 7.0
Time certificates $100,000 and over (.3) (8.9)
Foreign - 26.7
Total Purchased Deposits 15.6 (5.8)
Total Deposits (4.1) 5.9
Short-term borrowings 27.6 6.3
Bank notes - -
Long-term debt 6.3 3.6
Total Acquired Funds (1.4) 5.9
Other Liabilities
Bank acceptances outstanding (17.0) 4.5
Other liabilities (10.9) 3.3
Total Liabilities (1.6) 5.9
SHAREHOLDERS' EQUITY 11.3 13.8
Total Liabilities and Shareholders' Equity (.6) 6.4
<FN>
<F*> Taxable-equivalent basis.
</TABLE>
67
<PAGE> 60
INVESTOR INFORMATION
[COMMON STOCK PRICE RANGE GRAPH]
NEW YORK STOCK EXCHANGE: MTL<F*>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION
<CAPTION>
1994 1993 1992
----------------------------- ---------------------------- ----------------------------
MARKET PRICE MARKET PRICE MARKET PRICE
-------------- DIVIDEND -------------- DIVIDEND -------------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $34 1/8 $29 7/8 $ .28 $35 5/8 $30 5/8 $.24 3/4 $27 3/8 $23 1/8 $.23 1/4
2nd Quarter 38 1/8 31 1/8 .28 37 5/8 29 3/8 .24 3/4 29 1/2 25 5/8 .23 1/4
3rd Quarter 39 1/4 34 7/8 .28 34 3/8 31 5/8 .24 3/4 29 3/8 25 3/8 .23 1/4
4th Quarter 36 7/8 29 1/2 .28 34 5/8 29 1/8 .24 3/4 32 1/8 25 7/8 .23 1/4
----- -------- --------
$1.12 $.99 $.93
===== ===== =====
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA
<CAPTION>
DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <S> <C> <C> <C>
Market Price $31 1/4 $30 1/8 $32 1/8 Average Shares
Dividend Yield 3.58% 3.29% 2.89% Outstanding 43,091,152 42,439,298 39,492,237
Price Earnings Ratio 8.36X 10.76x 13.61x Year-end Shares
Book Value $24.72 $22.40 $20.25 Outstanding 43,207,524 42,802,322 42,031,973
Market Price to Shareholders of Record 13,585 13,778 14,469
Book Value 126.42% 134.49% 158.64% Average Daily Volume 52,926 68,561 95,147
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
DEBT RATINGS
<CAPTION>
THOMSON STANDARD
MOODY'S FITCH BANKWATCH & POOR'S
------- ----- --------- --------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer Rating B
Commercial Paper P-2 TBW-1 A-2
Subordinated Debt
7.625% Subordinated Notes, due 2002 Baa1 BBB + BBB
MERCANTILE BANK OF ST. LOUIS N.A.
Bank Notes, due 1996 A1/P-1 A
6.375% Subordinated Notes, due 2004 A3 A- A- BBB +
9.000% Mortgage-backed Notes, due 1999 AAA
Certificates of Deposit TBW-1 A-/A-2
Letters of Credit TBW-1 A-/A-2
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDEND INFORMATION
Dividends are normally paid the first business day of January, April,
July and October.
If you wish to participate in or want further information concerning
the Dividend Reinvestment Plan or Dividend Direct Deposit, please
contact KeyCorp Shareholder Services, Inc., One Mercantile Center,
Suite 2120, St. Louis, MO 63101-1673, telephone 314-241-4002.
ANNUAL MEETING
The Annual Meeting of Shareholders will be at 10:00 a.m., Thursday,
April 27, 1995, at the Cervantes Convention Center at America's
Center, 801 Convention Plaza, St. Louis, MO 63101, Lecture Hall. A
notice of the annual meeting and proxy materials will be
mailed under separate cover to shareholders.
INVESTOR RELATIONS AND FORM 10-K
Analysts, investors and others seeking financial data about
Mercantile are invited to contact Ralph W. Babb, Jr., Vice Chairman,
Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, MO
63166-0524.
A copy of the Corporation's Form 10-K (Annual Report) filed with the
Securities and Exchange Commission may be obtained without charge
upon written request.
[FN]
<F*> Generally appears as MercBcpMO or MercBc in newspaper stock tables.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
68
<PAGE> 61
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
RICHARD P. CONERLY<F1>,<F3>
Retired Chairman
Orion Capital Inc.
HARRY M. CORNELL, JR.<F2>,<F4>
Chairman and
Chief Executive Officer
Leggett & Platt, Inc.
EARL K. DILLE<F3>,<F5>,<F6>
Retired President
Union Electric Company
J. CLIFF EASON<F1>
President, Network Services
Southwestern Bell Telephone Company
BERNARD A. EDISON<F2>,<F3>
Director Emeritus
Edison Brothers Stores, Inc.
WILLIAM A. HALL<F1>
Assistant to the Chairman
Hallmark Cards, Inc.
THOMAS A. HAYS<F2>,<F3>,<F4>
Deputy Chairman
The May Department Stores Company
WILLIAM G. HECKMAN<F3>,<F6>
Chairman Emeritus
Arch Mineral Corporation
THOMAS H. JACOBSEN<F3>,<F4>
Chairman and
Chief Executive Officer
Mercantile Bancorporation Inc.
JAMES B. MALLOY<F2>,<F6>
Chairman and
Chief Executive Officer
Smurfit Packaging Corporation
CHARLES H. PRICE II<F6>
Chairman
Mercantile Bank of Kansas City
HARVEY SALIGMAN<F2>
Managing Partner
Cynwyd Investments
CRAIG D. SCHNUCK<F5>
Chairman and
Chief Executive Officer
Schnuck Markets, Inc.
ROBERT W. STALEY<F6>
Vice Chairman
Emerson Electric Company
ROBERT L. STARK<F6>
Dean
University of Kansas Regents Center
PATRICK T. STOKES<F1>
President
Anheuser-Busch, Inc.
FRANCIS A. STROBLE<F1>
Retired Chief
Financial Officer
Monsanto Company
JOSEPH G. WERNER<F5>
President
Werner Investments
JOHN A. WRIGHT<F1>
President and
Chief Executive Officer
Big River Minerals Corporation
[FN]
<F1>Member of Audit Committee
<F2>Member of Compensation and
Management Development Committee
<F3>Member of Executive Committee
<F4>Member of Nominating and Board
Affairs Committee
<F5>Member of Community Relations Committee
<F6>Member of Credit Policy Committee
-----------------------------------------------------------------------
EXECUTIVE OFFICERS
THOMAS H. JACOBSEN
Chairman and
Chief Executive Officer
RALPH W. BABB, JR.
Vice Chairman
W. RANDOLPH ADAMS
Senior Executive Vice President
and Chief Financial Officer
JOHN Q. ARNOLD
Senior Executive Vice President
and Chief Credit Officer
JOHN H. BEIRISE
President and Chief
Institutional Banking Officer
Mercantile Bank of St. Louis N.A.
RICHARD H. GOLDBERG
Executive Vice President
Operations
MICHAEL J. GORMAN
Chairman
Mercantile Bank of St. Louis N.A.
RICHARD C. KING
President and
Chief Executive Officer
Mercantile Bank of Kansas City
JOHN W. MCCLURE
Senior Executive Vice President
Community Banking
JON P. PIERCE
Executive Vice President
Human Resources
JON W. BILSTROM
General Counsel and
Secretary
PATRICK STRICKLER
Executive Vice President
Public Affairs
ARTHUR G. HEISE
Senior Vice President
and Auditor
MICHAEL T. NORMILE
Senior Vice President
Finance and Control
KENNETH E. SCHUTTE
Senior Vice President
and Treasurer
MERCANTILE BANCORPORATION INC.
69
<PAGE> 62
APPENDIX
1. There is a vertical bar graph titled "Net Interest Rate Margin" on page
18 of the printed Annual Report. The graph plots fiscal quarters from
the first quarter of 1993 through the fourth quarter of 1994 on the
x-axis; the y-axis plots the net interest rate margin as a percentage.
This graph indicates the net interest rate margin for each quarter from
the first quarter of 1993 through the fourth quarter of 1994 at the
top of the bar. These figures correspond to the net interest rate
margin listed in Exhibit 36, "Quarterly Financial Summary," which
is on page 41 of the printed Annual Report.
2. There is a vertical bar graph titled "Taxable-Equivalent Net Interest
Income" on page 19 of the printed Annual Report. The graph plots fiscal
quarters from the first quarter of 1993 through the fourth quarter
of 1994 on the x-axis; the y-axis plots taxable-equivalent net
interest income in millions of dollars. This graph indicates
taxable-equivalent net interest income from the first quarter of
1993 through the fourth quarter of 1994 at the top of the bar.
These figures correspond to taxable-equivalent net interest income
listed on Exhibit 36, "Quarter Financial Summary," which is on page
41 of the printed Annual Report.
3. There is a vertical stacked bar graph titled "Sources of Funds" on page
23 of the printed Annual Report. The graph plots fiscal years from 1990
through 1994 on the x-axis and average dollars in billions on the
y-axis. The "Sources of Funds" graph is a multi-color bar graph which
stacks the average dollar balance in billions of: 1) core deposits; 2)
purchased funds, which represents purchased deposits plus short-term
borrowings; 3) long-term debt plus other liabilities; and 4) share-
holders' equity for each year from 1989 through 1993. The top of each
bar represents the sum of one through four as described in the previous
sentence. These figures correspond to average balances provided on the
"Six Year Consolidated Average Balance Sheet," which is on pages 66 and
67 of the printed Annual Report.
4. There is a vertical stacked bar graph titled "Core Deposits" on page 24
of the printed Annual Report. The graph plots fiscal years 1990 through
1994 on the x-axis and average dollars in billions on the y-axis. The
"Core Deposits" graph is a multi-color bar graph that stacks the
average dollar balance in billions of: 1) non-interest bearing
deposits; 2) interest bearing demand, money market accounts and savings
deposits; 3) consumer time certificates under $100,000 and other time
deposits for each year from 1990 through 1994. The top of each bar
represents the sum of one through three as described in the previous
sentence. These figures correspond to average balances provided on the
"Six Year Consolidated Average Balance Sheet," which is on pages 66 and
67 of the printed Annual Report.
<PAGE> 63
5. There is a vertical stacked bar graph titled "Earning Assets" on page
27 of the printed Annual Report. The graph plots fiscal years 1990
through 1994 on the x-axis and average dollars in billions on the
y-axis. The "Earning Assets" graph is a multi-color bar graph which
stacks the average dollar balance in billions of: 1) loans and leases;
2) investments in debt and equity securities; and 3) short-term
investments for each year from 1990 through 1994. The top of each bar
represents the sum of one through three as described in the previous
sentence. These figures correspond to average balances provided on the
"Six Year Consolidated Average Balance Sheet," which is on pages 66 and
67 of the printed Annual Report.
6. There is a vertical stacked bar graph titled "Loans and Leases" on page
29 of the printed Annual Report. The graph plots fiscal years from 1990
through 1994 on the x-axis and average dollars in billions on the
y-axis. The "Loans and Leases" graph is a multi-color bar graph which
stacks the average dollar balance in billions of: 1) commercial; 2)
real estate - commercial; 3) real estate - construction; 4) real estate
- residential; 5) consumer; and 6) credit card for each year from
1990 through 1994. The top of each bar represents the sum of one
through seven as described in the previous sentence. These figures
correspond to average balances provided on the "Six Year
Consolidated Average Balance Sheet," which is on pages 66 and 67 of the
printed Annual Report.
7. There is a vertical bar graph titled "Non-performing Loan Coverage" on
page 32 of the printed Annual Report. The graph plots December 31 from
1990 through 1994 on the x-axis and the reserve for possible loan
losses as a percentage of non-performing loans on the y-axis. These
figures correspond to the reserve balance to non-performing loans
ratios listed on Exhibit 25, "Reserve for Possible Loan Losses," which
is on page 32 of the printed Annual Report.
8. There is a vertical stacked bar graph titled "Other Income" on page 36
of the printed Annual Report. The graph plots fiscal years from 1990
through 1994 on the x-axis and dollars in millions on the y-axis. The
"Other Income" graph is a multi-color bar graph which stacks: 1) trust
income; 2) service charges; 3) credit card fees; and 4) all other
income for each year from 1990 through 1994. The top of each bar
represents the sum of one through four as described in the previous
sentence. These figures correspond to income amounts reported on
the "Six Year Consolidated Statement of Income," which is on pages
64 and 65 of the printed Annual Report.
<PAGE> 64
9. There is a vertical stacked bar graph titled "Other Expense" on page 38
of the printed Annual Report. The graph plots fiscal years from 1990
through 1994 on the x-axis and dollars in millions on the y-axis. The
"Other Expense" graph is a multi-color bar graph which stacks: 1)
personnel; 2) occupancy and equipment; and 3) all other expenses for
each year from 1990 through 1994. The top of each bar represents the
sum of one through three as described in the previous sentence. These
figures correspond to income amounts reported on the "Six Year
Consolidated Statement of Income," which is on pages 64 and 65 of the
printed Annual Report.
10. There is a vertical bar graph titled "Common Stock Price Range" on
page 68 of the printed Annual Report. The graph plots fiscal years from
1990 through 1994 on the x-axis and dollars on the y-axis. The "Common
Stock Price Range" graph indicates five years of market price ranges
for each year from 1990 through 1994. Each bar indicates the dollar
range of the stock price for the year.
<PAGE> 1
EXHIBIT NO. 21
<TABLE>
MERCANTILE BANCORPORATION INC.
SUBSIDIARIES
AS OF MARCH 10, 1995
<CAPTION>
State or Other
Jurisdiction of
SUBSIDIARY Incorporation
---------- -------------
<S> <C>
Mercantile Bancorporation Incorporated of Illinois . . . . . .Missouri
Alton Downtown Parking, Inc. . . . . . . . . . . . . . . . .Illinois
Mercantile Bank of Illinois National Association . . . United States
Mercantile Bank of Illinois . . . . . . . . . . . . . . . .Illinois
Mercantile Bank of Centralia . . . . . . . . . . . . . United States
Mercantile Bank of Carlyle . . . . . . . . . . . . . . . . .Illinois
Mercantile Bank of Mt. Vernon. . . . . . . . . . . . . . . .Illinois
First Service Corporation. . . . . . . . . . . . . . . . . .Illinois
Ameribanc, Inc.. . . . . . . . . . . . . . . . . . . . . . . .Missouri
Mercantile Bank of St. Louis National Association. . . United States
Manley Investment Company . . . . . . . . . . . . . . . .Missouri
Mercantile Bank International . . . . . . . . . . . United States
Mercantile Business Credit, Inc.. . . . . . . . . . . . .Missouri
Mercantile Investment Services, Inc.. . . . . . . . . . .Missouri
Merc Mortgage Inc.. . . . . . . . . . . . . . . . . . . .Missouri
Mercantile Center Associates. . . . . . . . . . . . . . .Missouri
Mercantile Center Redevelopment Corporation . . . . . .Missouri
Mercantile Properties, Inc. . . . . . . . . . . . . . . .Missouri
Mississippi Valley Advisors Inc. . . . . . . . . . . . .Missouri
Sangamon Investment Company . . . . . . . . . . . . . . .Missouri
Metropolitan Savings Service Corporation. . . . . . . . .Missouri
Lending Express, L.P.. . . . . . . . . . . . . . . . .Missouri
Mississippi Valley Life Insurance Company. . . . . . . . . . Arizona
Mercantile Bank of Kansas City . . . . . . . . . . . . . . .Missouri
MBTC Services, Inc. . . . . . . . . . . . . . . . . . . . .Kansas
Mercantile Bank of St. Joseph. . . . . . . . . . . . . United States
Coffey Bancorporation, Inc. . . . . . . . . . . . . . . .Missouri
Mercantile Bank of Jefferson County. . . . . . . . . . . . .Missouri
Mercantile Trust Company, N.A. . . . . . . . . . . . . United States
Mercantile Bank of Boone County. . . . . . . . . . . . . . .Missouri
Mercantile Bank of Missouri Valley . . . . . . . . . . . . .Missouri
Mercantile Bank of Trenton . . . . . . . . . . . . . . United States
Mercantile Bank of North Central Missouri. . . . . . . . . .Missouri
Mercantile Bank of Northwest Missouri. . . . . . . . . . . .Missouri
Mercantile Bank of Franklin County . . . . . . . . . . . . .Missouri
Mercantile Bank of Pike County . . . . . . . . . . . . . . .Missouri
Mercantile Bank of Plattsburg. . . . . . . . . . . . . . . .Missouri
American Property and Casualty Co.. . . . . . . . . . . .Missouri
Mercantile Bank of Phelps County . . . . . . . . . . . . . .Missouri
Mercantile Bank of Lake of the Ozarks. . . . . . . . . . . .Missouri
American Insurors Company . . . . . . . . . . . . . . . .Missouri
United Savings Bank. . . . . . . . . . . . . . . . . . . . .Missouri
Southwest Realty Services Inc... . . . . . . . . . . . . .Missouri
United Southwest Service Agency, Inc.. . . . . . . . . . .Missouri
American Bancorporation Inc. . . . . . . . . . . . . . . . .Missouri
Ameribanc Data Services Corporation. . . . . . . . . . . . .Missouri
American Investment Center, Inc. . . . . . . . . . . . . . .Missouri
<PAGE> 2
Mercantile Acquisition Corporation of Kansas I . . . . . . . . .Kansas
MidAmerican Corporation. . . . . . . . . . . . . . . . . . . . .Kansas
Mercantile Bank of Topeka . . . . . . . . . . . . . . United States
Mercantile Bank of Lawrence . . . . . . . . . . . . . United States
Mercantile Bank of Kansas. . . . . . . . . . . . . . . . . . .Kansas
Kaw Valley Building Corporation, Inc. . . . . . . . . . . .Kansas
Kansas Trust Company. . . . . . . . . . . . . . . . . . . .Kansas
MidAmerican Insurance Agency Inc.. . . . . . . . . . . . . . .Kansas
MidAmerican Building Corporation . . . . . . . . . . . . . . .Kansas
Crown Bancshares II, Inc.. . . . . . . . . . . . . . . . . . . .Kansas
Mercantile Bank of Cape Girardeau. . . . . . . . . . . . . . .Missouri
Mercantile Bank of Doniphan . . . . . . . . . . . . . . United States
Mercantile Bank of Flora . . . . . . . . . . . . . . . . United States
Mercantile Bank of Joplin . . . . . . . . . . . . . . . United States
Mercantile Bank of Memphis . . . . . . . . . . . . . . . . . .Missouri
Mercantile Bank of the Mineral Area. . . . . . . . . . . . . .Missouri
Mercantile Bank of Monett . . . . . . . . . . . . . . . United States
Mercantile Bank of East Central Missouri . . . . . . . . United States
Mercantile Bank of Perryville. . . . . . . . . . . . . . . . .Missouri
Mercantile Bank of Poplar Bluff. . . . . . . . . . . . . . . .Missouri
Mercantile Bank of Ste. Genevieve. . . . . . . . . . . . . . .Missouri
Mercantile Bank of West Central Missouri . . . . . . . . . . .Missouri
Mercantile Bank of Sikeston. . . . . . . . . . . . . . . . . .Missouri
Mercantile Bank of Stoddard/Bollinger Counties . . . . . United States
Mercantile Bank of Willow Springs. . . . . . . . . . . . . . .Missouri
Mercantile Bank of Wright County . . . . . . . . . . . . . . .Missouri
Mercantile Bank of Springfield . . . . . . . . . . . . . . . .Missouri
So-Mo Investments. . . . . . . . . . . . . . . . . . . . . .Missouri
Mercantile Insurance Services, Inc.. . . . . . . . . . . . . .Missouri
Franklin Finance Company . . . . . . . . . . . . . . . . . . .Delaware
Convenience Financial Services Inc.. . . . . . . . . . . . . .Missouri
Mercantile Card Services Inc.. . . . . . . . . . . . . . . . .Missouri
Mercantile Bancorporation Inc. of Iowa . . . . . . . . . . . . . .Iowa
Mercantile Bank of Northern Iowa . . . . . . . . . . . . . . . .Iowa
</TABLE>
<PAGE> 1
EXHIBIT NO. 23
Independent Auditors' Consent
-----------------------------
The Board of Directors
Mercantile Bancorporation Inc.:
We consent to the incorporation by reference in the Registration
Statements No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139,
No. 33-43694, and No. 33-57543, each on Form S-8, and No. 33-
45863, No. 33-50981, No. 33-52986, No. 33-50579, No. 33-55779,
No. 33-57489 and No. 33-56603 each on Form S-4, of Mercantile
Bancorporation Inc., of our report dated January 12, 1995,
relating to the consolidated balance sheets of Mercantile
Bancorporation Inc. and subsidiaries as of December 31, 1994,
1993, and 1992, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1994,
which report appears in the December 31, 1994 Annual Report on
Form 10-K of Mercantile Bancorporation Inc.
s/KPMG Peat Marwick LLP
-----------------------
St. Louis, Missouri
March 30, 1995
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 683,259
<INT-BEARING-DEPOSITS> 234
<FED-FUNDS-SOLD> 112,514
<TRADING-ASSETS> 14,299
<INVESTMENTS-HELD-FOR-SALE> 269,232
<INVESTMENTS-CARRYING> 2,750,244
<INVESTMENTS-MARKET> 2,669,460
<LOANS> 8,114,845
<ALLOWANCE> 170,940
<TOTAL-ASSETS> 12,241,794
<DEPOSITS> 9,053,859
<SHORT-TERM> 1,582,699
<LIABILITIES-OTHER> 149,641
<LONG-TERM> 287,345
0
0
<COMMON> 213,552
<OTHER-SE> 854,698
<TOTAL-LIABILITIES-AND-EQUITY> 12,241,794
<INTEREST-LOAN> 647,004
<INTEREST-INVEST> 178,462
<INTEREST-OTHER> 9,540
<INTEREST-TOTAL> 835,006
<INTEREST-DEPOSIT> 257,032
<INTEREST-EXPENSE> 324,343
<INTEREST-INCOME-NET> 510,663
<LOAN-LOSSES> 33,472
<SECURITIES-GAINS> 405
<EXPENSE-OTHER> 412,369
<INCOME-PRETAX> 253,118
<INCOME-PRE-EXTRAORDINARY> 253,118
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,029
<EPS-PRIMARY> 3.74
<EPS-DILUTED> 3.74
<YIELD-ACTUAL> 4.67
<LOANS-NON> 22,641
<LOANS-PAST> 18,160
<LOANS-TROUBLED> 2,662
<LOANS-PROBLEM> 24,502
<ALLOWANCE-OPEN> 168,651
<CHARGE-OFFS> 61,567
<RECOVERIES> 30,384
<ALLOWANCE-CLOSE> 170,940
<ALLOWANCE-DOMESTIC> 103,970
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 66,970
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