<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1995
Registration No. 33-63925
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
MISSOURI 6712 43-0951744
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------------
JOHN Q. ARNOLD
Chief Financial Officer
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Name, address, including ZIP code, and telephone number, including area
code, of agent for service)
-------------------------
Copy to:
JON W. BILSTROM, ESQ. ROBERT M. LaROSE, ESQ. RICHARD N. MASSEY, ESQ.
General Counsel and Thompson & Mitchell Rose Law Firm
Secretary One Mercantile Center 120 East Fourth Street
Mercantile Bancorporation St. Louis, Missouri Little Rock, Arkansas
Inc. 63101 72201
St. Louis, Missouri (314) 231-7676 (501) 375-9131
63166-0524
(314) 425-2525
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit aggregate offering price <F2> registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $5.00 par value <F1> 322,000 N/A $8,671,080.00 $2,990.05<F3>
shares
====================================================================================================================================
<FN>
<F1> Includes one attached Preferred Share Purchase Right per share.
<F2> Estimated solely for purposes of computing the Registration Fee pursuant to the provisions of Rule 457(f), and based
upon the $8,598,362 aggregate book value of 10,324 shares of Common Stock, $100.00 par value, of Security Bank of
Conway, F.S.B. as of September 30, 1995.
<F3> Paid with original filing on November 2, 1995.
</TABLE>
-------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE> 2
MERCANTILE BANCORPORATION INC.
<TABLE>
CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(b)
OF REGULATION S-K SHOWING HEADING OR LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-4
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
A. Information about the Transaction
1. Forepart of Registration Statement and Facing Page; Cross Reference Sheet; Outside
Outside Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Incorporation of
Pages of Prospectus Certain Information by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary Information; Pro Forma Financial
Charges and Other Information Information
4. Terms of the Transaction Summary Information; Incorporation of
Certain Information by Reference; Terms of
the Proposed Reorganization; Certain Federal
Income Tax Consequences of the
Reorganization; Information Regarding MBI
Common Stock
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contacts with the Company Summary Information; Terms of the
Being Acquired Proposed Reorganization
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel Legal Matters
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
- i -
<PAGE> 3
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
B. Information About the Registrant
10. Information with Respect to S-3 Incorporation of Certain Information by
Registrants Reference; Summary Information;
Information Regarding MBI Common Stock
11. Incorporation of Certain Information Incorporation of Certain Information by
by Reference Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Registrants Not Applicable
Other Than S-2 or S-3 Registrants
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies Summary Information; Information
Other Than S-2 or S-3 Companies Regarding Security Bank
D. Voting and Management Information
18. Information if Proxies, Consents or Information Regarding Special Meeting;
Authorizations are to be Solicited Incorporation of Certain Information by
Reference; Rights of Dissenting Shareholders
of Security Bank; Information Regarding
Security Bank
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited
in an Exchange Offer
</TABLE>
- ii -
<PAGE> 4
[SECURITY BANK OF CONWAY, F.S.B.]
December 29, 1995
Dear Fellow Shareholder:
The Board of Directors cordially invites you to attend a
Special Meeting of Shareholders of Security Bank of Conway, F.S.B.
("Security Bank") to be held at 4:30 p.m. Central Time, on Wednesday,
January 31, 1996, at Security Bank, 1122 Van Ronkle, Conway,
Arkansas (the "Special Meeting"). At this important meeting, you
will be asked to consider and vote upon:
1. A proposal to approve the Amended and Restated
Agreement and Plan of Reorganization dated as of July 7, 1995, as
amended and restated as of September 18, 1995 (the "Reorganization
Agreement"), which provides for (i) the sale by Security Bank of
all of its assets and the assignment by Security Bank of all of its
liabilities to Mercantile Bancorporation Inc. of Arkansas ("MBIA"),
a wholly owned subsidiary of Mercantile Bancorporation Inc.
("MBI"), in exchange for shares (collectively, the "Shares") of MBI
common stock, (ii) the transfer by MBI (on behalf of MBIA) of the
Shares to a qualified exchange agent (the "Exchange Agent"), on
behalf of Security Bank, and (iii) upon consummation of (i) and
(ii) above, (A) and upon the surrender by each Security Bank
shareholder of his or her certificate(s) representing shares of
Security Bank common stock, the distribution by the Exchange Agent
of 31.189 shares of MBI common stock for each share of Security
Bank common stock represented by a surrendered certificate, on
behalf of Security Bank, as a liquidating distribution, and (B) the
surrender by Security Bank of its charter to the Office of Thrift
Supervision ((i) and (ii) are hereinafter referred to collectively
as the "Purchase and Assumption"). Pursuant to the terms of the
Reorganization Agreement, by way of those certain Assignment
Agreements dated as of September 25, 1995, by and between (i) MBIA
and The Twin City Bank, an Arkansas state-chartered bank and wholly
owned subsidiary of MBIA ("TCB"), and (ii) MBIA and First National
Bank of Conway County, a national banking association and wholly
owned subsidiary of MBIA ("FNBCC") (effective October 2, 1995 FNBCC
changed its name to Mercantile Bank of Conway County National
Association ("MBCC")), MBIA has assigned its right to receive the
assets and its obligation to assume the liabilities of Security
Bank to TCB and MBCC, respectively.
2. A proposal to approve the dissolution of Security
Bank upon consummation of the Purchase and Assumption.
I have enclosed the following items relating to the
Special Meeting and the proposed transactions:
1. Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Security Bank
for the proxy card.
The Proxy Statement/Prospectus and related proxy materials set
forth, or incorporate by reference, financial data and other
important information relating to Security Bank and MBI and
describe the terms and conditions of the proposed transaction. The
Board of Directors requests that you carefully review these
materials before completing the enclosed proxy card or attending
the Special Meeting.
THE BOARD OF DIRECTORS OF SECURITY BANK CAREFULLY
CONSIDERED AND APPROVED THE TERMS OF THE REORGANIZATION AGREEMENT
AND THE DISSOLUTION AS BEING IN THE BEST INTEREST OF SECURITY BANK
AND ITS SHAREHOLDERS. THE SECURITY BANK BOARD UNANIMOUSLY
RECOMMENDS THAT
<PAGE> 5
SHAREHOLDERS VOTE FOR THE PROPOSALS TO APPROVE THE REORGANIZATION AGREEMENT
---
AND THE DISSOLUTION.
APPROVAL BY THE SECURITY BANK SHAREHOLDERS OF THE
REORGANIZATION AGREEMENT AND THE DISSOLUTION OF SECURITY BANK IS A
CONDITION TO THE CONSUMMATION OF THE PROPOSED TRANSACTION.
Accordingly, it is important that your shares be represented at the
Special Meeting, whether or not you plan to attend the Special
Meeting in person. Please complete, date and sign the enclosed
proxy card, and return it to Security Bank in the enclosed pre-
addressed envelope, which requires no postage if mailed within the
United States. If you later decide to attend the Special Meeting
and vote in person, or if you wish to revoke your proxy for any
reason prior to the vote at the Special Meeting, you may do so and
your proxy will have no further effect. You may revoke your proxy
by delivering to the Secretary of Security Bank a written notice of
revocation or another proxy relating to the same shares bearing a
later date than the proxy being revoked or by attending the Special
Meeting and voting in person. Attendance at the Special Meeting
will not in itself constitute a revocation of an earlier dated
proxy.
If you need assistance in completing your proxy card or
if you have any questions about the Proxy Statement/Prospectus,
please feel free to contact the undersigned at (501) 327-7771.
Sincerely,
Bill F. Johnson
President and Chief Executive Officer
<PAGE> 6
SECURITY BANK OF CONWAY, F.S.B.
1122 Van Ronkle
Conway, Arkansas 72033
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
January 31, 1996
TO THE SHAREHOLDERS OF SECURITY BANK OF CONWAY, F.S.B.:
Notice is hereby given that a Special Meeting of
Shareholders of SECURITY BANK OF CONWAY, F.S.B., a federal stock
savings bank ("Security Bank"), will be held at Security Bank, 1122
Van Ronkle, Conway, Arkansas on Wednesday, January 31, 1996, at 4:30
p.m. Central Time, for the following purposes:
(1) To consider a proposal to approve the Amended and
Restated Agreement and Plan of Reorganization dated as of July 7,
1995, as amended and restated as of September 18, 1995 (the
"Reorganization Agreement"), which provides for (i) the sale by
Security Bank of all of its assets and the assignment by Security
Bank of all of its liabilities to Mercantile Bancorporation Inc. of
Arkansas ("MBIA"), a wholly owned subsidiary of Mercantile
Bancorporation Inc. ("MBI"), in exchange for shares (collectively,
the "Shares") of MBI common stock, (ii) the transfer by MBI (on
behalf of MBIA) of the Shares to a qualified exchange agent (the
"Exchange Agent"), on behalf of Security Bank, and (iii) upon
consummation of (i) and (ii) above, (A) and upon the surrender by
each Security Bank shareholder of his or her certificate(s)
representing shares of Security Bank common stock, the distribution
by the Exchange Agent of 31.189 shares of MBI common stock for each
share of Security Bank common stock represented by a surrendered
certificate, on behalf of Security Bank, as a liquidating
distribution, and (B) the surrender by Security Bank of its charter
to the Office of Thrift Supervision ((i) and (ii) are hereinafter
referred to collectively as the "Purchase and Assumption").
Pursuant to the terms of the Reorganization Agreement, by way of
those certain Assignment Agreements dated as of September 25, 1995,
by and between (i) MBIA and The Twin City Bank, an Arkansas state-
chartered bank and wholly owned subsidiary of MBIA ("TCB"), and
(ii) MBIA and First National Bank of Conway County, a national
banking association and wholly owned subsidiary of MBIA ("FNBCC")
(effective October 2, 1995 FNBCC changed its name to Mercantile
Bank of Conway County National Association ("MBCC")), MBIA has
assigned its right to receive the assets and its obligation to
assume the liabilities of Security Bank to TCB and MBCC,
respectively.
(2) To consider a proposal to approve the dissolution of
Security Bank upon consummation of the Purchase and Assumption.
(3) To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements
thereof.
The record date for determining the shareholders entitled
to receive notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof has been fixed as of the
close of business on December 28, 1995.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE
PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/ PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Conway, Arkansas Phillip T. Pascoe, Secretary
December 29, 1995
<PAGE> 7
MERCANTILE BANCORPORATION INC.
PROSPECTUS
-------------------------
SECURITY BANK OF CONWAY, F.S.B.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 31, 1996
This Prospectus of Mercantile Bancorporation Inc. ("MBI")
relates to up to 322,000 shares of common stock, $5.00 par value
("Common Stock"), and attached Preferred Share Purchase Rights (the
"Rights"), of MBI (the Common Stock and Rights are collectively
referred to herein as the "MBI Common Stock") to be issued to the
shareholders of Security Bank of Conway, F.S.B., a federal stock
savings bank ("Security Bank"), upon consummation of the proposed
transaction. Upon receipt of the requisite shareholder and
regulatory approvals, the Reorganization (as hereinafter defined)
will be consummated pursuant to the terms of the Amended and
Restated Agreement and Plan of Reorganization, dated as of July 7,
1995, as amended and restated as of September 18, 1995, by and
among MBI, Mercantile Bancorporation Inc. of Arkansas, a wholly
owned subsidiary of MBI ("MBIA"), and Security Bank (the
"Reorganization Agreement"). Pursuant to the Reorganization
Agreement, MBIA will acquire the business of Security Bank, and
shareholders of Security Bank will receive shares of MBI Common
Stock in exchange for their shares of common stock, $100 par value,
of Security Bank ("Security Bank Common Stock"), through (i) the
sale by Security Bank of all of its assets and the assignment by
Security Bank of all of its liabilities to MBIA, in exchange for
shares (collectively, the "Shares") of MBI Common Stock, (ii) the
transfer by MBI of the shares to a qualified exchange agent (the
"Exchange Agent"), on behalf of Security Bank, and (iii) upon
consummation of (i) and (ii) above, (A) and upon the surrender by
each Security Bank shareholder of his or her certificate(s)
representing shares of Security Bank Common Stock, the distribution
by the Exchange Agent of 31.189 shares of MBI Common Stock (the
"Distribution Ratio") for each share of Security Bank Common Stock
represented by a surrendered certificate, on behalf of Security
Bank, as a liquidating distribution, and (B) the surrender by
Security Bank of its charter to the Office of Thrift Supervision
(the "OTS") ((i), (ii) and (iii) are hereinafter referred to
collectively as the "Reorganization"). Pursuant to the terms of
the Reorganization Agreement, by way of those certain Assignment
Agreements (the "Assignment Agreements") dated as of September 25,
1995, by and between (i) MBIA and The Twin City Bank, an Arkansas
state-chartered bank and wholly owned subsidiary of MBIA ("TCB"),
and (ii) MBIA and First National Bank of Conway County, a national
banking association and wholly owned subsidiary of MBIA ("FNBCC")
(effective October 2, 1995, FNBCC changed its name to Mercantile
Bank of Conway County National Association ("MBCC")), MBIA has
assigned its right to receive the assets and its obligation to
assume the liabilities of Security Bank to TCB and MBCC,
respectively. This Prospectus also serves as the Proxy Statement
of Security Bank for use in connection with the Special Meeting of
Shareholders of Security Bank (the "Special Meeting"), which will
be held on January 31, 1996, at the time and place and for the
purposes stated in the Notice of Special Meeting of Shareholders
accompanying this Proxy Statement/Prospectus.
Pursuant to the Reorganization, MBI will issue up to an
aggregate of 322,000 shares of MBI Common Stock. Upon consummation
of the Reorganization, the business and operations of Security Bank
will be continued through TCB and MBCC. The fair market value of
MBI Common Stock to be received pursuant to the Reorganization may
fluctuate and at the consummation of the Reorganization may be more
or less than the current fair market value of such shares. See
"TERMS OF THE PROPOSED REORGANIZATION - General Description of the
Reorganization." No fractional shares of MBI Common Stock will be
issued in the Reorganization, but cash will be paid in lieu of such
fractional shares. See "TERMS OF THE PROPOSED REORGANIZATION -
Fractional Shares."
<PAGE> 8
The transaction is intended to qualify as a
reorganization under the Internal Revenue Code of 1986, as amended
(the "Code"). The Reorganization generally is intended to achieve
certain tax-deferral benefits for federal income tax purposes for
Security Bank shareholders. See "SUMMARY INFORMATION - Federal
Income Tax Consequences in General" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE REORGANIZATION."
MBI Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol "MTL." On December 14, 1995 the
closing sale price for MBI Common Stock as reported on the NYSE
Composite Tape was $44.75.
This Proxy Statement/Prospectus, the Notice of Special
Meeting and the form of proxy were first mailed to the shareholders
of Security Bank on or about December 29, 1995.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is December __, 1995.
- 2 -
<PAGE> 9
AVAILABLE INFORMATION
---------------------
MBI is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy
statements and other information filed by MBI with the Commission
can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at
Suite 1300, Seven World Trade Center, New York, New York 10048 and
Room 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. MBI Common Stock is listed on the NYSE,
and such reports, proxy statements and other information concerning
MBI are available for inspection and copying at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement on Form S-4
and exhibits thereto (the "Registration Statement") covering the
securities offered hereby which has been filed by MBI with the
Commission. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain
information contained or incorporated by reference in the
Registration Statement. Statements contained in this Proxy
Statement/Prospectus provide a summary of the contents of certain
contracts or other documents referenced herein but are not
necessarily complete and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement. For such further information, reference is
made to the Registration Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
DOCUMENTS RELATING TO MBI, EXCLUDING EXHIBITS UNLESS SPECIFICALLY
INCORPORATED THEREIN, ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN
OR ORAL REQUEST TO JON W. BILSTROM, GENERAL COUNSEL AND SECRETARY,
MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI
63166-0524, TELEPHONE (314) 425-2525. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
JANUARY 24, 1996.
The following documents filed with the Commission by MBI
under the Exchange Act are incorporated herein by reference:
(a) MBI's Report on Form 10-K for the year ended
December 31, 1994, as amended by Form 10-K/A.
(b) MBI's Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995.
(c) MBI's Current Reports on Form 8-K dated May 12,
1995, May 31, 1995 and August 17, 1995.
(d) The description of MBI's Common Stock set forth in
Item 1 of MBI's Registration Statement on Form 8-A,
dated March 5, 1993, and any amendment or report
filed for the purpose of updating such description.
- 3 -
<PAGE> 10
(e) The description of MBI's Preferred Share Purchase
Rights set forth in Item 1 of MBI's Registration
Statement on Form 8-A, dated March 5, 1993, and any
amendment or report filed for the purpose of
updating such description.
The consolidated financial statements of Hawkeye
Bancorporation ("Hawkeye") as of December 31, 1994, 1993 and 1992,
and for each of the years in the three-year period ended
December 31, 1994, contained in Hawkeye's Annual Report on Form 10-
K for the year ended December 31, 1994, and Hawkeye's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995 are
incorporated herein by reference.
All documents filed by MBI pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date hereof and
until the date of the Special Meeting shall be deemed to be
incorporated by reference herein and made a part hereof from the
date any such document is filed. The information relating to MBI
contained in this Proxy Statement/Prospectus does not purport to be
complete and should be read together with the information in the
documents incorporated by reference herein. Any statement
contained herein or in a document incorporated herein by reference
shall be deemed to be modified or superseded for purposes hereof to
the extent that a subsequent statement contained herein or in any
other subsequently filed document incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
Any statements contained in this Proxy Statement/Prospectus
involving matters of opinion, whether or not expressly so stated, are
intended as such and not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBI OR SECURITY BANK. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI
COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF MBI OR SECURITY BANK OR ANY OF THEIR SUBSIDIARIES
OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF.
- 4 -
<PAGE> 11
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . 3
SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . 8
Business of MBI . . . . . . . . . . . . . . . . . . . . . 8
Business of MBIA. . . . . . . . . . . . . . . . . . . . . 9
Business of Security Bank . . . . . . . . . . . . . . . . 9
The Proposed Reorganization . . . . . . . . . . . . . . . 10
Other Agreements. . . . . . . . . . . . . . . . . . . . . 11
Interests of Certain Persons in the Reorganization. . . . 11
Special Meeting of Security Bank Shareholders . . . . . . 11
Reasons for the Reorganization. . . . . . . . . . . . . . 12
Fractional Shares . . . . . . . . . . . . . . . . . . . . 13
Waiver and Amendment. . . . . . . . . . . . . . . . . . . 13
Federal Income Tax Consequences in General. . . . . . . . 13
Regulatory Approval . . . . . . . . . . . . . . . . . . . 14
Accounting Treatment. . . . . . . . . . . . . . . . . . . 14
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . 14
Markets and Market Prices . . . . . . . . . . . . . . . . 14
Comparative Unaudited Per Share Data. . . . . . . . . . . 15
Summary Financial Data. . . . . . . . . . . . . . . . . . 16
INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . 19
General . . . . . . . . . . . . . . . . . . . . . . . . . 19
Date, Time and Place. . . . . . . . . . . . . . . . . . . 19
Record Date; Vote Required. . . . . . . . . . . . . . . . 19
Voting and Revocation of Proxies. . . . . . . . . . . . . 19
Solicitation of Proxies . . . . . . . . . . . . . . . . . 20
TERMS OF THE PROPOSED REORGANIZATION . . . . . . . . . . . . . 21
General Description of the Reorganization . . . . . . . . 21
Other Agreements. . . . . . . . . . . . . . . . . . . . . 22
Interests of Certain Persons in the Reorganization. . . . 22
Background of and Reasons for the Reorganization; Board
Recommendations . . . . . . . . . . . . . . . . . . . . 23
Conditions of the Reorganization. . . . . . . . . . . . . 25
Termination of the Reorganization Agreement . . . . . . . 28
Indemnification . . . . . . . . . . . . . . . . . . . . . 28
Closing Date. . . . . . . . . . . . . . . . . . . . . . . 28
Surrender of Security Bank Stock Certificates and Receipt
of MBI Common Stock . . . . . . . . . . . . . . . . . . 29
Fractional Shares . . . . . . . . . . . . . . . . . . . . 29
Regulatory Approval . . . . . . . . . . . . . . . . . . . 29
Business Pending the Reorganization . . . . . . . . . . . 30
Waiver and Amendment. . . . . . . . . . . . . . . . . . . 33
Accounting Treatment. . . . . . . . . . . . . . . . . . . 33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION. . . . . . . . . . . . . . . . . . . . . . 34
- 5 -
<PAGE> 12
<CAPTION>
Page
----
<S> <C>
RIGHTS OF DISSENTING SHAREHOLDERS OF SECURITY BANK . . . . . . 35
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . 36
Comparative Unaudited Per Share Data. . . . . . . . . . . 36
Pro Forma Combined Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . 38
INFORMATION REGARDING SECURITY BANK. . . . . . . . . . . . . . 44
Management's Discussion and Analysis of Financial
Condition . . . . . . . . . . . . . . . . . . . . . . . 44
Results of Operation. . . . . . . . . . . . . . . . . . . 44
Financial Condition, Capital Resources and Liquidity. . . 47
Results of Operation (Nine Month Comparison). . . . . . . 54
Liquidity and Capital Resources (Nine Month
Comparison) . . . . . . . . . . . . . . . . . . . . . . 55
Pending Legislative Proposals . . . . . . . . . . . . . . 55
Properties. . . . . . . . . . . . . . . . . . . . . . . . 56
Impact of Future Accounting Pronouncement . . . . . . . . 56
Legal Proceedings . . . . . . . . . . . . . . . . . . . . 56
Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . 57
INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . 58
Description of MBI Common Stock and Attached Preferred
Share Purchase Rights . . . . . . . . . . . . . . . . . 58
Restrictions on Resale of MBI Stock by Affiliates . . . . 60
Comparison of the Rights of Shareholders of MBI and
Security Bank . . . . . . . . . . . . . . . . . . . . . 60
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . 63
General . . . . . . . . . . . . . . . . . . . . . . . . . 63
Certain Transactions with Affiliates. . . . . . . . . . . 64
Payment of Dividends. . . . . . . . . . . . . . . . . . . 64
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . 64
FDIC Insurance Assessments. . . . . . . . . . . . . . . . 65
Proposals to Overhaul the Savings Association Industry. . 66
Support of Subsidiary Banks . . . . . . . . . . . . . . . 66
FIRREA and FDICIA . . . . . . . . . . . . . . . . . . . . 66
Depositor Preference Statute. . . . . . . . . . . . . . . 68
The Interstate Banking and Community Development
Legislation . . . . . . . . . . . . . . . . . . . . . . 68
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . 68
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 69
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 69
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . 70
CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . 71
- 6 -
<PAGE> 13
<CAPTION>
Page
----
<S> <C>
ANNEXES
Annex A --
Dissenters' Rights Provisions Applicable to Federal
Stock Savings Banks (12 C.F.R. Section 552.14). . . . . A-1
</TABLE>
- 7 -
<PAGE> 14
SUMMARY INFORMATION
-------------------
The following is a summary of the important terms of the
proposed Reorganization and related information discussed elsewhere
in this Proxy Statement/Prospectus but does not purport to be
complete and is qualified in its entirety by reference to the more
detailed information which appears elsewhere in this Proxy
Statement/Prospectus and the documents incorporated by reference
herein. Shareholders of Security Bank are urged to read this Proxy
Statement/Prospectus in its entirety. All MBI per share data
reflect a three-for-two stock split distributed in the form of a
dividend on April 11, 1994.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is
a registered bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "BHCA"). MBI is also
registered as a savings and loan holding company under the Home
Owners' Loan Act of 1933, as amended ("HOLA"). At September 30,
1995, MBI owned, directly or indirectly, all of the capital stock
(except for a small minority interest in one bank) of Mercantile
Bank of St. Louis National Association ("Mercantile Bank"), 51
other commercial banks and one federally chartered thrift which
operate from 322 banking offices and 316 Fingertip Banking
automated teller machines, including 37 off-premises machines,
located throughout Missouri, southern Illinois, eastern Kansas,
northern Arkansas and northern Iowa. MBI's services concentrate in
three major lines of business -- consumer, corporate and trust
services. MBI also operates non-banking subsidiaries which
provide related financial services, including investment
management, brokerage services and asset-based lending. As of
September 30, 1995, MBI had 55,333,878 shares of its Common Stock
outstanding. As of September 30, 1995, MBI reported, on a
consolidated basis, total assets of $16.0 billion, total deposits
of $11.8 billion, total loans of $10.6 billion and shareholders'
equity of $1.4 billion.
On January 3, 1995, MBI completed the acquisitions of (i)
UNSL Financial Corp. ("UNSL"), a Delaware corporation and a savings
and loan holding company under the HOLA, located in Lebanon,
Missouri, and (ii) Wedge Bank ("Wedge"), an Illinois state-
chartered bank located in Alton, Illinois. These acquisitions were
accounted for under the pooling-of-interests method of accounting.
As of January 3, 1995, UNSL and Wedge reported total assets of $508
million and $196 million, respectively.
On May 1, 1995, MBI completed the acquisitions of
(i) Central Mortgage Bancshares, Inc. ("CMB"), a Missouri
corporation and registered bank holding company under the BHCA,
located in Kansas City, Missouri, and (ii) TCBankshares, Inc.
("TCB"), an Arkansas corporation and a registered bank holding
company under the BHCA, located in North Little Rock, Arkansas.
These acquisitions were accounted for under the pooling-of-interest
method of accounting. As of May 1, 1995, CMB and TCB reported
total assets of $655 million and $1.4 billion, respectively.
In connection with the acquisitions of UNSL, CMB and TCB,
MBI restated its consolidated financial statements as of and for
the years ended December 31, 1994, 1993 and 1992. MBI filed
supplemental financial statements as of and for the years ended
December 31, 1994, 1993 and 1992 in a Current Report on Form 8-K,
dated May 31, 1995, which has been incorporated by reference into
this Proxy Statement/Prospectus. Due to the immateriality of the
financial condition and results of operation of Wedge to that of
MBI, the supplemental consolidated financial statements of MBI do
not reflect the Wedge transaction.
On July 7, 1995, MBI completed the acquisition of Plains
Spirit Financial Corporation ("Plains Spirit"), located in
Davenport, Iowa. Plains Spirit, a Delaware corporation, was a
registered
- 8 -
<PAGE> 15
savings and loan holding company under the HOLA. This acquisition was
accounted for under the purchase method of accounting. As of July 7,
1995, Plains Spirit reported total assets of $400.8 million.
On August 1, 1995, MBI completed the acquisitions of
(i) AmeriFirst Bancorporation, Inc. ("AmeriFirst"), a Missouri
corporation and registered bank holding company under the BHCA,
located in Sikeston, Missouri, and (ii) Southwest Bancshares, Inc.
("Southwest"), a Missouri corporation and registered bank holding
company under the BHCA, located in Bolivar, Missouri. These
acquisitions were accounted for under the pooling-of-interest
method of accounting. As of August 1, 1995, AmeriFirst and
Southwest reported total assets of $155.5 million and $187.7
million, respectively.
On July 24, 1995, MBI entered into an agreement to
acquire First Sterling Bancorp, Inc. ("Sterling"), located in
Sterling, Illinois. Sterling, an Illinois corporation, is a
registered bank holding company under the BHCA which owns one
national banking association. As of September 30, 1995, Sterling
reported total assets of $170.0 million, total deposits of $132.5
million, total loans of $85.7 million and shareholders' equity of
$18.3 million.
On August 4, 1995, MBI entered into an agreement to
acquire Hawkeye, located in Des Moines, Iowa. Hawkeye, an Iowa
corporation, is a registered bank holding company under the BHCA
which owns 23 commercial banks. As of September 30, 1995, Hawkeye
reported total assets of $2.0 billion, total deposits of $1.7
billion, total loans of $1.3 billion and shareholders' equity of
$192.8 million.
On September 15, 1995, MBI entered into an agreement to
acquire Metro Savings Bank, FSB ("Metro"), located in Wood River,
Illinois. Metro is chartered as a federal stock savings bank under
the HOLA and operates from one location. As of September 30, 1995,
Metro reported total assets of $83.3 million, total deposits of
$76.7 million, total loans of $54.7 million and shareholders'
equity of $5.9 million.
MBI's principal executive offices are located at One
Mercantile Center, St. Louis, Missouri 63101, and its telephone
number is (314) 425-2525.
BUSINESS OF MBIA
MBIA, an Arkansas corporation, is a wholly owned
subsidiary of MBI which was organized on February 7, 1995. MBIA is
a registered bank holding company under the BHCA. MBIA currently
owns all of the capital stock of six banks which operate from 38
locations in Arkansas.
BUSINESS OF SECURITY BANK
Security Bank, a federal stock savings bank, commenced
operations in 1961 and operates from three locations in central
Arkansas. Security Bank currently owns all of the issued and
outstanding shares of capital stock of Security Service
Corporation, an Arkansas corporation ("SSC"), and Security
Investments of Conway, Inc., an Arkansas corporation ("Security
Investments"). As of the date hereof, 10,324 shares of Security
Bank Common Stock were issued and outstanding. As of September 30,
1995, Security Bank reported, on a consolidated basis, total assets
of $100.3 million, total deposits of $87.9 million, total loans of
$75.8 million and shareholders' equity of $8.6 million. See
"INFORMATION REGARDING SECURITY BANK."
- 9 -
<PAGE> 16
Security Bank's principal executive offices are located
at 1122 Van Ronkle, Conway, Arkansas 72033, and its telephone
number is (501) 327-7771.
THE PROPOSED REORGANIZATION
Subject to the satisfaction of the terms and conditions
set forth in the Reorganization Agreement described below, MBIA
will acquire the business and operations of Security Bank, and
shareholders of Security Bank will receive shares of MBI Common
Stock in exchange for their shares of Security Bank Common Stock,
through (i) the sale by Security Bank of all of its assets and the
assignment by Security Bank of all of its liabilities to MBIA, in
exchange for the Shares, (ii) the transfer by MBI (on behalf of
MBIA) of the shares to the Exchange Agent, on behalf of Security
Bank, and (iii) upon consummation of (i) and (ii) above, (A) and
upon the surrender by each Security Bank shareholder of his or her
certificate(s) representing shares of Security Bank Common Stock,
the distribution by the Exchange Agent of 31.189 shares of MBI
Common Stock for each share of Security Bank Common Stock
represented by a surrendered certificate, on behalf of Security
Bank, as a liquidating distribution, and (B) the surrender by
Security Bank of its charter to the OTS. Pursuant to the terms of
the Reorganization Agreement, by way of the Assignment Agreements,
MBIA has assigned its right to receive the assets and its
obligation to assume the liabilities of Security Bank to TCB and
MBCC. Upon consummation of the Reorganization, Security Bank's
corporate existence will terminate. The Distribution Ratio is
subject to certain anti-dilution protections but is not adjustable
based upon the operating results, financial condition or other
factors affecting either MBI, MBIA or Security Bank prior to the
consummation of the Reorganization. The fair market value of MBI
Common Stock to be received pursuant to the Reorganization may
fluctuate and at the consummation of the Reorganization may be more
or less than the current fair market value of such shares.
KeyCorp Shareholder Services, Inc., the transfer agent
for MBI Common Stock, has been selected as the Exchange Agent for
purposes of effecting the distribution of the Shares, as a
liquidating distribution on behalf of Security Bank, to the
shareholders of Security Bank upon the surrender of their
certificates representing shares of Security Bank Common Stock.
The Reorganization Agreement provides that the
consummation of the Reorganization is subject to certain terms and
conditions, including the approval of the Reorganization Agreement
by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Security Bank Common Stock and receipt of
the requisite regulatory approvals and an opinion of counsel
regarding certain federal income tax aspects of the transaction.
For a discussion of each of the conditions to the Reorganization,
see "TERMS OF THE PROPOSED REORGANIZATION - Conditions of the
Reorganization."
Unless the parties otherwise agree, the closing (the
"Closing") of the Reorganization shall occur on such date (the
"Closing Date") as MBIA shall notify Security Bank in writing (such
notice to be at least five business days in advance of the
Effective Time (as hereinafter defined)) but (i) not earlier than
(A) the approval of the Reorganization Agreement by the
shareholders of Security Bank and (B) the receipt of the last
approval of the Reorganization by each of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"), the OTS,
the Comptroller of the Currency (the "Comptroller"), the Federal
Deposit Insurance Corporation (the "FDIC"), the Arkansas State Bank
Commissioner (the "Arkansas Commissioner") and any other federal
and/or state regulatory agency whose approval is required for the
consummation of the Reorganization, and the expiration of all
required waiting periods (the Federal Reserve Board, the OTS, the
Comptroller, the FDIC, the Arkansas Commissioner and such other
federal and/or state regulatory authorities are collectively
referred to herein as the "Regulatory Authorities" and individually
as a "Regulatory Authority"), and (ii) not later than the first
business day of the first full calendar month commencing at least
five days
- 10 -
<PAGE> 17
after (i) the approval of the Reorganization Agreement by the
shareholders of Security Bank and (ii) the approval date of the
Reorganization by the Regulatory Authorities and the expiration of
all required waiting periods. The Reorganization will be
consummated and become effective on the date and at the time (the
"Effective Time") of the Closing. The Reorganization Agreement may
be terminated at any time prior to the Closing Date by the mutual
consent of the parties or, unilaterally, by either party upon the
occurrence of certain events or if the Reorganization is not
consummated by June 30, 1996. See "TERMS OF THE PROPOSED
REORGANIZATION - Conditions of the Reorganization" and
"- Termination of the Reorganization Agreement."
OTHER AGREEMENTS
Concurrent with the execution of the Reorganization
Agreement, MBI and certain shareholders, including each director,
of Security Bank executed separate Voting Agreements (the "Voting
Agreements") by which each such shareholder agreed that he or she
will vote all of the shares of Security Bank Common Stock then
owned or subsequently acquired in favor of the approval of the
Reorganization Agreement and the Dissolution at the Special
Meeting. In addition, until the earliest to occur of the Effective
Time of the Reorganization, the termination of the Voting Agreement
or the termination of the Reorganization Agreement, such
shareholders further agreed they will not vote any such shares in
favor of the approval of any other competing acquisition proposal
involving Security Bank and a third party. Each such shareholder
also agreed that he or she will not transfer shares of Security
Bank Common Stock unless, prior to such transfer, the transferee
executes an agreement in substantially the same form as the Voting
Agreement. As of the date hereof, such shareholders of Security
Bank who executed Voting Agreements owned beneficially an aggregate
of 7,586 shares of Security Bank Common Stock, or approximately
73.5% of the issued and outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Bill F. Johnson, President and Chief Executive Officer of
Security Bank, has entered into an agreement with MBI whereby Mr.
Johnson will serve as a senior executive of a successor of Security
Bank for a period of two years commencing on the Closing Date.
During such two year period, Mr. Johnson will receive a base salary
of $103,600 per year (inclusive of director's fees, if any) and be
entitled to participate in MBI's welfare plans and executive
incentive programs, to use a company-owned vehicle and to be
reimbursed for country club dues. Ritchie D. Howell, Senior Vice
President of Security Bank, has entered into an agreement with MBI
whereby he will serve as a Senior Vice President of a successor of
Security Bank for a period of one year commencing on the Closing
Date. During such one year period, Mr. Howell will receive a base
salary of $73,600 per year (inclusive of director's fees, if any)
and be entitled to participate in MBI's welfare plans and executive
incentive programs, to use a company-owned vehicle and to be
reimbursed for country club dues. See "TERMS OF THE PROPOSED
REORGANIZATION - Interests of Certain Persons in the
Reorganization."
SPECIAL MEETING OF SECURITY BANK SHAREHOLDERS
The Special Meeting will be held on January 31, 1996, at
4:30 p.m. Central Time, at Security Bank, 1122 Van Ronkle, Conway,
Arkansas. Approval by the Security Bank shareholders of the
Reorganization Agreement and the dissolution of Security Bank (the
"Dissolution") requires the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Security Bank Common
Stock. Only holders of record of Security Bank Common Stock at the
close of business on December 28, 1995 (the "Record Date") will be
entitled to notice of, and to vote at, the Special Meeting. At
such date, there were 10,324 shares of Security Bank Common Stock
outstanding.
- 11 -
<PAGE> 18
As of the date hereof, directors and executive officers
of Security Bank and their affiliates owned beneficially an
aggregate of 7,586 shares of Security Bank Common Stock, or
approximately 73.5% of the shares entitled to vote at the Special
Meeting. All of Security Bank's directors and their affiliates
have indicated their intention to vote their shares for the
approval of the Reorganization Agreement and the Dissolution.
Additionally, each of the directors of Security Bank, pursuant to
the terms of his or her respective Voting Agreement, has committed
to vote his or her shares of Security Bank Common Stock for the
approval of the Reorganization Agreement. As of the date hereof,
such directors owned beneficially an aggregate of 7,586 shares of
Security Bank Common Stock, or approximately 73.5% of the issued
and outstanding shares.
THE BOARD OF DIRECTORS OF SECURITY BANK CAREFULLY
CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE REORGANIZATION
AND THE DISSOLUTION AS BEING IN THE BEST INTEREST OF SECURITY BANK
AND ITS SHAREHOLDERS. THE SECURITY BANK BOARD UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSALS TO APPROVE THE
---
REORGANIZATION AGREEMENT AND THE DISSOLUTION.
REASONS FOR THE REORGANIZATION
The Board of Directors of Security Bank believes that the
Reorganization is in the best interest of Security Bank and its
shareholders. In the course of reaching its determination to
approve the Reorganization and recommend the approval of the
Reorganization Agreement and the Dissolution to the shareholders of
Security Bank, the Board of Directors, without assigning any
relative or specific weights, considered a number of factors,
including the following reasons:
(i) The consideration to be paid by MBI. See "TERMS OF
THE PROPOSED REORGANIZATION - General Description of the
Reorganization." Depending upon the price of MBI Common Stock used
in the calculation, the transaction value of consideration to be
delivered by MBI reflects a price-to-book multiple of between 1.65
and 1.8 times Security Bank's unaudited book value as of June 30,
1995. The Board of Directors of Security Bank determined that
these multiples compared favorably with the ratios of recently
completed comparable bank and thrift merger transactions in
Arkansas;
(ii) The trends in the banking industry are toward
consolidation and increased regulation, particularly, recent
changes have resulted in an environment where community banks and
thrifts have commanded in the past, and for some indefinite future
period will command, attractive purchase prices; and the Board of
Directors of Security Bank sought to take advantage of this
environment; and prospective changes (ultimately adopted) in
calculation of deposit insurance premiums for banks may
competitively disadvantage thrifts and savings banks such as
Security Bank in the future;
(iii) Security Bank will benefit from MBI's capital,
operations and regulatory expertise and management talent, and may
achieve certain economies of scale in its banking operations;
(iv) Management of Security Bank believes that MBI's
philosophy is to provide its community banks with a substantial
degree of operating autonomy, generally leaving existing management
in place to manage the institution consistent with past management
culture, so long as such culture is not inconsistent with MBI's
policies; and
(v) The annual dividend yield on MBI Common Stock
offered in exchange for Security Bank Common Stock substantially
exceeds the historical yield on Security Bank Common
- 12 -
<PAGE> 19
Stock, and there is a much broader and more liquid market for MBI
Common Stock, which is listed and traded on the NYSE.
MBI's Board of Directors believes that the Reorganization
will enable MBIA to (i) increase its presence in central Arkansas
through the acquisition of an established banking organization and
(ii) enhance MBIA's ability to compete in the increasingly
competitive banking and financial services industry. See "TERMS OF
THE PROPOSED REORGANIZATION - Background of and Reasons for the
Reorganization; Board Recommendations."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued
to the shareholders of Security Bank in connection with the
Reorganization. Each holder of Security Bank Common Stock who
otherwise would have been entitled to receive a fraction of a share
of MBI Common Stock shall receive in lieu thereof cash, without
interest, in an amount equal to the holder's fractional share
interest multiplied by the closing stock price of MBI Common Stock
on the NYSE Composite Tape as reported in The Wall Street Journal
on the Closing Date of the Reorganization. Cash received by
Security Bank shareholders in lieu of fractional shares may give
rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE REORGANIZATION."
WAIVER AND AMENDMENT
Any provision of the Reorganization Agreement, including,
without limitation, the conditions to the consummation of the
Reorganization and the restrictions described under the caption
"TERMS OF THE PROPOSED REORGANIZATION - Business Pending the
Reorganization," may be (i) waived in writing at any time by the
party that is, or whose shareholders are, entitled to the benefits
thereof or (ii) amended at any time by written agreement of the
parties approved by or on behalf of their respective Boards of
Directors, whether before or after the Special Meeting; provided,
however, that after approval of the Reorganization Agreement by the
shareholders of Security Bank at the Special Meeting no such
modification may (i) alter or change the amount or kind of the
consideration to be received by the Security Bank shareholders in
the Reorganization as a liquidating distribution or (ii) adversely
affect the tax treatment to the Security Bank shareholders as a
result of receiving shares of MBI Common Stock in the
Reorganization.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Thompson & Mitchell, MBI's legal counsel, has delivered
its opinion to the effect that, assuming the Reorganization occurs
in accordance with the Reorganization Agreement and conditioned on
the accuracy of certain representations made by MBI, MBIA, Security
Bank and certain shareholders of Security Bank, the Reorganization
will constitute a "reorganization" for federal income tax purposes
and that, accordingly, no gain or loss will be recognized by
Security Bank shareholders who exchange their shares of Security
Bank Common Stock solely for shares of MBI Common Stock in the
Reorganization. However, cash received in lieu of fractional
shares may give rise to taxable income. EACH SECURITY BANK
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION TO
SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE,
LOCAL AND FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE REORGANIZATION."
- 13 -
<PAGE> 20
REGULATORY APPROVAL
The Reorganization is subject to the prior approval of
each of the Federal Reserve Board, the OTS, the Comptroller, the
FDIC and the Arkansas Commissioner. MBI has received the approval of
the OTS, the Federal Reserve Board, the FDIC and the Arkansas
Commissioner. An application is currently pending with the
Comptroller. The Reorganization cannot be consummated until
receipt of approval from such agencies. In reviewing the
Reorganization, the Regulatory Agencies consider various
factors, including possible anticompetitive effects of the
Reorganization, and examine the financial and managerial
resources and future prospects of the combined organization. There
can be no assurance that the necessary regulatory approvals will be
received or as to the timing of such approvals. See "TERMS OF THE
PROPOSED REORGANIZATION - Regulatory Approval" and "SUPERVISION AND
REGULATION."
ACCOUNTING TREATMENT
The Reorganization will be accounted for under the purchase
method of accounting. See "TERMS OF THE PROPOSED REORGANIZATION -
Accounting Treatment."
DISSENTERS' RIGHTS
Under federal law, a holder of Security Bank Common Stock
may dissent from the Reorganization and receive payment of the
"fair or appraised value" of such shares in cash if the
Reorganization is consummated by following certain procedures set
forth in 12 C.F.R. Section 552.14 ("Section 552.14"), the text of
which is attached hereto as Annex A. Failure to follow such
-------
procedures may result in the loss of dissenters' rights. Any
Security Bank shareholder returning an executed proxy card which
does not provide instructions to vote against the approval of the
Reorganization Agreement will be deemed to have approved the
Reorganization Agreement, thereby waiving any such dissenters'
rights. See "RIGHTS OF DISSENTING SHAREHOLDERS OF SECURITY BANK."
MARKETS AND MARKET PRICES
MBI Common Stock is currently traded on the NYSE under
the symbol "MTL." Prior to March 25, 1993, MBI Common Stock was
quoted on the Nasdaq National Market under the symbol "MTRC." The
last sale price reported for MBI Common Stock on July 7, 1995, the
last trading date preceding the public announcement of the
Reorganization, was $44.375. There is no established public
trading market for Security Bank Common Stock. The following table
sets forth for the periods indicated the high and low trading
prices of MBI Common Stock. Management of Security Bank does not
have knowledge of any transactions involving its shares for the
periods indicated.
- 14 -
<PAGE> 21
<TABLE>
<CAPTION>
MBI <F1> Security Bank
-------------------------- ----------------------
Sales Price Cash Sales Price Cash
--------------- Dividend ----------- Dividend
High Low Declared High Low Declared
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1993
- ----
First Quarter $35.625 $30.625 $ .2475 <F2> <F2> $ --
Second Quarter 37.625 29.375 .2475 <F2> <F2> --
Third Quarter 34.375 31.625 .2475 <F2> <F2> --
Fourth Quarter 34.625 29.125 .2475 <F2> <F2> 6.00
1994
- ----
First Quarter $34.125 $29.875 $ .28 <F2> <F2> $ --
Second Quarter 38.125 31.125 .28 <F2> <F2> --
Third Quarter 39.250 34.875 .28 <F2> <F2> --
Fourth Quarter 36.875 29.500 .28 <F2> <F2> 6.00
1995
- ----
First Quarter $37.250 $31.250 $ .33 <F2> <F2> $ --
Second Quarter 44.875 36.000 .33 <F2> <F2> --
Third Quarter 47.000 41.625 .33 <F2> <F2> --
Fourth Quarter (through
December 14, 1995) 46.500 41.500 .33 <F2> <F2> 6.00
<FN>
- -----------------
<F1> For a recent sale price of MBI Common Stock, see the cover
of this Proxy Statement/Prospectus.
<F2> No trades known to management of Security Bank.
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated
selected historical per share data of MBI and Security Bank and the
corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed Reorganization and the proposed
acquisitions of Sterling and Hawkeye. The data presented is based upon
the supplemental consolidated financial statements and related notes
of MBI and the consolidated financial statements and related notes of
Security Bank, Sterling and Hawkeye in this Proxy Statement/Prospectus
or in documents incorporated herein by reference, and the pro forma
combined consolidated balance sheet and income statements, including
the notes thereto, appearing elsewhere herein. This information
should be read in conjunction with such historical and pro forma
financial statements and related notes thereto. The assumptions used
in the preparation of this table appear in the notes to the pro forma
financial information appearing elsewhere in this Proxy Statement/
Prospectus. See "PRO FORMA FINANCIAL INFORMATION." These data are
not necessarily indicative of the results of the future operations of
the combined organization or the actual results that would have
occurred if the Reorganization or the proposed acquisitions of
Sterling and Hawkeye had been consummated prior to the periods
indicated.
- 15 -
<PAGE> 22
<TABLE>
<CAPTION>
MBI/ Security Bank/
Security Bank Security Bank MBI/All Entities All Entities
MBI Security Bank Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined <F1> Equivalent <F2> Combined <F3> Equivalent <F2>
-------- ------------- ------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
September 30, 1995 $ 25.43 $ 832.00 $ 25.42 $792.82 $25.15 $784.40
December 31, 1994 23.47 752.00 23.47 732.01 23.08 719.84
Cash Dividends Declared per Share:
Nine months ended September 30, 1995 $ 0.99 $ -- $ 0.99 $ 30.88 $ 0.99 $ 30.88
Year ended December 31, 1994 1.12 6.00 1.12 34.93 1.12 34.93
Earnings per Share Before Change in
Accounting Principle:
Nine months ended September 30, 1995 $ 2.95 $ 80.73 $ 2.95 $ 92.01 $ 2.89 $ 90.14
Year ended December 31, 1994 3.22 82.53 3.21 100.12 3.22 100.43
Market Price per Share:
At July 7, 1995 <F4> $ 44.38 -- n/a n/a n/a n/a
At December 14, 1995 <F4> 44.75 -- n/a n/a n/a n/a
<FN>
- -----------------------
<F1> Includes the effect of pro forma adjustments for Security Bank
as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F2> Based on the pro forma combined per share amounts multiplied by
31.189, the distribution ratio applicable to one share of Security
Bank Common Stock. Further explanation of the assumptions used in
the preparation of the pro forma combined consolidated financial
statements is included in the notes to the pro forma financial
statements. See "PRO FORMA FINANCIAL INFORMATION."
<F3> Includes the effect of pro forma adjustments for Security Bank,
Sterling and Hawkeye as appropriate. See "PRO FORMA
FINANCIAL INFORMATION."
<F4> The market value of MBI Common Stock was determined as of the last
trading day preceding the public announcement of the proposed
acquisition and as of the latest available date prior to the distribution
of the Proxy Statement/Prospectus, based on the last sale price as
reported on the NYSE Composite Tape. There are no publicly available
quotations of Security Bank Common Stock and management of Security
Bank is not aware of any trades in Security Bank Common Stock for the
last three years.
</TABLE>
SUMMARY FINANCIAL DATA
The following table sets forth for the periods
indicated certain summary historical consolidated financial
information for MBI and Security Bank. The balance sheet data
and income statement data included in the summary financial data
of MBI for the five years ended December 31, 1994 are taken from
MBI's audited supplemental consolidated financial statements.
The balance sheet data and income statement data of Security Bank
included in the summary financial data for the five years ended
December 31, 1994 are taken from Security Bank's audited
consolidated financial statements. The balance sheet data and
income statement data included in the summary financial data as
of and for the nine months ended September 30, 1995 and 1994 are
taken from the unaudited consolidated financial statements of MBI
and Security Bank. These data include all adjustments which are,
in the opinion of the respective managements of MBI and Security
Bank, necessary to present a fair statement of these periods and
are of a normal recurring nature. Results for the nine months
ended September 30, 1995 are not necessarily indicative of
results for the entire year. The following information should be
read in conjunction with the supplemental consolidated financial
statements of MBI and the consolidated financial statements of
Security Bank, and the related notes thereto, included herein or
in documents incorporated herein by reference, and in conjunction
with the unaudited pro forma combined consolidated financial
information, including the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
- 16 -
<PAGE> 23
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Nine Months Ended As of or for the
September 30, Year Ended December 31
------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income <F1> . . . . . . $ 2.95 $ 2.68 $ 3.22 $ 2.79 $ 2.42 $ 2.25 $ 1.99
Dividends declared. . . . . .99 .84 1.12 .99 .93 .93 .93
Book value at period end. . 25.43 23.26 23.47 21.69 19.52 19.19 17.72
Average common shares
outstanding (thousands). . 53,630 51,900 51,957 50,965 47,276 39,391 37,847
EARNINGS (THOUSANDS)
Interest income . . . . . . $854,404 $730,270 $994,896 $971,482 $1,011,544 $1,018,688 $1,022,441
Interest expense. . . . . . 410,097 284,939 399,349 390,911 485,253 588,993 642,365
-------- -------- -------- -------- ---------- ---------- ----------
Net interest income . . . . 444,307 445,331 595,547 580,571 526,291 429,695 380,076
Provision for possible
loan losses . . . . . . . 28,928 26,374 43,201 63,513 77,874 62,360 56,196
Other income. . . . . . . . 181,480 159,425 209,758 219,703 201,965 170,770 150,508
Other expense . . . . . . . 356,944 360,140 492,070 508,043 471,903 431,155 361,992
Income taxes. . . . . . . . 81,156 78,033 101,705 85,467 61,072 24,029 31,759
-------- -------- -------- -------- ---------- ---------- ----------
Net income . . . . . . . . $158,759 $140,209 $168,329 $143,251 $ 117,407 $ 82,921 $ 80,637
======== ======== ======== ======== ========== ========== ==========
ENDING BALANCE SHEET
(MILLIONS)
Total assets. . . . . . . . $ 16,019 $ 14,723 $ 14,806 $ 14,423 $ 14,190 $ 12,377 $ 11,674
Earning assets. . . . . . . 14,773 13,571 13,671 13,259 12,989 11,331 10,447
Investment securities . . . 3,847 3,956 3,844 4,180 4,106 2,949 2,286
Loans and leases, net of
unearned income . . . . . 10,648 9,360 9,670 8,702 8,525 7,881 7,827
Deposits. . . . . . . . . . 11,835 11,025 11,189 11,599 11,629 10,211 9,660
Long-term debt. . . . . . . 304 300 299 288 310 216 247
Shareholders' equity. . . . 1,419 1,224 1,234 1,133 996 805 683
Reserve for possible
loan losses. . . . . . . . 188 190 195 185 179 158 159
SELECTED RATIOS
Return on average assets. . 1.37% 1.29% 1.16% 1.00% 0.86% 0.70% 0.73%
Return on average equity. . 16.01 15.80 14.07 13.37 12.71 10.96 12.30
Net interest rate margin. . 4.26 4.57 4.55 4.55 4.34 4.12 3.95
Equity to assets. . . . . . 8.86 8.31 8.34 7.85 7.02 6.50 5.85
Reserve for possible loan
losses to:
Outstanding loans. . . . . 1.76 2.03 2.01 2.12 2.10 2.00 2.04
Non-performing loans . . . 352.34 469.36 579.62 278.62 147.60 105.33 108.49
<FN>
<F1> Based on weighted average common shares outstanding.
</TABLE>
- 17 -
<PAGE> 24
<TABLE>
SECURITY BANK OF CONWAY, F.S.B.
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Nine Months Ended As of or for the
September 30, Year Ended December 31
------------------- ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income. . . . . . . . . $ 80.73 $ 66.28 $ 82.53 $ 75.26 $ 82.91 $ 65.99 $ 58.63
Dividends declared. . . . . -- -- 6.00 6.00 6.00 6.00 6.00
Dividend payout ratio . . . -- -- 7.27 7.97 7.24 9.09 10.23
Book value at period end. . 832 741 752 676 606 529 469
Average common shares
outstanding. . . . . . . . 10,324 10,324 10,324 10,324 10,324 10,324 10,324
EARNINGS (THOUSANDS)
Interest income . . . . . . $ 5,704 $ 4,765 $ 6,257 $ 5,849 $ 6,142 $ 6,633 $ 6,394
Interest expense. . . . . . 3,291 2,564 3,487 3,309 3,874 4,710 4,664
-------- ------- ------- ------- ------- ------- -------
Net interest income . . . . 2,413 2,201 2,770 2,540 2,268 1,923 1,730
Provision for possible
loan losses. . . . . . . . 45 45 60 60 60 42 33
Other income. . . . . . . . 292 390 406 285 173 144 147
Other expense . . . . . . . 1,445 1,465 1,713 1,359 1,066 981 910
Income taxes. . . . . . . . 382 397 551 629 459 363 329
-------- ------- ------- ------- ------- ------- -------
Net income. . . . . . . . . $ 833 $ 684 $ 852 $ 777 $ 856 $ 681 $ 605
======== ======= ======= ======= ======= ======= =======
ENDING BALANCE SHEET
(THOUSANDS)
Total assets. . . . . . . . $100,323 $91,771 $92,113 $86,824 $84,967 $79,342 $70,419
Earning assets. . . . . . . 96,603 87,301 88,316 83,109 81,927 77,252 68,433
Investment securities . . . 3,981 10,665 7,760 13,683 8,215 2,076 2,008
Loans and leases, net of
unearned income . . . . . 75,505 72,362 73,516 63,958 64,330 56,524 52,291
Deposits. . . . . . . . . . 87,758 80,210 80,425 78,715 78,300 73,529 65,128
Long-term debt . . . . . . -- -- -- -- -- -- --
Shareholders' equity. . . . 8,598 7,649 7,765 6,975 6,260 5,466 4,847
Reserve for possible
loan losses. . . . . . . . 287 227 243 201 153 107 72
SELECTED RATIOS
Return on average assets. . 1.15% 1.02% .95% .90% 1.04% .90% .89%
Return on average equity. . 13.80 12.46 11.56 11.74 14.60 13.21 13.14
Net interest rate margin. . 3.27 2.73 2.75 2.84 2.55 2.21 2.18
Average equity to
average assets . . . . . . 8.32 8.18 8.43 8.03 7.37 6.89 6.88
Reserve for possible
loan losses to:
Outstanding loans. . . . .38 .31 .33 .31 .24 .19 .14
Non-performing loans . . 111.74 99.15 486.02 13.37 <Fnm> <Fnm> <Fnm>
<FN>
<nm> - not meaningful
</TABLE>
- 18 -
<PAGE> 25
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to
holders of Security Bank Common Stock in connection with the
solicitation of proxies by the Board of Directors of Security Bank
for use at the Special Meeting and any adjournments or
postponements thereof at which the shareholders of Security Bank
will consider and vote upon a proposal to approve the
Reorganization Agreement, the proposal to approve the Dissolution
and consider and vote upon any other business which may properly be
brought before the Special Meeting or any adjournments or
postponements thereof. Each copy of this Proxy
Statement/Prospectus is accompanied by the Notice of Special
Meeting of Shareholders of Security Bank, a proxy card and related
instructions and a self-addressed return envelope to Security Bank
for the proxy card.
This Proxy Statement/Prospectus is also furnished by MBI
to each holder of Security Bank Common Stock as a prospectus in
connection with the issuance by MBI of shares of MBI Common Stock
upon the consummation of the Reorganization. This Proxy
Statement/Prospectus and the Notice of Special Meeting, proxy card
and related materials are being first mailed to shareholders of
Security Bank on December 29, 1995.
DATE, TIME AND PLACE
The Special Meeting will be held at Security Bank, 1122
Van Ronkle, Conway, Arkansas, on Wednesday, January 31, 1996, at 4:30
p.m. Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 10,324 shares of Security
Bank Common Stock outstanding and entitled to vote at the Special
Meeting. Each such share is entitled to one vote on each matter
properly brought before the Special Meeting. The affirmative vote
of the holders of at least two-thirds of the outstanding shares of
Security Bank Common Stock is required to approve the
Reorganization Agreement.
As of the Record Date, directors and executive officers
of Security Bank and their affiliates owned beneficially an
aggregate of 7,586 shares of Security Bank Common Stock, or
approximately 73.5% of the outstanding shares of Security Bank
Common Stock entitled to vote at the Special Meeting. All
directors of Security Bank and their affiliates have indicated
their intention to vote their shares for the approval of the
Reorganization Agreement and the Dissolution at the Special
Meeting. Additionally, each director of Security Bank, pursuant to
the terms of his or her respective Voting Agreement, has committed
to vote his or her shares of Security Bank Common Stock for
approval of the Reorganization Agreement. As of the Record Date,
directors of Security Bank owned beneficially an aggregate of 7,586
shares of Security Bank Common Stock, or approximately 73.5% of the
issued and outstanding shares.
VOTING AND REVOCATION OF PROXIES
Shares of Security Bank Common Stock which are
represented by a properly executed proxy received prior to the vote
at the Special Meeting will be voted at such Special Meeting in the
manner directed on the proxy card, unless such proxy is revoked in
the manner set forth herein in advance of such vote. ANY SECURITY
BANK SHAREHOLDER RETURNING AN EXECUTED PROXY CARD WHICH DOES NOT
- 19 -
<PAGE> 26
PROVIDE INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE
REORGANIZATION AGREEMENT OR AGAINST THE APPROVAL OF THE DISSOLUTION
WILL BE DEEMED TO HAVE APPROVED THE REORGANIZATION AGREEMENT AND
THE DISSOLUTION. Failure to return a properly executed proxy card
or to vote in person at the Special Meeting will have the practical
effect of a vote against the approval of the Reorganization
Agreement and the Dissolution.
Shares subject to abstentions will be treated as shares
that are present and voting at the Special Meeting for purposes of
determining the presence of a quorum. Such votes will have the
effect of votes against the approval of the Reorganization
Agreement and the Dissolution. Broker "non-votes" (i.e., proxies
from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons
entitled to vote shares with respect to which the brokers or
nominees do not have discretionary power to vote without such
instructions) will be considered as present for the purposes of
determining the presence of a quorum but will not be considered as
voting at the Special Meeting. Broker non-votes will have the
effect of votes against the approval of the Reorganization
Agreement and the Dissolution.
Any shareholder of Security Bank giving a proxy may
revoke it at any time prior to the vote at the Special Meeting.
Shareholders of Security Bank wishing to revoke a proxy prior to
the vote may do so by delivering to the Secretary of Security Bank
at 1122 Van Ronkle, Conway, Arkansas 72033 a written notice of
revocation bearing a later date than the proxy or a later dated
proxy relating to the same shares, or by attending the Special
Meeting and voting such shares in person. Attendance at the
Special Meeting will not in itself constitute the revocation of a
proxy.
The Board of Directors of Security Bank is not currently
aware of any business to be brought before the Special Meeting
other than that described herein. If, however, other matters are
properly brought before such Special Meeting, or any adjournments
or postponements thereof, the persons appointed as proxies will
have discretionary authority to vote the shares represented by duly
executed proxies in accordance with their discretion and judgment
as to the best interest of Security Bank.
SOLICITATION OF PROXIES
Security Bank will bear its own costs of soliciting
proxies, except that MBIA will pay printing and mailing expenses
and registration fees incurred in connection with preparing this
Proxy Statement/Prospectus. Proxies will initially be solicited by
mail, but directors, officers and selected other employees of
Security Bank may also solicit proxies in person or by telephone.
Directors, executive officers and any other employees of Security
Bank who solicit proxies will not be specially compensated for such
services. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward proxy materials to
beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
HOLDERS OF SECURITY BANK COMMON STOCK ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
- 20 -
<PAGE> 27
TERMS OF THE PROPOSED REORGANIZATION
------------------------------------
The following is a summary of the material terms and
conditions of the Reorganization Agreement, which document is
incorporated by reference herein. This summary is qualified in its
entirety by the full text of the Reorganization Agreement. MBI,
upon written or oral request, will furnish a copy of the
Reorganization Agreement, without charge, to any person who
receives a copy of this Proxy
Statement/Prospectus. Such requests should be directed to Jon W.
Bilstrom, General Counsel and Secretary, Mercantile Bancorporation
Inc., P.O. Box 524, St. Louis, Missouri 63166-0524, telephone (314)
425-2525.
GENERAL DESCRIPTION OF THE REORGANIZATION
Subject to the satisfaction of the terms and conditions
set forth in the Reorganization Agreement, as described below, MBIA
will acquire the business and operations of Security Bank, and
shareholders of Security Bank will receive shares of MBI Common
Stock in exchange for their shares of Security Bank Common Stock,
through (i) the sale by Security Bank of all of its assets and the
assignment by Security Bank of all of its liabilities to MBIA, in
exchange for the Shares, (ii) the transfer by MBI (on behalf of
MBIA) of the shares to the Exchange Agent, on behalf of Security
Bank, and (iii) upon consummation of (i) and (ii) above, (A) and
upon the surrender by each Security Bank shareholder of his or her
certificate(s) representing shares of Security Bank Common Stock,
the distribution by the Exchange Agent of 31.189 shares of MBI
Common Stock for each share of Security Bank Common Stock
represented by a surrendered certificate, on behalf of Security
Bank, as a liquidating distribution, and (B) the surrender by
Security Bank of its charter to the OTS. Pursuant to the terms of
the Reorganization Agreement, by way of the Assignment Agreements,
MBIA has assigned its right to receive the assets and its
obligation to assume the liabilities of Security Bank to TCB and
MBCC. Upon consummation of the Reorganization, Security Bank's
corporate existence will terminate. The Distribution Ratio is
subject to certain anti-dilution protections but is not adjustable
based upon the operating results, financial condition or other
factors affecting either MBI, MBIA or Security Bank prior to the
consummation of the Reorganization. The fair market value of MBI
Common Stock to be received pursuant to the Reorganization may
fluctuate and at the consummation of the Reorganization may be more
or less than the current fair market value of such shares.
The amount and nature of the consideration was
established through arm's-length negotiations between MBI and
Security Bank and reflects the balancing of a number of
countervailing factors. The total amount of the consideration
reflects a price both parties concluded was appropriate. See
"- Background of and Reasons for the Reorganization; Board
Recommendations." The fact that the consideration is payable in
shares of MBI Common Stock reflects the potential for change in the
value of the MBI Common Stock and the desire to have the favorable
tax attributes of a "reorganization" for federal income tax
purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET
VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A
SECURITY BANK SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET
VALUE OF MBI COMMON STOCK RECEIVED BY A SECURITY BANK SHAREHOLDER
MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI
COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
- 21 -
<PAGE> 28
Following the Closing Date, each shareholder of Security
Bank will be required to submit to the Exchange Agent a properly
executed letter of transmittal and surrender to the Exchange Agent
the stock certificate(s) representing the shares of Security Bank
Common Stock in order to receive a new stock certificate evidencing
the shares of MBI Common Stock to which such shareholder is
entitled to receive as a liquidating distribution. Following the
Closing Date, the Exchange Agent will mail to each Security Bank
shareholder a notice of consummation of the Reorganization and a
form of letter of transmittal, together with instructions and a
return envelope to facilitate the exchange of such holder's
certificate(s) representing Security Bank Common Stock for
certificate(s) evidencing MBI Common Stock. No dividends or other
distributions will be paid to a Security Bank shareholder with
respect to shares of MBI Common Stock until such shareholder's
letter of transmittal and stock certificates representing Security
Bank Common Stock, or documentation reasonably acceptable to the
Exchange Agent in lieu of lost or destroyed certificates, is
delivered to the Exchange Agent. See "TERMS OF THE PROPOSED
REORGANIZATION - Surrender of Security Bank Stock Certificates and
Receipt of MBI Common Stock." No fractional shares of MBI Common
Stock will be issued in the Reorganization as a liquidating
distribution, but cash will be paid in lieu of such fractional
shares, such cash being calculated by multiplying the holder's
fractional share interest by the closing stock price of MBI Common
Stock on the NYSE Composite Tape as reported in The Wall Street
Journal on the Closing Date of the Reorganization. See
"- Fractional Shares." The shares of MBI Common Stock to be issued
pursuant to the Reorganization will be freely transferable except
by certain shareholders of Security Bank who are deemed to be
"affiliates" of Security Bank. The shares of MBI Common Stock
issued to such affiliates will be restricted in their
transferability in accordance with the rules and regulations
promulgated by the Commission. See "INFORMATION REGARDING MBI
STOCK - Restrictions on Resale of MBI Stock by Affiliates."
OTHER AGREEMENTS
Concurrent with the execution of the Reorganization
Agreement, MBI and certain shareholders, including all directors,
of Security Bank executed separate Voting Agreements by which each
such shareholder agreed that he or she will vote all of the shares
of Security Bank Common Stock that he or she then owned or
subsequently acquires in favor of the approval of the
Reorganization Agreement at the Special Meeting. In addition,
until the earliest to occur of the Effective Time of the
Reorganization, the termination of the Voting Agreements or the
abandonment of the Reorganization, each such shareholder further
agreed that he or she will not vote any such shares in favor of the
approval of any other competing acquisition proposal involving
Security Bank and a third party. Each such shareholder also agreed
that he or she will not transfer shares of Security Bank Common
Stock owned by him or her unless, prior to such transfer, the
transferee executes an agreement in substantially the same form as
the Voting Agreement. As of the Record Date, such shareholders of
Security Bank owned beneficially an aggregate of 7,586 shares of
Security Bank Common Stock, or approximately 73.5% of the issued
and outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Bill F. Johnson, President and Chief Executive Officer of
Security Bank, has entered into an arrangement with MBI whereby Mr.
Johnson will serve as a senior executive officer of a successor of
Security Bank for a period of two years commencing on the Closing
Date. During such two-year period, Mr. Johnson will receive a base
salary of $103,600 per year (inclusive of director's fees, if any),
subject to normal individual increases accorded to employees
consistent with past practice, and be entitled to participate in
MBI's welfare plans and executive incentive programs, to use a
company-owned vehicle and to be reimbursed for country club dues.
In the event of the death or "disability" of Mr. Johnson during the
term of the employment agreement, or in the event his employment is
involuntarily terminated other than for "cause" during such period,
Mr. Johnson, or his estate, will continue to receive the salary
- 22 -
<PAGE> 29
payments as if Mr. Johnson had completed his employment obligation
under the employment agreement. In addition, Mr. Johnson will be
provided a conditional supplemental retirement benefit upon his
retirement from the successor of Security Bank, after two years
from the Closing Date, which will be based upon an average base
salary compensation for the five-year period ending January 1, 1998
and an assumed twenty years of benefit service.
Ritchie D. Howell, Senior Vice President of Security
Bank, has entered into an arrangement with MBI whereby he will
serve as a Senior Vice President of a successor of Security Bank
for a period of one year commencing on the Closing Date. During
such one-year period, Mr. Howell will receive a base salary of
$73,600 per year (inclusive of director's fees, if any), subject to
normal individual increases accorded to employees consistent with
past practices, and be entitled to participate in MBI's welfare
plans and executive incentive programs, to use a company-owned
vehicle and to be reimbursed for country club dues. In the event
of the death or "disability" of Mr. Howell during the term of the
employment agreement, or in the event his employment is
involuntarily terminated other than for "cause" during such period,
Mr. Howell, or his estate, will continue to receive the salary
payments as if Mr. Howell had completed his employment obligation
under the employment agreement.
BACKGROUND OF AND REASONS FOR THE REORGANIZATION; BOARD
RECOMMENDATIONS
BACKGROUNDS OF THE REORGANIZATIONS. Security Bank was
founded on July 3, 1961 as an Arkansas state-chartered savings bank
based in Conway, Arkansas and subsequently converted to a federal
chartered stock savings bank on May 1, 1989. Security Bank's
primary marketing area includes Faulkner County of north central
Arkansas, an area of increasing commercial and population growth.
Economic and regulatory changes, including advances in
technology and increased competition and regulatory complexity,
have led to a consolidation within the banking and thrift
industries. In Arkansas, a number of banks and thrifts or their
holding companies have, during the past few years, been acquired or
have engaged in merger or consolidation transactions due to these
pressures.
From time to time, the Board of Directors of Security
Bank and the management of Security Bank have considered various
strategies for Security Bank, including merging with a larger
company. During prior years, Security Bank has been informally
contacted by several local or regional bank holding companies with
the purpose of pursuing an acquisition of or merger with Security
Bank.
In early 1995, representatives of MBI contacted members
of Security Bank's Board of Directors regarding a potential
acquisition and submitted an expression of interest. After a
review of the expression of interest, the Board of Directors of
Security Bank encouraged MBI to consider a higher price.
The degree of interest expressed by MBI along with the
continuing pace of merger activity among banks and thrifts in
Arkansas prompted Security Bank's Board of Directors to contact
potential merger partners on behalf of Security Bank. During
January through June of 1995, members of the Board of Directors
approached a number of bank holding companies identified by the
Board of Directors as prospective purchasers. The list of
prospective purchasers included a publicly traded bank holding
company based in Arkansas, a large privately held bank holding
company based in Arkansas and one publicly traded bank holding
company from Tennessee.
During this time, MBI expressed a further interest in
acquiring Security Bank. The Board of Directors of Security Bank
determined that MBI's expression of interest was within the range
of adequacy as to price and MBI was encouraged to continue
negotiations. One other interested party expressed an interest in
acquiring Security Bank. Negotiations and contacts between MBI or
this other
- 23 -
<PAGE> 30
party and members of Security Bank's Board of Directors
continued. Through continued contact and negotiation, the
prospective purchasers other than the two mentioned above were
determined by Security Bank not to be interested in making an
adequate proposal at that time.
MBI's final proposal, expressed in June, 1995, called for
a 100% stock for stock tax-free acquisition with a fixed number of
shares of MBI Common Stock to be issued to the Security Bank
shareholders. This number of shares was based upon the trading
price for shares of MBI Common Stock during the days prior to
reaching the final agreement on the remaining terms of the
proposal.
MBI's proposal was deemed to be superior to any other
expression of interest based primarily on the difference in the
purchase price per share for each share of Security Bank Common
Stock, the significantly greater liquidity of MBI Common Stock and
the superior dividend rate on MBI Common Stock.
Members of the Board of Directors of Security Bank
thereupon began negotiations with MBI with respect to a definitive
agreement. After further negotiation and a mutual review by each
party of the respective operations of the other party, the Board of
Directors of Security Bank approved the definitive agreement at a
special meeting held on July 7, 1995. MBI, MBIA and Security Bank
subsequently executed the definitive agreement on July 7, 1995.
Due to regulatory considerations, MBI, MBIA and Security Bank
agreed to revise the structure of the transaction such that it
would be affected through a purchase and assumption transaction
rather than a merger. On September 18, 1995, MBI, MBIA and
Security Bank executed an amended and restated agreement. The
Board of Directors of Security Bank previously had approved the
Reorganization Agreement at a special meeting held on September 18,
1995. MBIA was represented by representatives of MBI during
negotiations with Security Bank.
SECURITY BANK'S REASONS AND BOARD RECOMMENDATION. In
light of the foregoing, the Board of Directors of Security Bank has
voted to unanimously recommend the approval of the Reorganization
Agreement by the shareholders of Security Bank for, among others,
the following reasons:
(i) The consideration to be paid by MBI (on behalf of
MBIA). See "TERMS OF THE PROPOSED REORGANIZATION - General
Description of the Reorganization." Depending upon the price of
MBI Common Stock used in the calculation, the transaction value of
consideration to be delivered by MBI reflects a price-to-book
multiple of between 1.65 and 1.8 times Security Bank's unaudited
book value as of June 30, 1995. The Board of Directors of Security
Bank determined that these multiples compared favorably with the
ratios of recently completed comparable bank and thrift merger
transactions in Arkansas;
(ii) The trends in the banking industry are toward
consolidation and increased regulation, particularly, recent
changes have resulted in an environment where community banks and
thrifts have commanded in the past, and for some indefinite future
period will command, attractive purchase prices; and the Board of
Directors of Security Bank sought to take advantage of this
environment; and prospective changes (ultimately adopted) in
calculation of deposit insurance premiums for banks may
competitively disadvantage thrifts and savings banks such as
Security Bank in the future;
(iii) Security Bank will benefit from MBI's capital,
operations and regulatory expertise and management talent, and may
achieve certain economies of scale in its banking operations;
(iv) Management of Security Bank believes that MBI's
philosophy is to provide its community banks with a substantial
degree of operating autonomy, generally leaving existing management
- 24 -
<PAGE> 31
in place to manage the institution consistent with past management
culture, so long as such culture is not inconsistent with MBI's
policies; and
(v) The annual dividend yield on MBI Common Stock
offered in exchange for Security Bank Common Stock substantially
exceeds the historical yield on Security Bank Common Stock,
and there is a much broader and more liquid market for MBI Common
Stock, which is listed and traded on the NYSE.
THE BOARD OF DIRECTORS OF SECURITY BANK UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF SECURITY BANK VOTE FOR THE
---
PROPOSALS TO APPROVE THE REORGANIZATION AGREEMENT AND THE
DISSOLUTION.
MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive
Committee of the Board of Directors of MBI considered a number of
factors, including, among other things, the financial condition of
Security Bank and projected synergies which are anticipated to
result from the Reorganization. The Executive Committee concluded
that the Reorganization presents an unique opportunity for MBI and
MBIA to increase their presence in central Arkansas through the
acquisition of an established banking organization having
operations in the targeted area. MBI's decision to pursue
discussions with Security Bank was primarily a result of MBI's
assessment of the value of Security Bank's banking franchise, its
asset base within that area and the compatibility of the businesses
of the two banking organizations.
CONDITIONS OF THE REORGANIZATION
The respective obligations of MBI, MBIA and Security Bank
to consummate the Reorganization are subject to the satisfaction of
certain mutual conditions, including the following:
(1) The Reorganization Agreement shall be approved
by the holders of at least two-thirds of the outstanding
shares of Security Bank Common Stock at the Special
Meeting.
(2) The Reorganization Agreement and the
transactions contemplated therein shall have been
approved by the Federal Reserve Board, the OTS, the
Comptroller, the FDIC, the Arkansas Commissioner and any
other federal and/or state regulatory agency whose
approval is required for the consummation of the
transactions contemplated therein, and all waiting
periods after such approvals required by law or
regulation have been satisfied.
(3) The Registration Statement of which this Proxy
Statement/Prospectus is a part, registering shares of MBI
Common Stock to be issued in the Reorganization, shall
have been declared effective and not be subject to a stop
order or any threatened stop order and the shares of MBI
Common Stock to be issued in the Reorganization shall
have been listed on the NYSE.
(4) Neither Security Bank, MBI nor MBIA shall be
subject to any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or
prohibits the consummation of the Reorganization.
(5) Each of MBI, MBIA and Security Bank shall have
received from Thompson & Mitchell an opinion (which
opinion shall not have been withdrawn at or prior to the
Effective Time) reasonably satisfactory in form and
substance to it to the
- 25 -
<PAGE> 32
effect that the Reorganization will constitute a
reorganization within the meaning of Section 368 of the
Code and to the effect that, as a result of the
Reorganization, except with respect to cash received in
lieu of fractional share interests, holders of Security
Bank Common Stock who receive MBI Common Stock in the
Reorganization will not recognize gain or loss for federal
income tax purposes, the basis of such MBI Common Stock
will equal the basis of the Security Bank Common Stock for
which it is exchanged and the holding period of such MBI
Common Stock will include the holding period of the
Security Bank Common Stock for which it is exchanged,
assuming that such Security Bank Common Stock is a capital
asset in the hands of the holder thereof as of the
Effective Time.
The obligations of MBI and MBIA to consummate the
Reorganization are subject to the satisfaction, unless waived, of
certain other conditions, including the following:
(1) The representations and warranties of Security
Bank made in the Reorganization Agreement shall be true
and correct in all material respects as of July 7, 1995
and as of the Effective Time (as though made on and as of
the Effective Time) except (i) to the extent such
representations and warranties are by their express
provisions made as of a specified date, (ii) where the
facts which caused the failure of any representation or
warranty to be so true and correct have not resulted, and
are not likely to result, in a material adverse effect on
the financial condition, results of operations or
business of Security Bank and its subsidiaries taken as
a whole (excluding changes to laws and regulations,
generally accepted or regulatory accounting principles,
or interpretations thereof, or changes in economic
conditions, including interest rates applicable to
commercial banking institutions generally) and (iii) for
the effect of transactions contemplated by the
Reorganization Agreement, and MBI shall have received a
certificate of the President and Chief Financial Officer
of Security Bank, acting solely in their capacities as
officers of Security Bank, to that effect.
(2) Security Bank shall have performed in all
material respects all obligations required to be
performed by it under the Reorganization Agreement prior
to the Effective Time, and MBI shall have received a
certificate of the President and Chief Financial Officer
of Security Bank, acting solely in their capacities as
officers of Security Bank, to that effect.
(3) Security Bank shall have obtained any and all
material permits, authorizations, consents, waivers and
approvals required of Security Bank for the lawful
consummation of the Reorganization.
(4) Since July 7, 1995, there shall have been no
material adverse change in the financial condition,
results of operations or business of Security Bank or its
subsidiaries, taken as a whole, except as may have
resulted from changes to laws and regulations, generally
accepted or regulatory accounting principles, or
interpretations thereof, or changes in economic
conditions, including interest rates, applicable to
thrift institutions generally.
(5) Rose Law Firm, counsel to Security Bank, shall
have delivered to MBI an opinion regarding certain legal
matters.
- 26 -
<PAGE> 33
(6) MBI and MBIA shall have received from each of
the affiliates of Security Bank an executed agreement
with respect to certain limitations on the transfer of
shares of MBI Common Stock that he, she or it is to
receive in the Reorganization as a liquidating
distribution.
(7) MBI and MBIA shall have received from Security
Bank all additional documents as shall be necessary, in
the reasonable opinion of MBI and MBIA, to consummate the
Reorganization and carry out the intent and purposes of
the Reorganization Agreement.
Security Bank's obligation to consummate the
Reorganization is subject to the satisfaction, unless waived, of
certain other conditions, including the following:
(1) The representations and warranties of MBI and
MBIA made in the Reorganization Agreement shall be true
and correct in all material respects as of July 7, 1995
and as of the Effective Time (as though made on and as of
the Effective Time) except (i) to the extent such
representations and warranties are by their express
provisions made as of a specified date, (ii) where the
facts which caused the failure of any representation or
warranty to be so true and correct have not resulted, and
are not likely to result, in a material adverse effect on
the financial condition, results of operations or
business of MBI and its subsidiaries taken as a whole
(excluding changes to laws and regulations, generally
accepted or regulatory accounting principles, or
interpretations thereof, or changes in economic
conditions, including interest rates applicable to
commercial banking institutions generally) and (iii) for
the effect of transactions contemplated by the
Reorganization Agreement, and Security Bank shall have
received a certificate of the Group President - Emerging
Markets of MBI, signing solely in his capacity as an
officer of MBI, to that effect.
(2) MBI and MBIA shall have performed in all
material respects all obligations required to be
performed by it under the Reorganization Agreement prior
to the Effective Time, and Security Bank shall have
received a certificate of the Group President - Emerging
Markets of MBI, signing solely in his capacity as an
officer of MBI, to that effect.
(3) MBI and MBIA shall have obtained any and all
material permits, authorizations, consents, waivers and
approvals required of MBI and MBIA for the lawful
consummation of the Reorganization.
(4) Since July 7, 1995, there shall have been no
material adverse change in the financial condition,
results of operations or business of MBI and its
subsidiaries, taken as a whole, except as may have
resulted from changes to laws and regulations, generally
accepted or regulatory accounting principles, or
interpretations thereof, or changes in economic
conditions, including interest rates, applicable to
commercial banking institutions generally.
(5) Thompson & Mitchell, counsel to MBI and MBIA,
shall have delivered to Security Bank an opinion
regarding certain legal matters.
- 27 -
<PAGE> 34
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement may be terminated at any
time prior to the Closing Date, whether before or after approval by
the shareholders of Security Bank, by mutual consent of the
Executive Committee of the Board of Directors of MBI and the
respective Board of Directors of MBIA and Security Bank, or
unilaterally by the Executive Committee of the Board of Directors
of MBI, the Board of Directors of MBIA or the Board of Directors of
Security Bank: (i) at any time after June 30, 1996, if the
Reorganization has not been consummated by such date (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained in
the Reorganization Agreement); (ii) if the Federal Reserve Board,
the OTS, the Comptroller, the FDIC, the Arkansas Commissioner or
any other federal and/or state regulatory authority whose approval
is required for consummation of the Reorganization shall have
issued a final nonappealable denial of such approval; (iii) if the
shareholders of Security Bank shall not have approved the
Reorganization Agreement at the Special Meeting; or (iv) in the
event of a breach by the other party of any representation,
warranty or agreement contained in the Reorganization Agreement,
which breach is not cured within 30 days after written notice
thereof is given to the party committing such breach or is not
waived by such other party. The Executive Committee of the Board
of Directors of MBI and the Board of Directors of MBIA may
terminate the Reorganization Agreement in certain circumstances if
Security Bank acquires property after July 7, 1995 and if
environmental investigations of such acquired property, together
with all previously acquired property after such date, indicates
that the estimated cost of corrective or remedial action with
regard to such property would exceed $250,000 in the aggregate. No
assurance can be given that the Reorganization will be consummated
on or before June 30, 1996 or that MBI, MBIA or Security Bank will
not elect to terminate the Reorganization Agreement if the
Reorganization has not been consummated on or before such date.
In the event of the termination of the Reorganization
Agreement, it shall become void, and there shall be no liability on
the part of any party except, that (i) confidentiality and
indemnification obligations shall survive termination, (ii) MBIA
shall pay all printing, mailing and filing expenses with respect to
the Registration Statement and this Proxy Statement/Prospectus and
(iii) in the case of termination due to continued material breach
after notice and opportunity to cure, the breaching party shall not
be relieved of liability to the nonbreaching party arising from the
willful nonperformance of any covenant in the Reorganization
Agreement.
INDEMNIFICATION
Security Bank and MBIA have agreed to indemnify each
other against any claims or liabilities to which any such party may
become subject under federal or state securities laws or
regulations, to the extent that such claim or liability arises out
of information furnished to the party subject to such liability by
the other party, or out of an omission by such other party to state
a necessary or material fact in the Registration Statement of which
this Proxy Statement/Prospectus is a part.
CLOSING DATE
The Reorganization will be consummated and become
effective on the Closing Date upon satisfaction of all conditions
to the Reorganization. Under the Reorganization Agreement, unless
the parties otherwise agree, the Closing Date shall be such date as
MBIA shall notify Security Bank in writing but (i) not earlier than
(A) the receipt of the requisite approval of the Reorganization
Agreement by the shareholders of Security Bank and (B) the approval
of the Reorganization by the Federal Reserve Board, the OTS, the
Comptroller, the FDIC, the Arkansas Commissioner and any other
federal and/or state regulatory agency whose approval is required,
and all waiting periods for such approvals have been
- 28 -
<PAGE> 35
satisfied, and (ii) not later than the first business day of the first
full calendar month commencing at least five days after the approval
of the Reorganization Agreement by the shareholders of Security Bank,
the approval date of the Reorganization by the Regulatory Authorities
and the expiration of all required waiting periods. The Reorganization
will be consummated and become effective at the Effective Time.
SURRENDER OF SECURITY BANK STOCK CERTIFICATES AND RECEIPT OF MBI
COMMON STOCK
At the Effective Time of the Reorganization, MBI, on
behalf of MBIA, will deliver to the Exchange Agent, on behalf of
Security Bank, the Shares in exchange for and as full payment for
the purchase of all of the assets and the assumption of all of the
liabilities of Security Bank by TCB and MBCC. Each holder of
Security Bank Common Stock, upon submission to the Exchange Agent,
on behalf of Security Bank, of a properly executed letter of
transmittal and surrender to the Exchange Agent of the stock
certificate(s) representing shares of Security Bank Common Stock,
will be entitled to receive, as a liquidating distribution, a stock
certificate evidencing 31.189 shares of MBI Common Stock for each
share of Security Bank Common Stock evidenced by the
certificate(s). See "- General Description of the Reorganization."
Following the Effective Time of the Reorganization, the
Exchange Agent will mail to each Security Bank shareholder of
record as of the Effective Time notification of the consummation of
the Reorganization and of entitlement to their share of the Shares
as a liquidating distribution. The Exchange Agent will also
provide a letter of transmittal and instructions as to the
procedure for the surrender of the stock certificates evidencing
the Security Bank Common Stock and the receipt of shares of MBI
Common Stock as a liquidating distribution. It will be the
responsibility of each holder of Security Bank shares to submit all
certificates evidencing such holder's shares of Security Bank
Common Stock to the Exchange Agent. No dividends or other
distribution will be paid to a Security Bank shareholder with
respect to shares of MBI Common Stock until such shareholder's
properly completed letter of transmittal and stock certificates
representing Security Bank Common Stock, or, in lieu thereof, such
evidence of a lost, stolen or destroyed certificate and/or such
insurance bond as the Exchange Agent may reasonably require in
accordance with customary exchange practices, are delivered to the
Exchange Agent. All dividends or other distributions on the MBI
Common Stock declared between the Closing Date of the
Reorganization and the date of the surrender of a Security Bank
stock certificate will be held for the benefit of the shareholder
and will be paid to the shareholder, without interest thereon, upon
the surrender of such stock certificate or documentation and/or
insurance bond in lieu thereof.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued
to the shareholders of Security Bank in connection with the
Reorganization. Each holder of Security Bank Common Stock who
otherwise would have been entitled to receive a fraction of a share
of MBI Common Stock as a liquidating distribution shall receive in
lieu thereof cash, without interest, in an amount equal to the
holder's fractional share interest multiplied by the closing stock
price of MBI Common Stock on the NYSE Composite Tape as reported in
The Wall Street Journal on the Closing Date of the Reorganization.
Cash received by Security Bank shareholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE REORGANIZATION."
REGULATORY APPROVAL
In addition to the approval of the Reorganization
Agreement by the shareholders of Security Bank, the obligations of
the parties to effect the Reorganization are subject to the prior
approval of the Reorganization by each of the Federal Reserve Board,
the OTS, the Comptroller, the FDIC and the
- 29 -
<PAGE> 36
Arkansas Commissioner. Each of the OTS, the Federal Reserve Board,
the FDIC and the Arkansas Commissioner has granted its approval of
the Reorganization while an application currently is pending with the
Comptroller.
In reviewing the applications, the Regulatory Authorities
will consider, among other things, whether the effect of the
Reorganization would be to substantially lessen competition in the
relevant markets. In addition, the Regulatory Authorities will
consider whether the combined organization meets the requirements
of the Community Reinvestment Act of 1977, as amended, by assessing
the involved entities' respective records of meeting the credit
needs of the local communities in which they are chartered,
consistent with the safe and sound operation of such institutions.
In their review, the Regulatory Authorities will also examine the
financial and managerial resources and future prospects of the
combined organization and analyze the capital structure and
soundness of the resulting entity. The Regulatory Authorities have
the authority to deny an application if they conclude that the
combined organization would have inadequate capital.
MBI and Security Bank are not aware of any governmental
approvals or actions that may be required for consummation of the
Reorganization other than as described above. Should any other
approval or action be required, it is presently contemplated that
such approval or action would be sought. There can be no assurance
that any necessary regulatory approvals or actions will be timely
received or taken, that no action will be brought challenging such
approval or action or, if such a challenge is brought, as to the
result thereof, or that any such approval or action will not be
conditioned in a manner that would cause the parties to abandon the
Reorganization. See "SUPERVISION AND REGULATION."
BUSINESS PENDING THE REORGANIZATION
The Reorganization Agreement provides that, during the
period from July 7, 1995 to the Effective Time, Security Bank will
conduct its business according to the ordinary and usual course
consistent with past and current practices and use its best efforts
to maintain and preserve its business organization, employees and
advantageous business relationships and retain the services of its
officers and key employees.
Furthermore, from July 7, 1995 to the Closing Date,
except as provided in the Reorganization Agreement, Security Bank
will not, and will not permit any of its subsidiaries to, without
the prior written consent of MBI and MBIA:
(1) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from any of
the Security Bank subsidiaries to Security Bank or to
another of the Security Bank subsidiaries), except that
Security Bank may declare and pay regular annual cash
dividends of not more than $6.00 per share on the
Security Bank Common Stock. For any partial year after
1995, Security Bank shall be permitted to declare and pay
dividends equal to $1.50 per share on the Security Bank
Common Stock for each full calendar quarter ending prior
to the Effective Time;
(2) enter into or amend any employment, severance
or similar agreement or arrangement with any director,
officer or employee, or materially modify any of the
Security Bank employee plans or policies or grant any
salary or wage increase or materially increase any
employee benefit (including incentive or bonus payments),
except (i) normal individual increases in compensation
(including bonus payments) to employees consistent with
past practice, (ii) as required by law or contract and
(iii) such increases
- 30 -
<PAGE> 37
of which Security Bank notifies MBI in writing and which MBI
does not disapprove within ten days of the receipt of such
notice;
(3) authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter
into an agreement in principle with respect to, any
merger, consolidation or business combination (other than
the Reorganization), any acquisition of a material amount
of assets or securities, any disposition of a material
amount of assets or securities or any release or
relinquishment of any material contract rights;
(4) propose or adopt any amendments to the Articles
of Incorporation or Association, as the case may be, or
other charter documents or bylaws;
(5) issue, sell, grant, confer or award any
options, warrants, conversion rights or other rights or
effect any stock split or adjust, combine, reclassify or
otherwise change its capitalization as it existed on July
7, 1995;
(6) purchase, redeem, retire, repurchase or
exchange, or otherwise acquire or dispose of, directly or
indirectly, any capital stock, options, warrants,
conversion rights or other rights, whether pursuant to
the terms of such capital stock, options, warrants,
conversion rights or other rights or otherwise;
(7) (i) without first consulting with MBI and MBIA,
enter into, renew or increase any loan or credit
commitment (including stand-by letters of credit) to, or
invest or agree to invest in, any person or entity or
modify any of the material provisions or renew or
otherwise extend the maturity date of any existing loan
or credit commitment (collectively, "Lend to") in an
amount in excess of $400,000 with respect to commercial
transactions (including commercial construction
transactions), $350,000 with respect to residential
transactions, or in any amount which, when aggregated
with any and all loans or credit commitments of Security
Bank and its subsidiaries to such person or entity, would
be in excess of $350,000; (ii) without first obtaining
the written consent of MBI and MBIA, lend to any person
or entity in an amount in excess of $500,000 or in any
amount which, or when aggregated with any and all loans
or credit commitments of Security Bank and its
subsidiaries to such person or entity, would be in excess
of $750,000; (iii) Lend to any person other than in
accordance with lending policies as in effect on July 7,
1995, except that in the case of clauses (i) and (iii)
hereof, Security Bank or any of its subsidiaries may make
any such loan in the event (A) Security Bank or any of
its subsidiaries has delivered to MBI and MBIA or their
designated representative a notice of its intention to
make such loan and such information as MBI or MBIA or
their designated representative may reasonably require in
respect thereof and (B) MBI or MBIA or their designated
representative shall not have reasonably objected to such
loan by giving written or facsimile notice of such
objection within two business days following the delivery
to MBI and MBIA or their designated representative of the
notice of intention and information as aforesaid; or (iv)
Lend to any person or entity any of the loans or other
extensions of credit to which or investments in which are
on a "watch list" or similar internal report of Security
Bank or any subsidiary of Security Bank (except those
denoted "pass" thereon), in an amount in excess of
$100,000; provided, however, that Security Bank and any
Security Bank subsidiary shall not be prohibited from
honoring any contractual obligation in existence on July
7, 1995 or, with respect to loans described in clause (i)
above, making such loans after consulting with MBI and
MBIA.
- 31 -
<PAGE> 38
Notwithstanding clauses (i) and (ii), Security Bank shall be
authorized, without first consulting with MBI and MBIA or
obtaining MBI's and MBIA's prior written consent, to
increase the aggregate amount of the credit facilities
theretofore established in favor of any person or entity
(each a "Pre-Existing Facility"), provided that the
aggregate amount of any and all such increases shall not be
in excess of the lesser of five percent (5%) of such
Pre-Existing Facilities or $25,000;
(8) directly or indirectly, including through its
officers, directors, employees or other representatives:
(i) initiate, solicit or encourage any
discussions, inquiries or proposals with any third
party (other than MBI and MBIA) relating to the
disposition of any significant portion of the
business or assets of Security Bank or any of its
subsidiaries or the acquisition of the capital
stock (or rights or options exercisable for, or
securities convertible or exchangeable into,
capital stock) of Security Bank or any of its
subsidiaries or the merger of Security Bank or any
of its subsidiaries with any person (other than MBI
and MBIA) or any similar transaction (each such
transaction being referred to herein as an
"Acquisition Transaction"); or
(ii) provide any third party with information
or assistance or negotiate with any third party
with respect to an Acquisition Transaction, and
Security Bank shall promptly notify MBI and MBIA
orally of all the relevant details relating to all
inquiries, indications of interest and proposals
which it may receive with respect to any
Acquisition Transaction.
(9) take any action that would (i) materially
impede or delay the consummation of the transactions
contemplated by the Reorganization Agreement or the
ability of MBI, MBIA or Security Bank to obtain any
approval of any regulatory authority required for the
transactions contemplated by the Reorganization Agreement
or to perform its covenants and agreements under the
Reorganization Agreement, or (ii) prevent or impede the
transactions contemplated by the Reorganization Agreement
from qualifying as a reorganization within the meaning of
Section 368 of the Code;
(10) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other
entity;
(11) materially restructure or change its investment
securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is
classified or reported;
(12) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter
into any transaction or intentionally take or omit to
take any other act which would make any of the
representations and warranties of Security Bank in the
Reorganization Agreement untrue or incorrect in any
material respect if made anew after engaging in such
activity, entering into such transaction or taking or
omitting such other act; or
- 32 -
<PAGE> 39
(13) enter into, increase or renew any loan or
credit commitment (including standby letters of credit)
to any executive officer or director of Security Bank or
any subsidiary of Security Bank, any shareholder of
Security Bank, or any entity controlled, directly or
indirectly, by any of the foregoing or engage in any
transaction with any of the foregoing which is of the
type or nature sought to be regulated in 12 U.S.C.
Section 371c and 12 U.S.C. Section 371c-1, without first
obtaining the prior written consent of MBI and MBIA,
which consent shall not be unreasonably withheld.
From the date of the Reorganization Agreement to the
Closing Date, except as provided in the Reorganization Agreement,
MBI and MBIA will not, and will not permit any of their
subsidiaries to, without the prior written consent of Security
Bank, enter into any transaction or take or omit to take any other
action:
(1) that would (i) materially impede or delay the
consummation of the transactions contemplated by the
Reorganization Agreement or the ability of MBI, MBIA or
Security Bank to obtain any approval of any regulatory
authority required for the transactions contemplated by
the Reorganization Agreement or to perform its covenants
and agreements under the Reorganization Agreement, or
(ii) prevent the transactions contemplated by the
Reorganization Agreement from qualifying as a
reorganization within the meaning of Section 368 of the
Code; or
(2) which would make any of the representations and
warranties of MBI or MBIA in the Reorganization Agreement
untrue or incorrect in any material respect if made anew
after engaging in such activity, entering into such
transaction or taking or omitting such other action.
WAIVER AND AMENDMENT
Any provision of the Reorganization Agreement, including,
without limitation, the conditions to the consummation of the
Reorganization and the restrictions described under "- Business
Pending the Reorganization," may be (i) waived in writing at any
time by the party that is, or whose shareholders are, entitled to
the benefits thereof, or (ii) amended at any time by written
agreement of the parties approved by or on behalf of their
respective Boards of Directors or Executive Committees, whether
before or after the Special Meeting; provided, however, that after
approval of the Reorganization Agreement by the shareholders of
Security Bank at the Special Meeting no such modification may
(i) alter or change the amount or kind of consideration to be
received by the Security Bank shareholders in the Reorganization or
(ii) adversely affect the tax treatment to Security Bank
shareholders as a result of receiving the shares of MBI Common
Stock in the Reorganization as a liquidating distribution.
ACCOUNTING TREATMENT
The Reorganization is intended to be accounted for under
the purchase method of accounting. Accordingly, data regarding the
financial condition and results of operations of Security Bank will
be included in MBI's consolidated financial statements on and after
the Closing Date.
- 33 -
<PAGE> 40
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
-------------------------------------------------------------
The following discussion is based upon an opinion of
Thompson & Mitchell, counsel to MBI and MBIA ("Counsel"), and
except as otherwise indicated, reflects Counsel's opinion. The
discussion is a general summary of the material United States
federal income tax ("federal income tax") consequences of the
Reorganization to certain Security Bank shareholders and does not
purport to be a complete analysis or listing of all potential tax
considerations or consequences relevant to a decision whether to
vote for the approval of the Reorganization. The discussion does
not address the federal income tax consequences of the
Reorganization that are applicable to Security Bank shareholders
subject to special federal income tax treatment including (without
limitation) foreign persons, insurance companies, tax-exempt
entities, retirement plans, dealers in securities and persons who
acquired their Security Bank Common Stock pursuant to the exercise
of employee stock options or otherwise as compensation. Each
shareholder's individual circumstances may affect the tax
consequences of the Reorganization to such shareholder. In
addition, the discussion does not address the effect of any
applicable state, local or foreign tax laws, or the effect of any
federal tax laws other than those pertaining to the federal income
tax. AS A RESULT, EACH SECURITY BANK SHAREHOLDER IS URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE REORGANIZATION TO SUCH SHAREHOLDER. The
discussion assumes that shares of Security Bank Common Stock are
held as capital assets (within the meaning of Section 1221 of the
Code) at the Effective Time.
Security Bank has received an opinion from Counsel to the
effect that, assuming the Reorganization occurs in accordance with
the Reorganization Agreement, the Reorganization will constitute a
"reorganization" under Section 368(a)(1) of the Code with the
following federal income tax consequences:
(1) Security Bank shareholders will recognize no
gain or loss as a result of the surrender of their
Security Bank Common Stock solely for shares of MBI
Common Stock pursuant to the Reorganization, except with
respect to cash received in lieu of fractional shares, if
any, as discussed below.
(2) The aggregate adjusted tax basis of the shares
of MBI Common Stock received by each Security Bank
shareholder in the Reorganization (including any
fractional share of MBI Common Stock deemed to be
received, as described in paragraph (4) below) will be
equal to the aggregate adjusted tax basis of the shares
of Security Bank Common Stock surrendered.
(3) The holding period of the shares of MBI Common
Stock received by each Security Bank shareholder in the
Reorganization (including any fractional share of MBI
Common Stock deemed to be received, as described in
paragraph 4 below) will include the holding period of the
shares of Security Bank Common Stock surrendered
therefor.
(4) A Security Bank shareholder who receives cash
in the Reorganization in lieu of a fractional share of
MBI Common Stock will be treated as if the fractional
share had been received by the shareholder in the
Reorganization and then redeemed by MBI in return for the
cash. The receipt of such cash will cause the recipient
to recognize capital gain or loss equal to the difference
between the amount of cash received and the portion of
such holder's adjusted tax basis in the shares of MBI
Common Stock allocable to the fractional share interest.
- 34 -
<PAGE> 41
Counsel's opinion is subject to the conditions and
assumptions stated therein and relies upon various representations
made by MBI, Security Bank and certain shareholders of Security
Bank. If any of these representations or assumptions is
inaccurate, the tax consequences of the Reorganization could differ
from those described herein. Counsel's opinion is also based upon
the Code, regulations proposed or promulgated thereunder, and
administrative interpretations and judicial precedents relating
thereto, all of which are subject to change. Any such change,
which may or may not be retroactive, could alter the tax
consequences discussed herein. The opinion is available without
charge upon written request to Jon W. Bilstrom, General Counsel and
Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis,
Missouri 63166-0524. The receipt of Counsel's opinion again as of
the date of the closing of the Reorganization is a condition to the
consummation of the Reorganization. An opinion of counsel, unlike
a private letter ruling from the Internal Revenue Service (the
"Service"), has no binding effect on the Service. The Service
could take a position contrary to Counsel's opinion and, if the
matter were litigated, a court may reach a decision contrary to the
opinion. Neither MBI nor Security Bank has requested an advance
ruling as to the federal income tax consequences of the
Reorganization, and the Service is not expected to issue such a
ruling.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION TO CERTAIN
SECURITY BANK SHAREHOLDERS AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SECURITY BANK
SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL
INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY
NOT APPLY TO EACH SECURITY BANK SHAREHOLDER. ACCORDINGLY, EACH
SECURITY BANK SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND
OTHER TAX LAWS.
RIGHTS OF DISSENTING SHAREHOLDERS OF SECURITY BANK
--------------------------------------------------
Shareholders of Security Bank will have dissenters'
rights if they have not voted in favor of the Reorganization
Agreement and if they comply with the procedures for the exercise
of such rights as set forth in Section 552.14. These provisions
contain detailed information as to a shareholder's right to dissent
and obtain payment for his or her shares and the procedural steps
to be followed by a dissenting shareholder.
The following description is only a summary of these
provisions and is qualified in its entirety by referenced to
Section 552.14, which is attached to this Proxy
Statement/Prospectus as Annex A.
-------
A Security Bank shareholder electing to exercise his or
her rights to dissent from the Reorganization is required to file
with the Security Bank (addressed to Mr. Bill F. Johnson,
President, Security Bank of Conway, F.S.B., 1122 Van Ronkle,
Conway, Arkansas 72033) prior to voting on the Reorganization, a
written statement identifying himself or herself and stating his or
her intention to demand appraisal of and payment for his or her
shares. This demand must be made in addition to, and separate
from, any proxy or vote against the Reorganization Agreement.
If the Reorganization is effected, within ten days
thereafter the resulting institution must (i) give notice of the
Closing Date by mail to any dissenting shareholder who has not
voted in favor of
- 35 -
<PAGE> 42
the Reorganization, (ii) make a written offer to each dissenting
shareholder to pay for his or her shares of Security Bank Common Stock
a specified price deemed by the resulting institution to be the fair
value of such shares, and (iii) inform any dissenting shareholder
that, within 60 days of the Effective Time, the dissenting shareholder
must file a petition with the Office of Thrift Supervision, 1700 G
Street, N.W., Washington, DC 20552, if the shareholder and the
resulting institution do not agree as to the fair market value and
surrender the certificates representing the shares as to which the
dissent applies. A shareholder entitled to file a petition with the
OTS who fails to file such petition within 60 days of the Closing Date
shall be deemed to have accepted the terms offered under the
Reorganization Agreement.
If within 60 days of the Closing Date, the fair value is
agreed upon between the resulting institution and any dissenting
shareholder, payment will be made within 90 days of the Closing
Date. If within such period, however, the resulting institution
and any dissenting shareholder do not agree as to the fair value of
such shares, such shareholder may file a petition with the OTS
demanding a determination of the fair market value of the stock.
A copy of such petition also must be sent by registered or
certified mail to the resulting institution. Any such shareholder
who fails to file the petition within 60 days of the Closing Date
shall be deemed to have accepted the liquidating distribution that
is payable with respect to the shares of Security Bank Common Stock
as set forth in the Reorganization Agreement.
Each dissenting shareholder, within 60 days of the
Closing Date, must submit his or her stock certificates to the
Exchange Agent for notation thereon that an appraisal and payment
have been demanded. The stock certificates should be sent to
KeyCorp Shareholder Services, Inc., c/o Corporate Trust Division,
P.O. Box 6477, Cleveland, Ohio 44101. Any shareholder who fails to
submit his or her certificates will not be entitled to appraisal
rights and will be deemed to have accepted the terms of the
Reorganization Agreement.
Any shareholder who is demanding payment for his or her
shares in accordance with Section 552.14 shall not thereafter be
entitled to vote or exercise any rights of a shareholder except the
right to receive payment for his or her shares pursuant to the
provisions of Section 552.14 and the right to maintain certain
legal actions. The respective shares for which payment has been
demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
Because of the detailed provisions and requirements of
Section 552.14, each dissenting shareholder should consult with his
or her own legal counsel concerning the procedures and remedies
available to him or her. Any failure to follow the detailed
procedures set forth in Section 552.14 may result in a shareholder
losing his or her right to claim fair value as described therein.
THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS'
RIGHTS UNDER THE RULES AND REGULATIONS OF THE OTS IS QUALIFIED IN
ITS ENTIRETY BY THE TEXT OF SECTION 552.14 WHICH IS ATTACHED HERETO
AS ANNEX A.
-------
PRO FORMA FINANCIAL INFORMATION
-------------------------------
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated
selected historical per share data of MBI and Security Bank and the
corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed Reorganization and the proposed
acquisitions of Sterling and Hawkeye. The data presented is based
upon the supplemental consolidated financial statements and
related notes of MBI and the consolidated financial statements and
related notes of Security Bank, Sterling and Hawkeye
- 36 -
<PAGE> 43
included in this Proxy Statement/Prospectus or in documents
incorporated herein by reference, and the pro forma combined
consolidated balance sheet and income statements, including the notes
thereto, appearing elsewhere herein. This information should be read
in conjunction with such historical and pro forma financial
statements and related notes thereto. The assumptions used in the
preparation of this table appear in the notes to the pro forma
financial information appearing elsewhere in this Proxy
Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." This
data is not necessarily indicative of the results of the future
operations of the combined organization or the actual results that
would have occurred if the Reorganization or the proposed
acquisitions of Sterling and Hawkeye had been consummated prior to
the periods indicated.
<TABLE>
<CAPTION>
MBI/ MBI/ALL Security Bank/
Security Bank Security Bank Entities All Entities
MBI Security Bank Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined<F1> Equivalent<F2> Combined<F3> Equivalent<F2>
-------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
September 30, 1995 $25.43 $832.00 $25.42 $792.82 $25.15 $784.40
December 31, 1994 23.47 752.00 23.47 732.01 23.08 719.84
Cash Dividends Declared per Share:
Nine months ended September 30, 1995 $ 0.99 $ -- $ 0.99 $ 30.88 $ 0.99 $ 30.88
Year ended December 31, 1994 1.12 6.00 1.12 34.93 1.12 34.93
Earnings per Share Before Change in
Accounting Principle:
Nine months ended September 30, 1995 $ 2.95 $ 80.73 $ 2.95 $ 92.01 $ 2.89 $ 90.14
Year ended December 31, 1994 3.22 82.53 3.21 100.12 3.22 100.43
Market Price per Share:
At July 7, 1995<F4> $44.38 -- n/a n/a n/a n/a
At December 14, 1995<F4> 44.75 -- n/a n/a n/a n/a
<FN>
- ----------------------
<F1> Includes the effect of pro forma adjustments for Security Bank
as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F2> Based on the pro forma combined per share amounts multiplied by 31.189,
the distribution ratio applicable to one share of Security Bank Common Stock.
Further explanation of the assumptions used in the preparation of the pro
forma combined consolidated financial statements is included in the notes to
pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION."
<F3> Includes the effect of pro forma adjustments for Security Bank, Sterling
and Hawkeye as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F4> The market value of MBI Common Stock was determined as of the last
trading day preceding the public announcement of the proposed acquisition and
as of the latest available date prior to the distribution of the Proxy
Statement/Prospectus, based on the last sale price as reported on the NYSE
Composite Tape. There are no publicly available quotations of Security Bank
Common Stock and management of Security Bank is not aware of any trades in
Security Bank Common Stock for the last three years.
</TABLE>
- 37 -
<PAGE> 44
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance sheet
gives effect to the Reorganization and the proposed acquisitions of Sterling and
Hawkeye as if each of the acquisitions had been consummated on
December 31, 1994.
The following pro forma combined consolidated income statement for
the nine months ended September 30, 1995 and for the year ended December 31,
1994 set forth the results of operations of MBI combined with the results of
operations of Security Bank, Sterling and Hawkeye as if the Reorganization
and the proposed acquisitions of Sterling and Hawkeye had occurred as of the
first day of the period presented.
The unaudited pro forma combined consolidated financial statements
should be read in conjunction with the accompanying Notes to the Pro Forma
Combined Consolidated Financial Statements and with the historical financial
statements of MBI, Security Bank, Sterling and Hawkeye. The
historical interim financial information for the nine months ended September
30, 1995, used as a basis for the pro forma combined consolidated
financial statements, include all necessary adjustments, which, in
management's opinion, are necessary to present the data fairly. These pro
forma combined consolidated financial statements may not be indicative of the
results of operations that actually would have occurred if the completed and
proposed acquisitions had been consummated on the dates assumed above or of
the results of operations that may be achieved in the future.
Due to the immateriality of the financial condition and results of
operations of Wedge, AmeriFirst, Southwest, Plains Spirit and Metro to that
of MBI, individually and on an aggregate basis, the unaudited pro forma
combined consolidated financial statements contained herein do not reflect
the acquisitions of Wedge, AmeriFirst, Southwest and Plains Spirit for any
period prior to the respective acquisition dates of such entities or the
proposed acquisition of Metro.
- 38 -
<PAGE> 45
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI, Security Bank
Pro Forma
Security Bank Combined
MBI<F1> Security Bank Adjustments<F2> Consolidated
-------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 822,849 $ 15,043 $ (1,420)<F4> $ 836,472
Due from banks-interest bearing 97,473 99 97,572
Federal funds sold and
repurchase agreements 179,778 125 179,903
Investments in debt and
equity securities
Trading 4,696 -- 4,696
Available-for-sale 768,422 577 768,999
Held-to-maturity 3,074,207 4,353 3,078,560
------------ -------- -------- ------------
Total 3,847,325 4,930 -- 3,852,255
Loans and leases 10,648,008 75,792 10,723,800
Reserve for possible loan losses (187,872) (287) (188,159)
------------ -------- -------- ------------
Net Loans and Leases 10,460,136 75,505 -- 10,535,641
Other assets 611,092 4,620 8,598 <F5> 622,512
(8,598)<F6>
6,800 <F12>
------------ -------- -------- ------------
Total Assets $ 16,018,653 $100,322 $ 5,380 $ 16,124,355
============ ======== ======== ============
<CAPTION>
All Entities
Sterling Pro Forma
Hawkeye Combined
Sterling Hawkeye Adjustments<F3> Consolidated
--------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 7,167 $ 96,917 $ (2,373)<F4> $ 904,222
(33,961)<F4>
Due from banks-interest bearing 200 97,772
Federal funds sold and
repurchase agreements 827 102,004 282,734
Investments in debt and
equity securities
Trading -- -- 4,696
Available-for-sale 46,239 287,270 1,102,508
Held-to-maturity 26,675 127,896 3,233,131
--------- ---------- --------- -----------
Total 72,914 415,166 -- 4,340,335
Loans and leases 85,681 1,298,589 12,108,070
Reserve for possible loan losses (1,380) (21,553) (211,092)
--------- ---------- --------- -----------
Net Loans and Leases 84,301 1,277,036 -- 11,896,978
Other assets 4,793 101,242 18,269 <F7> 728,547
(18,269)<F8>
192,819 <F9>
(192,819)<F10>
--------- ---------- --------- -----------
Total Assets $ 170,002 $1,992,565 $ (36,334) $18,250,588
========= ========== ========= ===========
</TABLE>
- 39 -
<PAGE> 46
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI, Security Bank
Pro Forma
Security Bank Combined
MBI<F1> Security Bank Adjustments<F2> Consolidated
-------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing $ 1,798,605 $ 1,191 $ -- $ 1,799,796
Interest bearing 9,875,943 86,725 9,962,668
Foreign 160,736 -- 160,736
----------- -------- --------- -----------
Total Deposits 11,835,284 87,916 -- 11,923,200
Federal funds purchased and
repurchase agreements 1,611,392 -- 1,611,392
Other borrowings 949,186 3,248 952,434
Other liabilities 203,624 560 204,184
----------- -------- --------- -----------
Total Liabilities 14,599,486 91,724 -- 14,691,210
SHAREHOLDERS' EQUITY
Preferred stock 12,153 12,153
Common stock 279,658 1,032 1,610 <F5> 281,268
(1,032)<F6>
Capital surplus 216,757 4 13,788 <F5> 230,545
(4)<F6>
Retained earnings 936,311 7,562 (7,562)<F6> 936,311
Treasury stock (25,712) (1,420)<F4> (27,132)
----------- -------- --------- -----------
Total Shareholders' Equity 1,419,167 8,598 5,380 1,433,145
----------- -------- --------- -----------
Total Liabilities and
Shareholders' Equity $16,018,653 $100,322 $ 5,380 $16,124,355
=========== ======== ========= ===========
<CAPTION>
All Entities
Sterling Pro Forma
Hawkeye Combined
Sterling Hawkeye Adjustments<F3> Consolidated
--------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing $ 20,613 $ 204,619 $ 2,025,028
Interest bearing 111,900 1,512,456 11,587,024
Foreign -- -- 160,736
----------- ---------- ----------- -----------
Total Deposits 132,513 1,717,075 -- 13,772,788
Federal funds purchased and
repurchase agreements 17,917 15,003 1,644,312
Other borrowings -- 46,241 998,675
Other liabilities 1,303 21,427 226,914
----------- ---------- ----------- -----------
Total Liabilities 151,733 1,799,746 -- 16,642,689
SHAREHOLDERS' EQUITY
Preferred stock 12,153
Common stock 3,685 135 2,607 <F7> 323,250
(3,685)<F8>
39,375 <F9>
(135)<F10>
Capital surplus 799 105,129 1,877 <F7> 298,311
(799)<F8>
65,889 <F9>
(105,129)<F10>
Retained earnings 13,785 87,555 13,785 <F7> 1,037,651
(13,785)<F8>
87,555 <F9>
(87,555)<F10>
Treasury stock (2,373)<F4> (63,466)
(33,961)<F4>
----------- ---------- ----------- -----------
Total Shareholders' Equity 18,269 192,819 (36,334) 1,607,899
----------- ---------- ----------- -----------
Total Liabilities and
Shareholders' Equity $ 170,002 $1,992,565 $ (36,334) $18,250,588
=========== ========== =========== ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 40 -
<PAGE> 47
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI, Security Bank All Entities
Pro Forma Pro Forma
Combined Combined
MBI<F1> Security Bank Consolidated Sterling Hawkeye Consolidated<F11>
------------- -------------- -------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 854,404 $ 5,704 $ 860,108 $ 9,069 $ 105,900 $ 975,077
Interest Expense 410,097 3,291 413,388 4,247 49,337 466,972
------------ ---------- ------------ --------- ---------- ------------
Net Interest Income 444,307 2,413 446,720 4,822 56,563 508,105
Provision for Possible
Loan Losses 28,928 45 28,973 162 249 29,384
------------ ---------- ------------ --------- ---------- ------------
Net Interest Income
after Provision for
Possible Loan Losses 415,379 2,368 417,747 4,660 56,314 478,721
Other Income
Trust 48,252 -- 48,252 129 3,888 52,269
Service charges 50,062 138 50,200 242 6,267 56,709
Credit card fees 14,169 -- 14,169 -- 1,451 15,620
Securities gains (losses) 3,672 -- 3,672 (1) 104 3,775
Other 65,325 169 65,494 286 8,485 74,265
------------ ---------- ------------ --------- ---------- ------------
Total Other Income 181,480 307 181,787 656 20,195 202,638
Other Expense
Salaries and employee
benefits 195,825 682 196,507 1,735 23,528 221,770
Net occupancy and equipment 53,547 243 53,790 475 6,825 61,090
Other 107,572 520 108,092 1,411 19,825 129,328
------------ ---------- ------------ --------- ---------- -----------
Total Other Expense 356,944 1,445 358,389 3,621 50,178 412,188
------------ ---------- ------------ --------- ---------- -----------
Income Before Income Taxes 239,915 1,230 241,145 1,695 26,331 269,171
Income Taxes 81,156 382 81,538 386 9,004 90,928
------------ ---------- ------------ --------- ---------- ------------
Net Income Before Change
in Accounting Principle $ 158,759 $ 848 $ 159,607 $ 1,309 $ 17,327 $ 178,243
============ ========== ============ ========= ========== ============
Per Share Data
Average Common Shares
Outstanding 53,629,980 53,919,980 61,476,817
Net Income Before Change in
Accounting Principle $ 2.95 $ 2.95 $ 2.89
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 41 -
<PAGE> 48
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI, Security Bank All Entities
Pro Forma Pro Forma
Combined Combined
MBI<F1> Security Bank Consolidated Sterling Hawkeye Consolidated
------------- -------------- -------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 994,896 $ 6,257 $ 1,001,153 $ 11,165 $ 123,173 $ 1,135,491
Interest Expense 399,349 3,487 402,836 4,453 51,601 458,890
------------ ---------- ------------ --------- ---------- ------------
Net Interest Income 595,547 2,770 598,317 6,712 71,572 676,601
Provision for Possible
Loan Losses 43,201 60 43,261 66 64 43,391
------------ ---------- ------------ --------- ---------- ------------
Net Interest Income after
Provision for
Possible Loan Losses 552,346 2,710 555,056 6,646 71,508 633,210
Other Income
Trust 60,769 -- 60,769 168 5,119 66,056
Service charges 68,783 195 68,978 385 8,024 77,387
Credit card fees 24,895 -- 24,895 -- 1,693 26,588
Securities gains 2,177 -- 2,177 (43) 402 2,536
Other 53,134 211 53,345 406 11,565 65,316
------------ ---------- ------------ --------- ---------- ------------
Total Other Income 209,758 406 210,164 916 26,803 237,883
Other Expense
Salaries and employee
benefits 258,546 727 259,273 2,388 30,229 291,890
Net occupancy and
equipment 69,784 236 70,020 652 8,101 78,773
Other 163,740 750 164,490 2,076 24,776 191,342
------------ ---------- ------------ --------- ---------- ------------
Total Other Expense 492,070 1,713 493,783 5,116 63,106 562,005
------------ ---------- ------------ --------- ---------- ------------
Income Before Income
Taxes 270,034 1,403 271,437 2,446 35,205 309,088
Income Taxes 101,705 551 102,256 592 11,460 114,308
------------ ---------- ------------ --------- ---------- ------------
Net Income Before Change
in Accounting Principle $ 168,329 $ 852 $ 169,181 $ 1,854 $ 23,745 $ 194,780
============ ========== ============ ========= ========== ============
Per Share Data
Average Common Shares
Outstanding 51,957,002 52,247,002 59,803,839
Net Income Before Change
in Accounting Principle $ 3.22 $ 3.21 $ 3.22
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 42 -
<PAGE> 49
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<F1> Represents MBI restated historical consolidated financial statements
reflecting the acquisition of UNSL effective January 3, 1995 and the
acquisitions of CMB and TCB effective May 1, 1995, each of which was
accounted for as a pooling-of-interest.
<F2> The acquisition of Security Bank will be accounted for as a purchase
transaction. Purchase accounting adjustments are immaterial to the
income statement of the pro forma combined entity(ies).
<F3> The acquisitions of Sterling and Hawkeye will be accounted for as
pooling-of-interests.
<F4> In connection with all of the proposed acquisitions, MBI may repurchase
up to 871,490 shares of its own common stock in the open market.
<F5> Purchase entry of Security Bank with consideration of $14,490,000
consisting of 322,000 shares of MBI Common Stock, based upon an
assumed market price of $45 per share.
<F6> Elimination of MBI's investment in Security Bank.
<F7> Acquisition of Sterling with 521,424 shares of MBI Common Stock.
<F8> Elimination of MBI's investment in Sterling.
<F9> Acquisition of Hawkeye with 7,874,903 shares of MBI Common Stock, based
on the exchange ratio of 0.585 shares of MBI Common Stock per share of
Hawkeye common stock.
<F10> Elimination of MBI's investment in Hawkeye.
<F11> Upon consummation of the proposed merger of Hawkeye, MBI expects to
record certain adjustments related to the proposed merger and to conform
Hawkeye's accounting and credit policies regarding loan and other asset
valuations to those of MBI. The pre-tax adjustments are expected to total
$30-35 million and would include an increase in the provision for loan
losses to conform Hawkeye's credit evaluation policies to those of MBI
and an increase in other expense to largely accrue for change of control
agreements, contract cancellation penalties and professional fees.
<F12> The pro forma excess of cost over fair value of net assets acquired for
Security Bank was $6,800,000 as of September 30, 1995. This amount will
vary depending on final purchase price adjustments prior to the Closing
Date. See footnote (2) above.
- 43 -
<PAGE> 50
INFORMATION REGARDING SECURITY BANK
-----------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
This section presents an analysis of the consolidated financial
condition of Security Bank and its wholly owned subsidiaries at December 31,
1994 and 1993 and the consolidated results of operations for the years ended
December 31, 1994, 1993 and 1992. This review should be read in conjunction
with the consolidated financial statements, notes to consolidated financial
statements and other financial data presented elsewhere in this Proxy
Statement/Prospectus.
DECEMBER 31, 1994, 1993 AND 1992
RESULTS OF OPERATION
NET INCOME. Net income for the year ended December 31, 1994 was
$851,761 as compared to $776,917 for the year ended December 31, 1993. This
represents an increase of $74,844, or 9.63%, over 1993. This improvement was
primarily due to an increase in net interest income of $229,925 and
non-interest income of $120,463. Offsetting these improvements were
increased operating expenses of $354,175, which was primarily due to
increased salary expenses, costs incurred in conjunction with the conversion
to an in-house computer system and the formation of a secondary market
mortgage operation. Additionally, net income for the year ended December 31,
1993 included a one time charge of $112,000 related to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes."
Net income for the year ended December 31, 1993 was $776,917 as
compared to $855,992 for the year ended December 31, 1992. This represents a
decrease of $79,075, or 9.24%. The primary reason for this decrease was the
one time charge of $112,000 related to the adoption of SFAS No. 109, as
previously discussed.
NET INTEREST INCOME. The $229,925 improvement in net interest
income for the year ended December 31, 1994 as compared to the year ended
December 31, 1993, was primarily due to an approximately $9.8 million, or
15.35%, increase in loans, which had a favorable impact on Security Bank's
net interest spread. The increase in the loan portfolio was a result of a
record number of single family housing starts in Security Bank's market area
and continued growth in the area's commercial development. This increase was
funded primarily from a reduction in lower-yielding investment securities,
totaling approximately $5.9 million, and an increase in interest-bearing
liabilities, totaling approximately $4.4 million, which resulted in a more
profitable mix of interest-earning assets and interest-bearing liabilities.
The overall yield on interest-earning assets increased from 7.08% in
1993 to 7.22% in 1994. During the same period the cost of funds increased by
only 1 basis point.
Net interest income increased during the year ended December 31,
1993 by $271,431, or 12.29%, as compared to December 31, 1992. The primary
reason for this increase was a reduction in interest rates paid on deposits
which were partially offset by a reduction in rates earned on interest-earning
assets. The average rate paid on interest-bearing liabilities decreased 88
basis points from 5.09% in 1992 to 4.21% in 1993 while the average rate
earned on interest-earning assets decreased by only 66 basis points from
7.74% in 1992 to 7.08% in 1993. The improvement in net interest income was
also influenced favorably by a large growth in loans and a more profitable
mix of interest-earning assets.
- 44 -
<PAGE> 51
The following table sets forth interest income from average
interest-earning assets, expressed in dollars and average yields, and
interest expense on average interest-bearing liabilities, expressed in
dollars and average rates. Interest income from investment securities
includes the accretion and amortization of unearned discounts and premiums.
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1994 1993
-------------------------------------- -------------------------------------
AVERAGE AVERAGE
INTEREST YIELD/ INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE<F2> EXPENSE PAID BALANCE<F2> EXPENSE PAID
----------- -------- ------- ----------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans <F1> <F3> $ 69,296 $ 5,535 7.99% $ 59,261 $ 4,916 8.30%
Investment securities 12,854 557 4.33 17,239 734 4.26
Interest-bearing deposits 4,296 158 3.68 5,451 175 3.21
Federal funds sold 170 7 4.12 655 24 3.66
--------- -------- --------- -------
Total interest earning assets/
interest income/overall yield 86,616 6,257 7.22 82,606 5,849 7.08
Allowance for loan losses (224) (174)
Non-interest-bearing deposits and cash 878 641
Other assets 5,016 2,991
--------- ---------
Total assets $ 92,286 $ 86,064
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand deposits $ 13,509 $ 370 2.74% $ 13,285 $ 378 2.85%
Savings deposits 7,569 190 2.51 7,644 192 2.51
Time deposits 58,652 2,751 4.69 57,545 2,729 4.74
FHLB advances 2,857 176 6.16 214 10 4.67
--------- -------- --------- -------
Total interest-bearing liabilities/
interest expense/overall rate 82,587 3,487 4.22 78,688 3,309 4.21
Demand deposits 1,167 762
Other liabilities 1,169 44
Total liabilities 84,923 79,494
Shareholders' equity 7,363 6,570
--------- ---------
Total liabilities and
shareholders' equity $ 92,286 $ 86,064
========= =========
Net interest income/
interest rate spread $ 2,770 3.00% $ 2,540 2.87%
======== ==== ======= ====
Net earning assets/net yield on average
interest-earning assets $ 4,029 3.20% $ 3,918 3.07%
========= ==== ========= ====
<FN>
- -----------------------------
<F1> Average balances include loans 90 days or more past due. There were no non-accrual
loans during 1994 or 1993.
<F2> Average balances for each period have been calculated using the average month-end
balances during the year.
<F3> Interest income on loans includes $83,047 and $47,148 of fee income for the years
ended December 31, 1994 and 1993, respectively.
- 45 -
<PAGE> 52
</TABLE>
The following table sets forth changes in net interest income
attributable to changes in the volume of interest-earning assets and
interest-bearing liabilities compared to changes in interest rates for the
periods indicated.
<TABLE>
<CAPTION>
VOLUME AND RATE VARIANCE
--------------------------------------------------------------------------------------------
1994 COMPARED TO 1993 1993 COMPARED TO 1992
------------------------------------------ -------------------------------------------
INCREASE (DECREASE) ATTRIBUTABLE TO CHANGE IN
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
---- ------ ------ --- ---- ------ ------ ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning assets:
Loans $(184) $ 833 $(30) $ 619 $(140) $ 47 $ (1) $ (94)
Investment securities 12 (187) (2) (177) (575) 466 (245) (354)
Interest-bearing deposits 26 (37) (6) (17) (7) 250 (87) 156
Federal funds sold 3 (18) (2) (17) (7) 5 1 (1)
----- ----- ---- ----- ----- ---- ----- -----
Total interest income (143) 591 (40) 408 (729) 768 (332) (293)
INTEREST EXPENSE
Interest-bearing liabilities:
Interest-bearing demand deposits (15) 6 1 (8) 12 27 1 40
Savings deposits -- (2) -- (2) (14) 49 (4) 31
Time deposits (29) 52 (1) 22 (618) (21) 4 (635)
FHLB advances 3 123 40 166 -- -- -- --
----- ----- ---- ----- ----- ---- ----- -----
Total interest expense (41) 179 40 178 (620) 55 1 (564)
----- ----- ---- ----- ----- ---- ----- -----
Net interest income $(102) $ 412 $(80) $ 230 $(109) $713 $(333) $ 271
===== ===== ==== ===== ===== ==== ===== =====
</TABLE>
NON-INTEREST INCOME. The following table describes Security Bank's
non-interest income for the periods indicated.
<TABLE>
<CAPTION>
NON-INTEREST INCOME
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993 1992
----------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Commission income $116 $129 $ 5
Service charges on deposit accounts 195 112 97
FHLB dividends 24 16 17
Gain on sale of real estate, net 17 2 16
Gain on sale of investment securities -- -- 4
Other operating income 54 26 34
---- ---- ----
Total non-interest income $406 $285 $173
==== ==== ====
Non-interest income as a percent of
average total assets .44% .33% .21%
</TABLE>
Several miscellaneous fee increases (i.e. overdraft charges, stop
payment fees, etc.) were implemented during late 1994 which contributed to the
increase in service charge income. In late 1992, the investment subsidiary
was started which accounts for the increase in commission income between 1992
and 1993.
- 46 -
<PAGE> 53
NON-INTEREST EXPENSE. The following table sets forth Security Bank's
non-interest expenses for the periods indicated.
<TABLE>
<CAPTION>
NON-INTEREST EXPENSE
YEAR ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Salaries and employee benefits $ 727 $ 559 $ 438
Occupancy and equipment expense 236 186 103
FDIC premium and OTS assessment 228 196 196
Data processing 134 90 73
Other operating expense 388 328 256
------ ------ ------
Total non-interest expense $1,713 $1,359 $1,066
====== ====== ======
</TABLE>
The increases in occupancy and equipment expense and data processing
expense during 1994 are primarily due to increased depreciation and computer
software amortization related to the purchase of an in-house computer system
during the Summer of 1994. The increase in salaries and employee benefits in
1994 primarily resulted from the formation of a secondary mortgage loan
department.
In 1992, Security Bank began a large expansion project to the main
branch which was completed and occupied in 1993. The depreciation and other
costs associated with the use of this addition to the main branch were primary
reasons for the increase in occupancy and equipment expense from 1992 to
1993. The start-up of the investment subsidiary was the primary reason for
the increase in salaries and employee benefits between 1992 and 1993.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
LENDING ACTIVITIES. Security Bank's major source of income is
interest and fees on loans. The following table presents the composition of
Security Bank's loan portfolio at the end of each of the periods indicated.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
DECEMBER 31
------------------------------------------------------
1994 1993
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
----------------------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Real estate $ 58,187 78.54% $ 57,639 89.73%
Construction, net 8,553 11.55 1,664 2.59
Mortgage loans held for sale 257 .35 -- --
Installment loans 6,269 8.46 4,018 6.25
Loans to depositors, secured by savings 816 1.10 916 1.43
-------- ------ -------- -----
Total loans $ 74,082 100.00% $ 64,237 100.00%
======== ====== ======== ======
</TABLE>
- 47 -
<PAGE> 54
The following table sets forth the remaining maturities, based on
contractual maturity dates, for each category of loans at December 31, 1994.
<TABLE>
<CAPTION>
MATURITIES OF LOANS
ONE YEAR ONE TO OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Real estate mortgage $14,915 $26,454 $16,818 $58,187
Real estate construction 7,485 144 924 8,553
Mortgage loans held for sale -- -- 257 257
Installment loans 1,162 5,107 -- 6,269
Loans to depositors, secured by savings 816 -- -- 816
</TABLE>
The following table indicates loans with fixed and adjustable rates
which mature in greater than one year.
<TABLE>
<CAPTION>
FLOATING OR
ADJUSTING
FIXED RATES RATES
----------- -----------
(dollars in thousands)
<S> <C> <C>
Real estate mortgage $ 30,491 $ 12,781
Real estate construction 1,068 --
Mortgage loans held for sale 257 --
Consumer loans 5,107 --
--------- ---------
Total loans $ 36,923 $ 12,781
========= =========
</TABLE>
Security Bank makes all its loans to customers located within its
home county of Faulkner and contiguous counties. Security has no foreign loans
or highly leveraged transaction loans as defined by the Federal Reserve Board.
DISCUSSION OF LENDING ACTIVITIES. Net loans at December 31, 1994
totaled $73.8 million, an increase of approximately $9.8 million from
December 31, 1993, which was primarily due to a record number of single
family housing starts in Faulkner County, Arkansas.
Residential real estate loans increased by approximately $2.7 million
in 1994 to approximately $51 million. Residential construction loans increased
by approximately $6.9 million in 1994 to approximately $8.5 million. As
previously discussed, the Conway area has experienced tremendous residential
growth in recent years. Security Bank has focused on capitalizing on the
demand for loans that this growth in real estate has created, which is
evident in the increases in real estate loans.
Consumer loans are primarily loans to individuals for the purchase of
automobiles, boats, recreational vehicles and other personal and household
items. These loans increased approximately $2.3 million to approximately
$6.3 million in 1994.
LOAN QUALITY. The quality of the loan portfolio continues to be
exceptional due to close adherence to quality lending practices and
requirements. Loan committees and lending authorities have been
appropriately established in order to ensure compliance with Security Bank's
loan policy. As proof of the quality of the loan portfolio, net loan
charge-offs to average loans outstanding for the years ended December 31,
1994 and 1993 were approximately 0.026% and 0.020%, respectively. Further,
Security
- 48 -
<PAGE> 55
Bank did not have any non-accrual loans throughout 1993 or 1994, and
no foreclosed assets were held at December 31, 1994 or 1993.
Loans which were contractually past due 90 days or more and still
accruing interest totaled $9,400 and $14,800 at December 31, 1994 and 1993,
respectively. At December 31, 1994, this amount represented 0.012% of the
total loan portfolio and 0.010% of total assets, which was less than the 1993
figures of 0.023% and 0.017%, respectively.
Loans that are non-performing are reviewed by management weekly, or
more frequently if warranted. If the collection of interest is doubtful, the
loans are placed on non-accrual status and the recognition of interest income
is stopped. When management believes that a loan will not be collected in
its entirety, appropriate specific reserves are established. If and when a
loan is determined to be uncollectible, the loan is charged-off.
Management considers the non-performing loans to be at a reasonable
level. In comparison to its peer group, Security Bank's non-performing loans
and net charge-offs have been extremely low.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is based on
factors that include the overall composition of the loan portfolio, class of
loans, delinquency and charge-off experience, potential substandard and
doubtful credits and other factors that need to be evaluated in estimating
potential loan losses. The adequacy of the allowance for loan losses is
calculated quarterly through a systematic review of the loan portfolio. The
results of these reviews are reported to management and the Board of Directors.
While there can be no assurance that the allowance for loan losses
will be adequate to cover all losses, management believes that the allowance is
adequate. In addition, various regulatory agencies and an independent
accounting firm periodically review the adequacy of the allowance for loan
losses as an integral part of their routine examinations.
- 49 -
<PAGE> 56
The following table summarizes, for the periods indicated, activity
in the allowance for loan losses, including loan charge-offs, recoveries,
additions to the allowance and the ratio of net charge-offs to the average
loans outstanding.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
DECEMBER 31
---------------------
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Allowance at beginning of period $ 201 $ 153
Loans charged-off:
Consumer 18 16
----- -----
Total charge-offs 18 16
----- -----
Recoveries:
Consumer -- 4
----- -----
Total recoveries -- 4
----- -----
Net loans charged-off 18 12
Additions to allowance charged to
the provision for loan losses 60 60
----- -----
Allowance at end of period $ 243 $ 201
===== =====
Ratio of net loan charge-offs to
average loans outstanding 0.026% 0.020%
</TABLE>
Management believes that the low level of charge-offs are a further
reflection of the quality of the loan portfolio and provides a good
indication of the adequacy of the allowance for loan losses.
INVESTMENT SECURITIES. The objectives of the investment portfolio
are to provide Security Bank with a source of liquidity through maturities and
earnings. Investments are selected by management based upon quality, rate of
return and the liquidity needs of Security Bank.
- 50 -
<PAGE> 57
The following table sets forth Security Bank's investment securities
portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO COMPOSITION
AT DECEMBER 31
-----------------------------------------------------
1994 1993
---------------------- ----------------------
BOOK PERCENT OF BOOK PERCENT OF
VALUE PORTFOLIO VALUE PORTFOLIO
---------------------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,449 29.30% $ 3,935 27.68%
Obligations of U.S. government corporations
and agencies 3,495 41.81 5,683 39.97
Mortgage-backed securities 400 4.78 534 3.76
Corporate debt securities 2,016 24.11 4,065 28.59
------- ------ ------- ------
Total $ 8,360 100.00% $14,217 100.00%
======= ====== ======= ======
</TABLE>
The following table sets forth the maturities and weighted average
yields of the investment portfolio at December 31, 1994.
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO COMPOSITION BY MATURITY
OVER ONE
ONE YEAR THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------------------------- ------------------------ --------------------- --------------
BOOK MARKET BOOK MARKET BOOK MARKET BOOK MARKET
VALUE VALUE YIELD VALUE VALUE YIELD VALUE VALUE YIELD VALUE VALUE
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $2,449 $2,422 4.20% $-- $-- -- % $-- $-- -- % $2,449 $2,422
Obligations of U.S. government
corporations and agencies 2,499 2,468 3.93 996 960 4.22 3,495 3,428
Mortgage-backed securities 5 5 9.50 34 34 9.50 361 362 9.50 400 401
Corporate debt securities 2,016 1,989 6.36 -- -- -- -- -- -- 2,016 1,989
------ ------ ------ ---- ---- ---- ------ ------
Total $6,969 $6,884 4.73% $1,030 $994 4.39% $361 $362 9.50% $8,360 $8,240
====== ====== ====== ==== ==== ==== ====== ======
</TABLE>
Investment securities decreased by approximately $5.9 million at
December 31, 1994 as compared to December 31, 1993, which was the result of
increased loan demand as discussed previously.
DEPOSITS. Security Bank has a stable core deposit base from within
its market areas. Security Bank has no brokered deposits, and management does
not accept any such deposits. Deposits have shown steady increases over the
past two years, growing approximately $1.7 million, or 2.17%, during 1994 and
approximately $415,000, or .53%, during 1993. The composition of deposits
has changed from 1993 to 1994. Security Bank has seen an increase in
non-interest-bearing demand accounts and time deposits. This change has
caused savings, NOW and MMDA accounts to decrease slightly.
- 51 -
<PAGE> 58
The following table sets forth the distribution of Security Bank's
deposit accounts at the dates indicated and the weighted-average nominal
interest rates on each category of deposit.
<TABLE>
<CAPTION>
DEPOSITS
DECEMBER 31
--------------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
PERCENT PERCENT
OF OF
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------ -------- ---- ------ -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand and NOW's $ 6,734 8.37% 1.71% $ 6,533 8.30% 1.80%
Savings accounts 6,824 8.49 2.52 7,774 9.88 2.53
MMDA's 5,882 7.31 3.04 7,370 9.36 2.74
Time deposits 60,986 75.83 5.18 57,038 72.46 4.70
------- ------ ---- ------- ------ ----
Total deposits $80,426 100.00% 4.51% $78,715 100.00% 4.06%
======= ====== ==== ======= ====== ====
</TABLE>
The following table indicates, as of December 31, 1994, the amount of
Security Bank's jumbo certificates of deposit by time remaining until
maturity. Jumbo certificates of deposit require minimum deposits of
$100,000.
<TABLE>
<CAPTION>
AMOUNT AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
MATURITY PERIOD AMOUNT
--------------- ------
(dollars in thousands)
<S> <C>
Three months or less $2,641
Over three months through six months 2,123
Over six months through twelve months 1,541
Over twelve months 2,998
------
Total $9,303
======
</TABLE>
CAPITAL RESOURCES. Financial institutions are required to maintain
capital ratios in accordance with guidelines adopted by the Federal Reserve
Board. These guidelines are commonly known as "Risk-Based Capital
Guidelines" as they define the capital level requirements of financial
institutions based upon the level of risk associated with the institution's
various categories of assets. At December 31, 1994, Security Bank exceeded
all capital requirements.
At December 31, 1994 and 1993, Security Bank's capital ratios were as
follows:
<TABLE>
<CAPTION>
CAPITAL RATIOS
1994 1993
---- ----
<S> <C> <C>
Core capital to adjusted total assets 8.05% 7.80%
Tangible capital to adjusted total assets 8.05 7.80
Risk-based capital to risk-weighted assets 13.80 13.70
</TABLE>
LIQUIDITY. Liquidity is measured by a financial institution's
ability to raise funds through deposits, borrowed funds or additional capital.
Additional sources of liquidity, including cash from earnings and receipts on
loans and investments, are also considered in determining whether liquidity
is satisfactory. Liquidity is also achieved through growth of core deposits,
liquid assets and access to the
- 52 -
<PAGE> 59
money and capital markets. The funds are used to meet deposit withdrawals,
maintain reserve requirements, fund loans and operate the organization. The
ratio of temporary investments (those maturing within one year) to volatile
liabilities (time deposits over $100,000) was 74.91% at December 31, 1994.
Core deposits, defined as demand deposits, NOW accounts, MMDA accounts and
total savings and certificates of deposit less than $100,000, were 86.89% and
90.91% of total deposits at December 31, 1994 and 1993, respectively.
Regulations require Security Bank to maintain amounts equal to 5% of
deposits (net of loans on deposits) and short-term borrowings in cash or U.S.
government and/or other approved securities. Security Bank had a liquidity
ratio of 24.1% at December 31, 1994.
Security Bank had no short-term borrowings at December 31, 1994 or
1993.
ASSET-LIABILITY MANAGEMENT. Security Bank actively manages its
assets and liabilities through coordinating the levels of interest rate
sensitive assets and liabilities to minimize changes in net interest income
resulting from changes in market interest rates. Changes in net interest
income occur when interest rates on loans and investments change in a
different time period or by different amounts than that of changes in
interest rates on liabilities, or when the mix and volume of interest-earning
assets and interest-bearing liabilities change. The interest rate
sensitivity gap represents the dollar amount of the difference between rate
sensitive assets and rate sensitive liabilities within a given time period
(GAP). A GAP ratio is determined by dividing rate sensitive assets by rate
sensitive liabilities.
Security Bank's strategy with respect to asset-liability management is to
maximize net interest income while limiting Security Bank's exposure to risks
associated with volatile interest rates.
- 53 -
<PAGE> 60
The following table sets forth Security Bank's interest rate
sensitivity at December 31, 1994, based on contractual repricing dates of rate
sensitive assets and liabilities.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
OVER
THREE OVER ONE
THREE THROUGH THROUGH OVER
MONTHS TWELVE FIVE FIVE
OR LESS MONTHS YEARS YEARS TOTAL
------- ------- -------- ----- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 4,887 $ 198 $ -- $ -- $ 5,085
Investment securities 1,039 5,930 1,030 361 8,360
Banker's acceptances 489 485 -- -- 974
Federal funds sold 125 -- -- -- 125
Loans 10,635 13,795 46,649 3,003 74,082
-------- -------- ------- ------- --------
Total interest rate sensitive assets $ 17,175 $ 20,408 $47,679 $ 3,364 $ 88,626
======== ======== ======= ======= ========
Interest-bearing liabilities:
Demand and NOW deposits $ 6,734 $ -- $ -- $ -- $ 6,734
MMDA's 5,882 -- -- -- 5,882
Savings deposits 6,824 -- -- -- 6,824
Time deposits 11,264 27,229 20,687 1,806 60,986
FHLB advances -- -- -- 3,357 3,357
-------- -------- ------- ------- --------
Total rate sensitive liabilities $ 30,704 $ 27,229 $20,687 $ 5,163 $ 83,783
======== ======== ======= ======= ========
Interest sensitivity GAP:
Periodic $(13,529) $ (6,821) $26,992 $(1,799) $ 4,843
======== ======== ======= ======= =======
Cumulative $(13,529) $(20,350) $ 6,642 $ 4,843
======== ======== ======= =======
Cumulative GAP to total assets (14.68)% (22.09)% 7.21% 5.26%
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic 55.94% 74.95% 230.48% 65.16%
Cumulative 55.94% 64.87% 108.45% 105.78%
</TABLE>
EFFECTS OF INFLATION. The consolidated financial statements and
related consolidated financial data presented herein have been prepared in
accordance with generally accepted accounting principles and practices within
the banking industry which require the measurement of financial position and
operating results in terms of historical dollars without considering the
changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effects of general
levels of inflation.
RESULTS OF OPERATION (NINE MONTH COMPARISON)
NET INCOME. Net income through September 30, 1995 increased $149,110
to $833,473 as compared to $684,363 for the nine months ended September 30,
1994. This increase was primarily attributable to increases in net interest
income, particularly loan fee income.
NET INTEREST INCOME. Net interest income increased $212,025, or
9.83%, for the first nine months as compared to the same period in 1994. This
increase was primarily attributable to increased
- 54 -
<PAGE> 61
interest and fee income on loans and was also accomplished through small, but
consistent, reductions in interest paid on deposits. This reduction in
deposit rates has been accomplished while remaining competitive and, in fact,
achieving nominal growth in Security Bank's core deposits.
NON-INTEREST INCOME. Non-interest income increased by 20.83% to
$292,486 for the nine months ended September 30, 1995 over the same time
period in 1994. This was directly related to increased fees implemented in
late 1994 and loan fee income from the secondary mortgage department which
was established in April, 1994.
NON-INTEREST EXPENSE. Non-interest expensed increased 9.72% to
$1,444,445 for the nine months ended September 30, 1995 over the same time
period in 1994. This increase resulted from increases in occupancy,
compensation and related expense. This increase was partially offset by a
reduction in other operating expenses incurred during the 1994 period which
were attributable to the conversion of Security Bank's computer system.
TOTAL ASSETS. Total assets were $100,322,745 at September 30, 1995
as compared to $92,113,471 at December 31, 1994, representing an $8.2 million,
or 8.91%, increase. Loans continue to represent the largest contributor to
the growth in total assets. Investment securities have continued to decrease
in order to accommodate the increased loan demand. This has resulted in a
more profitable mix of assets.
LOANS. Total loans were $75,338,125 at September 30, 1995, a 2.48%
increase as compared to $73,515,590 at December 31, 1994.
DEPOSITS. Total deposits were $87,758,300 at September 30, 1995, a
9.12% increase as compared to $80,425,305 at December 31, 1994. This growth
has been influenced by the introduction of several new deposit products
during 1995.
LIQUIDITY AND CAPITAL RESOURCES (NINE MONTH COMPARISON)
Liquid assets of Security Bank at September 30, 1995 consisted of
total cash and cash equivalents and investment securities maturing in one year
or less. These liquid assets totaled $21,069,114 at September 30, 1995, or
24.01% of total deposits.
Shareholders' equity at September 30, 1995 was $8,598,362, an
increase of $833,473, or 10.73%, since December 31, 1994. Security Bank
currently exceeds all regulatory capital requirements as shown in the following
table.
<TABLE>
<CAPTION>
CAPITAL RATIOS
9/30/95 9/30/94
------- -------
<S> <C> <C>
Core capital to adjusted total assets 8.58% 7.91%
Tangible capital to adjusted total assets 8.58 7.91
Risk-based capital to risk-weighted assets 13.91 12.98
</TABLE>
PENDING LEGISLATIVE PROPOSALS
In July 1995, the FDIC announced a proposal to restructure the
federal depository insurance funds. Among other considerations, the proposal
provides for a special, one-time premium assessment on the insured deposits
of thrift financial institutions such as Security Bank. While no action
- 55 -
<PAGE> 62
has been taken, the FDIC is seriously considering the proposal and similar
alternatives. Although ultimate resolution is uncertain, management believes
such an assessment is possible and, if enacted as currently proposed, would
result in a one-time charge to income ranging approximately from $400,000 to
$450,000 in the period in which the assessment is levied. See "SUPERVISION
AND REGULATION - FDIC Insurance Assessments."
In addition to the proposal discussed above, Congress is also
considering legislation which could result in the tax recapture of certain loan
loss reserves which previously had not been subject to tax. Although the
ultimate outcome of this proposal is uncertain, if enacted as currently
proposed, this legislation would result in a one-time charge to income of
approximately $700,000 in the period in which the legislation is enacted.
Based on the ranges of the potential financial impact of the matters
discussed above, management believes the outcome of these matters will not
impact the Bank's compliance with the applicable regulatory capital and
liquidity requirements.
PROPERTIES
All of the real estate and buildings used in banking operations are
owned by Security Bank, except for the banking facility located in Morrilton,
Arkansas, which is rented. None of the properties owned are subject to any
mortgages or material encumbrances. Security Bank believes that the
facilities are adequate for its operations, both currently and in the near
future.
IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENT
In May 1995, the Financial Accounting Standards Board issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights," which Security Bank is
required to adopt by 1996. When adopted, SFAS No. 122 will require Security
Bank to recognize a portion of the cost of originating mortgage loans as a
mortgage servicing right which will be amortized to expense over the estimated
life of the servicing relationship. As Security Bank only services proprietary
loans, under current accounting practice, such costs are deferred along with
loan origination fees and amortized as an adjustment to yield. Therefore,
management believes that adoption of this pronouncement will not have a
material adverse impact on the operating results or financial condition of
Security Bank.
LEGAL PROCEEDINGS
There were no known material legal proceedings pending against
Security Bank as of September 30, 1995.
- 56 -
<PAGE> 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date the number of
shares of Security Bank Common Stock beneficially owned and the percentage of
ownership of outstanding shares of Security Bank Common Stock by (a) each
director of Security Bank, (b) each person who is known by Security Bank to
own beneficially 5% or more of such stock and (c) all directors and executive
officers of Security Bank as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS <F1>
- ------------------------ ------------ -----------
<S> <C> <C>
David L. Baker <F4> 666 6.45%
Marvin C. Cantrell <F4> 10 <F*>
Alison F. Crawford <F1> 724 7.00
Joe T. Ford <F2><F4> 2,266 21.95
Scott T. Ford <F3><F4> 724 7.00
Ritchie D. Howell 20 <F*>
Bill F. Johnson <F4> 20 <F*>
Charles F. Nabholz <F4> 230 2.23
Beverly W. Pascoe 1,465 14.20
Phillip T. Pascoe <F4> 48 <F*>
S. T. Smith, Jr. <F4> 240 2.32
H. R. Wilbourn, III 1,843 17.85
All officers and directors as a
group (9 persons) 4,224 40.91
<FN>
- ------------------------------------
<F*> Indicates ownership of less than one percent of outstanding Security Bank
Common Stock.
<F1> Includes 268 shares owned of record by Alison F. Crawford and 456
shares owned by trusts for the benefit of Ms. Crawford's children, of
which Ms. Crawford is trustee.
<F2> Includes 604 shares owned of record by Joe T. Ford and 1,662 shares
owned by the Ruby Ford Trust of which Mr. Ford is trustee.
<F3> Includes 268 shares owned of record by Scott T. Ford and 456 shares
owned by trusts for the benefit of Mr. Ford's children of which Mr. Ford
is trustee.
<F4> Indicated person is a director of Security Bank. Messrs. Johnson and
Howell are the President and Executive Vice President of Security Bank,
respectively.
</TABLE>
For purposes of the above table, a person is deemed to be a
beneficial owner of shares of Security Bank Common Stock if the person has or
shares the power to vote or to dispose of such shares. Unless otherwise
indicated in the footnotes, each person has sole voting and investment power
with respect to shares shown in the table as beneficially owned by such person
and disclaims beneficial ownership in shares described in the footnotes as
being "held by" other persons. All persons shown in the table have business
addresses at Security Bank's principal executive offices.
- 57 -
<PAGE> 64
INFORMATION REGARDING MBI STOCK
-------------------------------
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock,
no par value, and 100,000,000 shares of MBI Common Stock, $5.00 par value. At
September 30, 1995, MBI had 14,806 shares of MBI Preferred Stock issued and
outstanding and 55,333,878 shares of MBI Common Stock outstanding. Under
Missouri law, MBI's Board of Directors may generally approve the issuance of
authorized shares of Preferred Stock and Common Stock without shareholder
approval.
MBI's Board of Directors is also authorized to fix the number of
shares and determine the designation of any series of Preferred Stock and to
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any series of MBI Preferred Stock. Except for the
designation and reservation of Series A Junior Participating Preferred Stock
pursuant to MBI's Preferred Share Purchase Rights Plan described below, and,
in connection with the acquisition of TCB on May 1, 1995, the designation and
issuance of (i) 5,306 shares of Series B-1 Preferred Stock and (ii) 9,500
shares of Series B-2 Preferred Stock, MBI's Board of Directors has not acted
to designate or issue any shares of MBI Preferred Stock.
The existence of a substantial number of unissued and unreserved
shares of MBI Common Stock and undesignated shares of MBI Preferred Stock may
enable the Board of Directors to issue shares to such persons and in such
manner as may be deemed to have an anti-takeover effect.
The following summary of the terms of MBI's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
applicable provisions of MBI's Restated Articles of Incorporation and By-Laws
and Missouri law.
DIVIDENDS. The holders of MBI Common Stock are entitled to share
ratably in dividends when, as and if declared by the Board of Directors from
funds legally available therefor, after full cumulative dividends have been
paid or declared, and funds sufficient for the payment thereof set apart, on
all series of MBI Preferred Stock ranking superior as to dividends to MBI
Common Stock.
The Board of Directors of MBI intends to maintain its present policy
of paying quarterly cash dividends on MBI Common Stock, when justified by the
financial condition of MBI and its subsidiaries. The declaration and amount
of future dividends will depend on circumstances existing at the time,
including MBI's earnings, financial condition and capital requirements as
well as regulatory limitations, note and indenture provisions and such other
factors as the Board of Directors may deem relevant. The payment of
dividends to MBI by subsidiary banks is subject to extensive regulation by
various state and federal regulatory agencies. See "SUPERVISION AND
REGULATION."
VOTING RIGHTS. Each holder of MBI Common Stock has one vote for
each share held on matters presented for consideration by the shareholders,
except that, in the election of directors, each shareholder has cumulative
voting rights which entitle such shareholder to the number of votes which
equals the number of shares held by the shareholder multiplied by the number of
directors to be elected. All such votes may be cast for one candidate for
election as a director or may be distributed among two or more candidates.
PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no preemptive
right to acquire any additional unissued shares or treasury shares of MBI.
- 58 -
<PAGE> 65
LIQUIDATION RIGHTS. In the event of liquidation, dissolution or
winding up of MBI, whether voluntary or involuntary, the holders of MBI
Common Stock will be entitled to share ratably in any of its assets or funds
that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made
therefor) and after preferences on any outstanding MBI Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will
be, when issued, fully paid and nonassessable. Such shares do not have any
redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase
right (a "Right") is attached to each share of MBI Common Stock. The Rights
trade automatically with shares of MBI Common Stock, and become exercisable
and will trade separately from the MBI Common Stock on the tenth day after
public announcement that a person or group has acquired, or has the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of MBI
Common Stock, or upon commencement or announcement of intent to make a tender
offer for 20% or more of the outstanding shares of MBI Common Stock, in
either case without prior written consent of the Board. When exercisable,
each Right will entitle the holder to buy 1/100 of a share of MBI Series A
Junior Participating Preferred Stock at an exercise price of $100 per Right.
In the event a person or group acquires beneficial ownership of 20% or more
of MBI Common Stock, holders of Rights (other than the acquiring person or
group) may purchase MBI Common Stock having a market value of twice the then
current exercise price of each Right. If MBI is acquired by any person or
group after the Rights become exercisable, each Right will entitle its holder
to purchase stock of the acquiring company having a market value of twice the
current exercise price of each Right. The Rights are designed to protect the
interests of MBI and its shareholders against coercive takeover tactics. The
purpose of the Rights is to encourage potential acquirors to negotiate with
MBI's Board of Directors prior to attempting a takeover and to give the Board
leverage in negotiating on behalf of all shareholders the terms of any
proposed takeover. The Rights may deter certain takeover proposals. The
Rights, which can be redeemed by MBI's Board of Directors in certain
circumstances, expire by their terms on June 3, 1998.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of MBI
is divided into three classes, and the directors are elected by classes to
three-year terms, so that one of the three classes of the directors of MBI
will be elected at each annual meeting of the shareholders. While this
provision promotes stability and continuity of the Board of Directors,
classification of the Board of Directors may also have the effect of
decreasing the number of directors that could otherwise be elected at each
annual meeting of shareholders by a person who obtains a controlling interest
in the MBI Common Stock and thereby could impede a change in control of MBI.
Because fewer directors will be elected at each annual meeting, such
classification also will reduce the effectiveness of cumulative voting as a
means of establishing or increasing minority representation on the Board of
Directors.
OTHER MATTERS. MBI's Restated Articles of Incorporation and By-Laws
also contain provisions which: (i) require the affirmative vote of holders
of at least 75% of the voting power of all of the shares of outstanding
capital stock of MBI entitled to vote in the election of directors to remove
a director or directors without cause; (ii) require the affirmative vote of
the holders of at least 75% of the voting power of all shares of the
outstanding capital stock of MBI to approve certain "business combinations"
with "interested parties" unless at least two-thirds of the Board of
Directors first approves such business combinations; and (iii) require an
affirmative vote of at least 75% of the voting power of all shares of the
outstanding capital stock of MBI for the amendment, alteration, change or
repeal of any of the above provisions unless at least two-thirds of the Board
of Directors first approves such an amendment, alteration, change or repeal.
Such provisions may be deemed to have an anti-takeover effect.
- 59 -
<PAGE> 66
RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES
Under Rule 145 of the Securities Act of 1933 (the "Securities Act"),
certain persons who receive MBI Common Stock pursuant to the Reorganization
and who are deemed to be "affiliates" of Security Bank will be limited in
their right to resell the stock so received. The term "affiliate" is defined
to include any person who, directly or indirectly, controls, or is controlled
by, or is under common control with Security Bank at the time the
Reorganization is submitted to a vote of the shareholders of Security Bank.
Each affiliate of Security Bank (generally any director or executive officer
or shareholder of Security Bank who beneficially owns a substantial number of
outstanding shares of Security Bank Common Stock) who desires to resell the
MBI Common Stock received in the Reorganization must sell such stock either
pursuant to an effective Registration Statement or in accordance with an
applicable exemption, such as the applicable provisions of Rule 145(d) under
the Securities Act.
Rule 145(d) provides that persons deemed to be affiliates may resell
their stock received in the Reorganization pursuant to certain of the
requirements of Rule 144 under the Securities Act if such stock is sold within
the first two years after the receipt thereof. After two years if such person
is not an affiliate of MBI and if MBI is current with respect to its required
public filings, a former affiliate of Security Bank may freely resell the stock
received in the Reorganization without limitation. After three years from
the issuance of the stock, if such person is not an affiliate of MBI at the
time of sale and for at least three months prior to such sale, such person
may freely resell such stock, without limitation, regardless of the status of
MBI's required public filings. The shares of MBI Common Stock to be received
by affiliates of Security Bank in the Reorganization will be legended as to
the restrictions imposed upon resale of such stock.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND SECURITY BANK
MBI is incorporated under the laws of the State of Missouri. Security
Bank is organized under the laws of the United States of America. The rights
of the shareholders of MBI are governed by its Restated Articles of
Incorporation and By-Laws and The General and Business Corporation Law of
Missouri (the "Missouri Act"). The rights of the shareholders of Security
Bank are governed by its Charter and By-Laws and the HOLA. The rights of
Security Bank shareholders who receive shares of MBI Common Stock in the
Reorganization will thereafter be governed by MBI's Restated Articles of
Incorporation and By-Laws and by the Missouri Act. The material rights of
such shareholders, and, where applicable, the differences between the rights
of MBI shareholders and Security Bank shareholders, are summarized below.
PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "-
Preferred Share Purchase Rights Plan," MBI Common Stock has attached Rights,
which may deter certain takeover proposals. Security Bank does not have a
rights plan.
SUPERMAJORITY PROVISIONS. MBI's Restated Articles of Incorporation
and MBI's By-Laws contain provisions requiring a supermajority vote of the
shareholders of MBI to approve certain proposals. Under both MBI's Restated
Articles and By-Laws, removal by the shareholders of the entire Board of
Directors or any individual director from office without cause requires the
affirmative vote of not less than 75% of the total votes entitled to be voted
at a meeting of shareholders called for the election of directors. Amendment
by the shareholders of MBI's Restated Articles or By-Laws relating to (i) the
number or qualification of directors; (ii) the classification of the Board of
Directors; (iii) the filling of vacancies on the Board of Directors; or (iv)
the removal of directors, requires the affirmative vote of not less than 75%
of the total votes of MBI's then outstanding shares of capital stock entitled
to vote, voting together as a single class, unless such amendment has
previously been expressly approved by at least two-thirds of the
- 60 -
<PAGE> 67
Board of Directors. The Restated Articles of MBI additionally provide that,
in addition to any shareholder vote required under the Missouri Act, the
affirmative vote of the holders of not less than 75% of the total votes to
which all of the then outstanding shares of capital stock of MBI are
entitled, voting together as a single class (the "Voting Stock"), shall be
required for the approval of any Business Combination. A "Business
Combination" is defined generally to include sales, exchanges, leases,
transfers or other dispositions of assets, mergers or consolidations,
issuances of securities, liquidations or dissolutions of MBI,
reclassifications of securities or recapitalizations of MBI, involving MBI on
the one hand, and an Interested Shareholder or an affiliate of an Interested
Shareholder on the other hand. An "Interested Shareholder" is defined
generally to include any person, firm, corporation or other entity which is
the beneficial owner of 5% or more of the voting power of the outstanding
Voting Stock. If, however, at least two-thirds of the Board of Directors of
MBI approve the Business Combination, such Business Combination shall require
only the vote of shareholders as provided by Missouri law or otherwise. The
amendment of the provisions of MBI's Restated Articles relating to the
approval of Business Combinations requires the affirmative vote of the
holders of at least 75% of the Voting Stock unless such amendment has
previously been approved by at least two-thirds of the Board of Directors.
To the extent that a potential acquiror's strategy depends on the
passage of proposals which require a supermajority vote of MBI's shareholders,
such provisions requiring a supermajority vote may have the effect of
discouraging takeover attempts that do not have Board approval by making
passage of such proposals more difficult. Neither Security Bank's Charter nor
Security Bank's By-Laws require a supermajority vote of shareholders with
respect to any item.
VOTING FOR DIRECTORS. MBI's By-Laws provide for cumulative voting in
the election of directors. Cumulative voting entitles each shareholder to
cast an aggregate number of votes equal to the number of voting shares held,
multiplied by the number of directors to be elected. Each shareholder may
cast all such votes for one nominee or distribute them among two or more
nominees, thus permitting holders of less than a majority of the outstanding
shares of voting stock to achieve board representation. Security Bank's
Charter and By-Laws do not provide for cumulative voting. In contrast to
cumulative voting, under non-cumulative voting, holders of a majority of
outstanding shares of voting stock may elect the entire Board of Directors,
thereby precluding the election of any directors by the holders of less than
a majority of the outstanding shares of voting stock.
CLASSIFIED BOARD. As described under "- Classification of Board of
Directors," the Board of Directors of MBI is divided into three classes of
directors, with each class being elected to a staggered three-year term. By
reducing the number of directors to be elected in any given year, the
existence of a classified Board diminishes the benefits of the cumulative
voting rights to minority shareholders. Security Bank also has a classified
Board of Directors with three classes of directors.
ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions
applicable to Missouri corporations such as MBI which may be deemed to have
an anti-takeover effect. Such provisions include Missouri's business
combination statute and the control share acquisition statute.
The Missouri business combination statute protects domestic
corporations after hostile takeovers by prohibiting certain transactions once
an acquiror has gained control. The statute restricts certain "Business
Combinations" between a corporation and an "Interested Shareholder" or
affiliates of the Interested Shareholder for a period of five years unless
certain conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and similar
dispositions of corporate assets or stock and certain reclassifications and
recapitalizations. An "Interested Shareholder" includes any person or entity
which beneficially owns or controls 20% or more of the outstanding voting
shares of the corporation.
- 61 -
<PAGE> 68
During the initial five-year restricted period, no Business
Combination may occur unless such Business Combination or the transaction in
which an Interested Shareholder becomes "interested" is approved by the board
of directors of the corporation. Business Combinations may occur during such
five-year period if: (i) prior to the stock acquisition by the Interested
Shareholder, the board of directors approves the transaction in which the
Interested Shareholder became an Interested Shareholder or approves the
Business Combination in question; (ii) the holders of a majority of the
outstanding voting stock, other than stock owned by the Interested
Shareholder, approve the Business Combination; or (iii) the Business
Combination satisfies certain detailed fairness and procedural requirements.
The Missouri Act exempts from its provisions: (i) corporations not
having a class of voting stock registered under Section 12 of the Exchange Act;
(ii) corporations which adopt provisions in their articles of incorporation
or bylaws expressly electing not to be covered by the statute; and
(iii) certain circumstances in which a shareholder inadvertently becomes an
Interested Shareholder. Neither MBI's Restated Articles of Incorporation and
By-Laws nor Security Bank's Articles of Incorporation and By-Laws "opt out"
of the Missouri business combination statute.
The Missouri Act also contains a "Control Share Acquisition Statute"
which provides that an "Acquiring Person" who after any acquisition of shares
of a publicly traded corporation has the voting power, when added to all shares
of the same corporation previously owned or controlled by the Acquiring Person,
to exercise or direct the exercise of: (i) 20% but less than 33%, (ii)
33% or more but less than a majority or (iii) a majority, of the voting
power of outstanding stock of such corporation, must obtain shareholder
approval for the purchase of the "Control Shares." If approval is not given,
the Acquiring Person's shares lose the right to vote. The statute prohibits
an Acquiring Person from voting its shares unless certain disclosure
requirements are met and the retention or restoration of voting rights is
approved by both: (i) a majority of the outstanding voting stock, and (ii) a
majority of the outstanding voting stock after exclusion of "Interested
Shares." Interested Shares are defined as shares owned by the Acquiring
Person, by directors who are also employees, and by officers of the
corporation. Shareholders are given dissenters' rights with respect to the
vote on Control Share Acquisitions and may demand payment of the fair value
of their shares.
A number of acquisitions of shares are deemed not to constitute
Control Share Acquisitions, including good faith gifts, transfers pursuant to
wills, purchases pursuant to an issuance by the corporation, mergers involving
the corporation which satisfy the other requirements of the Missouri Act,
transactions with a person who owned a majority of the voting power of the
corporation within the prior year, or purchases from a person who has
previously satisfied the provisions of the Control Share Acquisition Statute
so long as the transaction does not result in the purchasing party having
voting power after the purchase in a percentage range (such ranges are as set
forth in the immediately preceding paragraph) beyond the range for which the
selling party previously satisfied the provisions of the statute.
Additionally, a corporation may exempt itself from application of the statute
by inserting a provision in its articles of incorporation or bylaws expressly
electing not to be covered by the statute. MBI's Restated Articles of
Incorporation and By-Laws do not "opt out" of the Control Share Acquisition
Statute.
DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a
shareholder of any corporation which is a party to a merger or consolidation,
or which sells all or substantially all of its assets, has the right to
dissent from such corporate action and to demand payment of the value of such
shares. Under Section 552.14, shareholders of Security Bank are entitled to
dissenters' rights upon the consolidation or merger of Security Bank which
are similar but not identical to those under the Missouri Act. Specifically,
under Section 552.14, a shareholder of Security Bank does not have to make a
written demand for the payment of the fair value of his or her shares after
the vote of the shareholders in addition to filing a written objection prior
to the vote of security holders. In addition, the procedures and the filing
- 62 -
<PAGE> 69
deadlines applicable to dissenters' rights under the Missouri Act are
somewhat different than those applicable in appraisal rights proceedings
under Section 552.14.
SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of the
Missouri Act, any shareholder may inspect the corporation's books and records
for any reasonable and proper purpose. Such inspection may be made at all
proper times, subject to regulations as may be prescribed by the by-laws of
the corporation. Under 12 C.F.R. Sec. 552.11, any shareholder or group of
shareholders of Security Bank holding of record either (i) voting shares
having a cost of not less than $100,000 or constituting not less than one
percent of the total outstanding voting shares, provided in each case such
shareholder or group of shareholders have held of record such voting shares
for a period of at least six months, or (ii) not less than five percent of
the total outstanding voting shares, upon making written demand stating a
proper purpose, has the right to examine, in person or by agent or attorney,
at any reasonable time the books and records of accounts, minutes and record
of shareholders of Security Bank and to make extracts therefrom; provided,
however, no shareholder or group of shareholders has the right to obtain,
inspect or copy any portion of any books or records of Security Bank
containing information with respect to depositors or borrowers of Security
Bank.
SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act, the
number of directors on the Board of Directors of MBI is set forth in MBI's
By-Laws which provide that the number of directors may be fixed from time to
time at not less than 12 nor more than 24 by an amendment of the By-Laws or
by a resolution of the Board of Directors, in either case, adopted by the
vote or consent of at least two-thirds of the number of directors then
authorized under the By-Laws. MBI's Board of Directors currently has 17
members. Security Bank's Charter provides that the number of directors of
the Board of Directors shall be as designated by the Board of Directors from
time to time but shall not be fewer than seven nor more than fifteen except
where a greater number is approved by the Board of Directors. Currently,
Security Bank's By-Laws fix the number of directors at ten. The
supermajority vote required for the amendment of MBI's By-Laws regarding a
change in the number of directors may have the effect of making it more
difficult to force an immediate change in the composition of a majority of
the Board of Directors and may be deemed to have an anti-takeover effect.
SUPERVISION AND REGULATION
--------------------------
GENERAL
As a bank holding company, MBI is subject to regulation under the
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 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, MBI is also subject to
regulatory oversight by the OTS. As such, MBI 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 MBI which permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to its
subsidiary savings association.
MBI and its subsidiaries are subject to supervision and examination
by applicable federal and state banking agencies. The earnings of MBI's
subsidiaries, and therefore the earnings of MBI, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve
Board, the OTS, the FDIC and the
- 63 -
<PAGE> 70
Comptroller. In addition, there are
numerous governmental requirements and regulations that affect the activities
of MBI 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 any one of the holding company or 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
MBI is a legal entity separate and distinct from its banking and
other subsidiaries. The principal source of MBI'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 MBI 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 capital 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.
The standards classify total capital for this risk-based measure into
two tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of common
shareholders' equity, certain non-cumulative and cumulative perpetual
preferred stock, and minority interests in equity accounts of consolidated
subsidiaries; Tier 2 capital consists of the allowance for loan and lease
losses (within certain limits), perpetual preferred stock not included in
Tier 1, hybrid capital instruments, term subordinated debt, and
intermediate-term preferred stock. Bank holding companies are required to
meet a minimum ratio of 8% of qualifying total capital to risk-adjusted
assets, and a minimum ratio of 4% of qualifying Tier 1 capital to
risk-adjusted assets. Capital that qualifies as Tier 2 capital is limited in
amount to 100% of Tier 1 capital in testing compliance with the total
risk-based capital minimum standards.
- 64 -
<PAGE> 71
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines provide
for a minimum ratio of Tier 1 capital to adjusted average total assets (the
"leverage ratio") of 3% for bank holding companies that meet certain
specified criteria, including having the highest regulatory rating. Other
bank holding companies generally are required to maintain a leverage ratio of
at least 3% plus 100 to 200 basis points. The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above
minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the Federal Reserve Board has indicated that it may
consider other indicia of capital strength in evaluating proposals for
expansion or new activities.
The federal bank regulatory agencies have issued various proposals to
amend the risk-based capital guidelines for banks and bank holding companies.
Under one proposal, banks would be required to give explicit consideration to
interest rate risk as an element of capital adequacy by maintaining capital
to compensate for such risk in an amount measured by the bank's exposure to
interest rate risk in excess of a regulatory threshold. Another proposal
would revise the treatment given to (i) low-level recourse arrangements to
reduce the amount of capital required and (ii) certain direct credit
substitutes provided by banking organizations to require that capital be
maintained against the value of the assets enhanced or the loans protected.
A proposal recently issued by the Federal Reserve Board and expected to be
joined in by the other bank regulatory agencies increases the amount of
capital required to be carried against certain long-term derivative
contracts; in addition, the proposal recognizes the effect of certain
bilateral netting arrangements in reducing potential future exposure under
these contracts. MBI believes that these changes will not, if adopted, have
a material effect on its compliance with capital adequacy requirements.
FDIC INSURANCE ASSESSMENTS
The subsidiary banks of MBI are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule. Under this
schedule, the annual premiums initially ranged 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 so assigned to the institution by the
FDIC. See "- FIRREA and FDICIA."
The legislation 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 required 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 reached its designated reserve ratio in May 1995. As a result, the FDIC
recently lowered deposit insurance assessment rates on all banks by revising the
range to $.04 to $.31 for every $100 of deposits. In addition, effective
January 1, 1996, the FDIC eliminated deposit insurance assessments (except
for the minimum $2,000 payment required by law) for banks that are well
capitalized and well managed and further reduced the deposit insurance
assessments for all other banks (range revised to $.03 to $.27 for every
$100 of deposits).
- 65 -
<PAGE> 72
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 the SAIF rates
will be substantially higher than the BIF rates in the future. MBI, which has
acquired substantial amounts of SAIF-insured deposits during the years from
1989 to the present, is required to pay deposit insurance premiums on these
SIAF-insured deposits. Currently, SAIF-member institutions pay deposit
insurance premiums based on a schedule of from $0.23 to $0.31 per $100 of
deposits. Bills have recently been proposed by the U. S. Congress to
recapitalize the SAIF through a one-time special assessment of approximately
85 basis points on the amount of deposits held by the institution. If such
special assessment occurs, it is expected that the deposit premiums paid by
SAIF-member institutions would be reduced to approximately $.04 for every
$100 of deposits and would have the effect of immediately reducing the
capital of SAIF-member institutions by the amount of the fee (provided
SAIF-member institutions are not permitted to amortize the expense of the
one-time fee over a period of years). MBI cannot predict whether the
special assessment proposal will be enacted, or, if enacted, the amount of
any one-time fee or whether ongoing SAIF premiums will be reduced to a level
equal to that of BIF premiums. If the one-time assessment is not enacted,
it is presently expected that the SAIF will not be recapitalized until 2002
and the disparity between SAIF and BIF deposit premiums will continue. MBI
does not expect that either such additional deposit insurance costs or the
proposed one-time assessment will have a significant, adverse effect on its
earnings.
PROPOSALS TO OVERHAUL THE SAVINGS ASSOCIATION INDUSTRY
Proposals recently have been introduced in the U.S. Congress that, if
adopted, would overhaul the savings association industry. The most
significant of these proposals would recapitalize the SAIF through a one-time
special assessment (see "- FDIC Insurance Assessments"), spread the FICO Bond
obligation across the BIF and SAIF, merge the Comptroller and the OTS,
abolish the federal savings association charter, require federal thrifts to
convert to commercial banks and merge the SAIF and the BIF. MBI cannot
predict whether these or any other legislative proposals will be enacted, or,
if enacted, the final form of the law.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI 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. This support may be required at times when MBI may
not find itself able to provide it. In addition, any capital loans by MBI to
any of its subsidiaries would also be subordinate in right of payment to
deposits and certain other indebtedness of such subsidiary.
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 MBI
- 66 -
<PAGE> 73
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 MBI. 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 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. An institution that fails
to meet the minimum level for any relevant capital measure (an
"undercapitalized institution") may be: (i) subject to increased monitoring
by the appropriate federal banking regulator; (ii) required to submit an
acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company (under
which the holding company would be liable up to the lesser of 5% of the
institution's total assets or the amount necessary to bring the institution
into capital compliance as of the date it failed to comply with its capital
restoration plan) that the institution will comply with the plan until it has
been adequately capitalized on average for four consecutive quarters.
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).
FDICIA also 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.
- 67 -
<PAGE> 74
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, such as Security Bank's and MBI's insured
bank subsidiaries, 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.
THE INTERSTATE BANKING AND COMMUNITY DEVELOPMENT LEGISLATION
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 by permitting (i) bank holding companies that are adequately
capitalized and managed, one year after enactment of the legislation, 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) 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) banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state, (iv) 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) banks 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 effect of this legislation will be to
permit MBI 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.
The Riegle Community Development and Regulatory Improvement Act of
1994, also enacted in September 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 to streamline 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 and 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. MBI believes that these
provisions of the new law will not have a material effect on its operation.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent accountants for
the year ended December 31, 1994 and continues to serve in such capacity.
Services provided in connection with the audit function included examination of
the annual consolidated financial statements, review and consultation regarding
filings with the Securities and Exchange Commission and other regulatory
authorities and consultation on financial accounting and reporting matters.
Arthur Andersen LLP served as Security Bank's independent
accountants for the year ended December 31, 1994 and continues to serve in such
capacity. Services provided in connection with
- 68 -
<PAGE> 75
the audit function included examination of the annual consolidated financial
statements, review and consultation regarding financial accounting and
reporting matters.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by Thompson &
Mitchell, St. Louis, Missouri and for Security Bank by Rose Law Firm, Little
Rock, Arkansas.
EXPERTS
-------
The consolidated financial statements of Mercantile Bancorporation
Inc. as of December 31, 1994, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1994, incorporated by reference in MBI's
Annual Report on Form 10-K, and the supplemental consolidated financial
statements of Mercantile Bancorporation Inc. as of December 31, 1994, 1993
and 1992, and for each of the years in the three-year period ended December
31, 1994, contained in MBI's Current Report on Form 8-K dated May 31, 1995,
have been incorporated by reference herein in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Security Bank of Conway,
F.S.B. as of December 31, 1994 and 1993 and for each of the years in the
two-year period ended December 31, 1994 included herein have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report with respect thereto and are included herein in reliance and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Security Bank of Conway,
F.S.B. (formerly known as Security Savings Bank, F.S.B.) at December 31, 1992,
and for the year then ended included in this Proxy Statement, which is referred
to and a part of the Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from Hawkeye's Annual Report on Form 10-K
for the year ended December 31, 1994 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
OTHER MATTERS
-------------
The Board of Directors of Security Bank, at the date hereof, is not
aware of any business to be presented at the Special Meeting other than that
referred to in the Notice of Special Meeting and discussed herein. If any
other matter should properly come before the Special Meeting, the persons
named as proxies will have discretionary authority to vote the shares
represented by proxies in accordance with their discretion and judgment as to
the best interests of Security Bank.
- 69 -
<PAGE> 76
SHAREHOLDER PROPOSALS
---------------------
If the Reorganization is approved, the other conditions to the
Reorganization are satisfied and the Reorganization is consummated,
shareholders of Security Bank will become shareholders of MBI at the
Effective Time. All proposals of shareholders to be considered for
inclusion in the proxy statement for, and to be considered at, the
1996 Annual Meeting of Shareholders of MBI must have been received at
the offices of MBI by November 25, 1995. Shareholders of MBI may
submit to MBI proposals for formal consideration at the 1997 Annual
Meeting of Shareholders of MBI and inclusion in MBI's proxy statement
for such meeting. All such proposals must be received in writing by Jon W.
Bilstrom, General Counsel and Secretary, at Mercantile Bancorporation Inc.,
P.O. Box 524, St. Louis, Missouri 63166-0524 by November 23, 1996.
- 70 -
<PAGE> 77
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
------
Page
----
<S> <C>
REPORT OF ARTHUR ANDERSEN LLP F-1
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1994 AND 1993 F-2
CONSOLIDATED STATEMENTS OF INCOME FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1993 F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1993 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-18
REPORT OF ERNST & YOUNG LLP F-19
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1992 F-20
CONSOLIDATED STATEMENT OF INCOME FOR THE
YEAR ENDED DECEMBER 31, 1992 F-21
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED DECEMBER 31, 1992 F-22
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1992 F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-24 to F-32
CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1995 (UNAUDITED) F-33
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED) F-34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (UNAUDITED) F-35
- 71 -
<PAGE> 78
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED) F-36
NOTES TO CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS F-37
</TABLE>
- 72 -
<PAGE> 79
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholders of
Security Bank of Conway, FSB:
We have audited the accompanying consolidated balance sheets of Security Bank
of Conway, FSB and subsidiaries (the "Company") as of December 31, 1994 and
1993, and the related consolidated statements of income, stockholders' 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 financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Bank of Conway, FSB
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As explained in Notes 1 and 10 to the financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
/s/ Arthur Andersen LLP
Little Rock, Arkansas,
February 23, 1995 (except with
respect to the matters discussed
in Note 14 as to which the date is
September 30, 1995).
F - 1
<PAGE> 80
SECURITY BANK OF CONWAY, FSB
----------------------------
<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31
-----------------
<CAPTION>
Assets 1994 1993
------ ----------- -----------
<S> <C> <C>
Cash, including interest bearing deposits of
$4,887,204 in 1994 and $1,302,635 in 1993 $ 5,528,721 $ 2,111,094
Federal funds sold 125,000 1,365,000
----------- -----------
Total cash and cash equivalents 5,653,721 3,476,094
Certificates of deposit 198,000 297,000
Banker's acceptances 973,198 1,968,999
Investment securities (estimated market value: $7,839,169 in
1994 and $13,752,249 in 1993) 7,960,135 13,683,186
Mortgage-backed securities (estimated market value: $400,563 in
1994 and $546,751 in 1993) 400,367 534,387
Loans, net 73,515,590 63,957,619
Loans held for sale 256,862 -
Accrued interest receivable 332,886 320,575
Real estate acquired for development and sale 42,955 67,019
Federal Home Loan Bank stock, at cost 522,100 474,100
Income taxes receivable 61,931 17,710
Property and equipment, net 2,059,392 1,943,377
Other assets 136,334 83,724
----------- -----------
$92,113,471 $86,823,790
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Liabilities:
Deposits $80,425,305 $78,714,649
Advances from borrowers for taxes and insurance 184,466 175,909
Accrued expenses and other liabilities 78,875 49,909
Income taxes payable 16,306 -
Advances from the Federal Home Loan Bank 3,356,891 687,533
Dividends payable 61,944 61,944
Deferred income taxes 224,795 158,774
----------- -----------
Total liabilities 84,348,582 79,848,718
----------- -----------
Commitments and contingencies (Notes 12 and 13)
Stockholders' equity:
Common stock, $100 par value; 1,000,000 shares authorized;
10,324 shares issued and outstanding 1,032,400 1,032,400
Additional paid-in capital 3,692 3,692
Retained earnings 6,728,797 5,938,980
----------- -----------
Total stockholders' equity 7,764,889 6,975,072
----------- -----------
$92,113,471 $86,823,790
=========== ===========
The accompanying notes to financial statements are
an integral part of these consolidated balance sheets.
</TABLE>
F - 2
<PAGE> 81
SECURITY BANK OF CONWAY, FSB
----------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Interest income:
Loans, including fees $5,534,560 $4,915,767
Other 722,454 933,366
---------- ----------
Total interest income 6,257,014 5,849,133
---------- ----------
Interest expense:
Deposits 3,310,923 3,298,613
Federal Home Loan Bank advances 175,911 10,265
---------- ----------
Total interest expense 3,486,834 3,308,878
---------- ----------
Net interest income 2,770,180 2,540,255
Provision for loan losses 60,000 60,000
---------- ----------
Net interest income after provision for loan losses 2,710,180 2,480,255
---------- ----------
Other income:
Commission income 116,484 129,466
Service fees 195,449 111,703
Federal Home Loan Bank dividends 23,875 16,084
Gain on sale of real estate, net 17,101 2,316
Other 52,926 25,803
---------- ----------
Total other income 405,835 285,372
---------- ----------
Other expenses:
Compensation and related expenses 726,737 558,682
Federal Deposit Insurance Corporation premiums 228,246 195,600
Occupancy and equipment 235,588 185,517
Other operating expenses 522,924 419,521
---------- ----------
Total other expenses 1,713,495 1,359,320
---------- ----------
Income before income taxes and cumulative
effect of change in accounting principle 1,402,520 1,406,307
Provision for income taxes 550,759 517,390
---------- ----------
Income before cumulative effect of change
in accounting principle 851,761 888,917
Cumulative effect of change in accounting
for income taxes - 112,000
---------- ----------
Net income $ 851,761 $ 776,917
========== ==========
The accompanying notes to financial statements are
an integral part of these consolidated statements.
</TABLE>
F - 3
<PAGE> 82
SECURITY BANK OF CONWAY, FSB
----------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
----------------------------------------------
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $1,032,400 $3,692 $5,224,007 $6,260,099
Net income - - 776,917 776,917
Cash dividends declared - - (61,944) (61,944)
---------- ------ ---------- ----------
Balance at December 31, 1993 1,032,400 3,692 5,938,980 6,975,072
Net income - - 851,761 851,761
Cash dividends declared - - (61,944) (61,944)
---------- ------ ---------- ----------
Balance at December 31, 1994 $1,032,400 $3,692 $6,728,797 $7,764,889
========== ====== ========== ==========
The accompanying notes to financial statements are
an integral part of these consolidated statements.
</TABLE>
F - 4
<PAGE> 83
SECURITY BANK OF CONWAY, FSB
----------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 851,761 $ 776,917
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 146,774 80,977
Provision for loan losses 60,000 60,000
Federal Home Loan Bank stock dividends (23,700) (15,900)
Gain on sale of real estate, net (17,101) (2,316)
Deferred income taxes 66,021 80,550
Net increase (decrease) in cash attributable to changes in:
Accrued interest receivable (12,311) 25,550
Income taxes receivable (44,221) (17,710)
Other assets (52,610) (17,760)
Advances from borrowers for taxes and insurance 8,557 19,150
Accrued expenses and other liabilities 28,966 4,544
Income taxes payable 16,306 (64,297)
----------- -----------
Net cash provided by operating activities 1,028,442 929,705
----------- -----------
Cash Flows From Investing Activities:
Maturity of certificate of deposit 99,000 99,000
Purchases of banker's acceptances (1,954,555) (6,400,830)
Maturities of banker's acceptances 2,950,356 12,244,257
Purchases of investment securities (1,946,733) (4,911,538)
Proceeds from maturities of investment securities 7,669,784 192,392
Proceeds from repayments of mortgage-backed securities 134,020 377,922
Net increase in loans (9,874,833) (7,500,093)
Development costs of real estate acquired for development (120,577) -
Net proceeds from sales of real estate acquired for development 161,742 16,083
Proceeds from the sale of real estate owned - 5,984
Purchase of Federal Home Loan Bank stock (24,300) -
Purchases of property and equipment (262,789) (397,257)
Proceeds from the sale of property and equipment - 5,968
----------- -----------
Net cash used in investing activities (3,168,885) (6,268,112)
----------- -----------
Cash Flows From Financing Activities:
Net increase in deposit accounts 1,710,656 414,575
Federal Home Loan Bank advances 2,776,000 687,533
Repayments of Federal Home Loan Bank advances (106,642) -
Dividends paid (61,944) (61,944)
----------- -----------
Net cash provided by financing activities 4,318,070 1,040,164
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,177,627 (4,298,243)
Cash and cash equivalents at beginning of year 3,476,094 7,774,337
----------- -----------
Cash and cash equivalents at end of year $ 5,653,721 $ 3,476,094
=========== ===========
Cash paid during the year for:
Interest $ 3,323,245 $ 3,288,133
=========== ===========
Taxes $ 507,775 $ 627,515
=========== ===========
The accompanying notes to financial statements are
an integral part of these consolidated statements.
</TABLE>
F - 5
<PAGE> 84
SECURITY BANK OF CONWAY, FSB
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
----------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-----------------------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Security Bank
of Conway, FSB (the "Bank") and its wholly-owned subsidiaries, Security
Service Corporation ("SSC") and Security Investments of Conway, Inc. ("SIC"),
collectively referred to as the "Company". All significant intercompany
accounts and transactions have been eliminated in consolidation.
Description of Business
- -----------------------
The Bank is a federally insured depository and was organized in 1961 as a
state chartered stock savings bank. In 1989, the Bank converted its charter
to a Federal stock savings bank. SSC is engaged primarily in the development
of residential property for sale. SIC is a broker/dealer of securities and
is registered with the Securities and Exchange Commission and the National
Association of Securities Dealers ("NASD"). Each of these entities'
operations are conducted principally in Faulkner County, Arkansas, and the
surrounding areas.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand, demand deposits held at the
Federal Home Loan Bank ("FHLB"), amounts due from other depository
institutions and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
Banker's Acceptances
- --------------------
Banker's acceptances are carried at original cost and represent obligations
of major money center banks. These instruments have contractual maturities
extending through June 1995 and are actively traded in the secondary markets.
The weighted average interest rates on these instruments were 5.9% and 3.3%
at December 31, 1994 and 1993, respectively.
F - 6
<PAGE> 85
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(Continued):
-----------
Investment Securities and Mortgage-Backed Securities
- ----------------------------------------------------
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" which requires that the Company categorize
securities as being held for 1) trading purposes, 2) long-term investment
purposes or 3) available for sale. The accounting method used to record the
Company's securities is determined by the category to which each security is
assigned. The Company has the ability and intent to hold its investment
securities and mortgage-backed securities for long-term investment purposes.
Based on this classification, these investments are carried at amortized
cost, adjusted for permanent impairments in value, if any. Premiums and
discounts are amortized and accreted to interest income over the estimated
remaining lives of the securities using a method which approximates the level
yield method. Gains and losses on the sale of securities are determined
using the specific identification method.
Loans
- -----
Loans are stated at the unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees.
Loans held for sale are recorded at cost which approximated market value as
of December 31, 1994.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb losses inherent in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of
the portfolio, past loan loss experience, current economic conditions,
volume, growth and composition of the loan portfolio and other relevant
factors. The allowance is increased by provisions for loan losses charged
against income and decreased by charge-offs, net of recoveries.
Interest on loans is credited to income as earned. The Bank provides an
allowance for uncollectible interest on all accrued interest related to loans
90 days or more delinquent. Such interest, if collected, is credited to
income in the period of recovery.
Fees received for loan originations and commitments to make loans in the
future, net of direct underwriting costs, are deferred and amortized into
income over the estimated lives of the loans using a method which
approximates the level yield method.
Real Estate Acquired for Development and Sale
- ---------------------------------------------
SSC has an investment in a real estate project consisting of residential lots
held for development and sale. Costs relating to development and improvement
of real estate are capitalized and allocated to individual lots based upon
each lot's estimated fair value. Holding costs are expensed as incurred.
These investments are reviewed regularly to ensure that the recorded values
do not exceed estimated fair value reduced for disposition costs. At
December 31, 1994 and 1993 no valuation allowances related to these
investments had been recorded.
F - 7
<PAGE> 86
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(Continued):
-----------
Federal Home Loan Bank Stock
- ----------------------------
The Bank is a member of the FHLB system. As a member of this system, the
Bank is required to maintain an investment in capital stock of the FHLB in an
amount equal to the greater of 1% of outstanding home loans or 1/20 of
outstanding advances from the FHLB. No ready market exists for such stock
and it has no quoted market value.
Property and Equipment
- ----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation expense is calculated using the straight-line method for
financial reporting purposes and the straight-line and accelerated methods
for income tax purposes.
Income Taxes
- ------------
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires that deferred tax balances at the end of each
period be determined using the tax rate expected to be in effect when taxes
are actually paid. Accordingly, under the new rules, income tax provisions
will increase or decrease in the same period in which a change in tax rates
is enacted. Previous rules required providing deferred taxes using rates in
effect when the tax asset or liability was first recorded without subsequent
adjustments solely for tax rate changes.
Reclassifications
- -----------------
Certain amounts in the 1993 consolidated financial statements have been
reclassified to conform with the 1994 presentation.
Adoption of Accounting Pronouncement
- ------------------------------------
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended. The adoption of this
pronouncement did not have a significant impact on the Company's operating
results or financial condition.
F - 8
<PAGE> 87
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES:
-----------------------------------------
<TABLE>
The amortized cost and estimated market values of investment and
mortgage-backed securities at December 31 were as follows:
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994:
- ----
Corporate debt securities $ 2,015,740 $ - $ 26,340 $ 1,989,400
U.S. Treasury securities 2,449,074 - 26,643 2,422,431
Obligations of U.S. Government
corporations and agencies 3,495,321 - 67,983 3,427,338
Mortgage-backed securities 400,367 7,080 6,884 400,563
----------- -------- -------- -----------
$ 8,360,502 $ 7,080 $127,850 $ 8,239,732
=========== ======== ======== ===========
1993:
- ----
Corporate debt securities $ 4,065,352 $ 26,234 $ 3,386 $ 4,088,200
U.S. Treasury securities 3,935,227 25,246 2,785 3,957,688
Obligations of U.S. Government
corporations and agencies 5,682,607 52,876 29,122 5,706,361
Mortgage-backed securities 534,387 12,364 - 546,751
----------- -------- -------- -----------
$14,217,573 $116,720 $ 35,293 $14,299,000
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated market value of investment and
mortgage-backed securities at December 31, 1994, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
--------- ------------
<S> <C> <C>
Due in one year or less $6,968,828 $6,884,470
Due after one year through five years 1,030,271 993,750
Due after five years through ten years 53,287 53,287
Due after ten years 308,116 308,225
---------- ----------
$8,360,502 $8,239,732
========== ==========
</TABLE>
Investment securities with par values of $1,000,000 and $1,500,000 were
pledged to secure public deposits at December 31, 1994 and 1993,
respectively.
There were no sales of investment or mortgage-backed securities during the
years ended December 31, 1994 or 1993.
During the years ended December 31, 1994 and 1993 there were no investment or
mortgage-backed securities held which had suffered a permanent impairment in
value.
F - 9
<PAGE> 88
3. LOANS:
-----
<TABLE>
Loans consisted of the following at December 31:
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Mortgage loans:
Real estate $58,187,237 $57,638,865
Construction 15,772,873 8,018,581
Installment loans 6,268,791 4,018,200
Loans to depositors, secured by savings 816,300 915,598
----------- -----------
Total loans 81,045,201 70,591,244
Less:
Undisbursed portion of construction loans 7,219,743 6,354,361
Allowance for loan losses 243,010 200,599
Net deferred loan origination fees 66,858 78,665
----------- -----------
$73,515,590 $63,957,619
=========== ===========
</TABLE>
<TABLE>
Activity in the allowance for loan losses for the years ended December 31 is
summarized below:
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Balance at beginning of year $200,599 $152,683
Provision for loan losses 60,000 60,000
Net charge-offs (17,589) (12,084)
-------- --------
Balance at end of year $243,010 $200,599
======== ========
</TABLE>
Loans delinquent more than 90 days totaled $9,401 and $14,831 at December 31,
1994 and 1993, respectively. Interest income that would have been recorded
under the original terms of these loans was not materially different than the
amount which has been recognized in the accompanying financial statements.
The Company did not have any significant loans that were restructured during
the years ended December 31, 1994 or 1993.
4. ACCRUED INTEREST RECEIVABLE:
---------------------------
<TABLE>
Accrued interest receivable consisted of the following at December 31:
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Certificates of deposit $ - $ 999
Banker's acceptances 8,893 20,715
Loans 213,870 124,135
Investment securities 108,944 172,617
Mortgage-backed securities 1,179 2,109
-------- --------
$332,886 $320,575
======== ========
</TABLE>
F - 10
<PAGE> 89
5. REAL ESTATE ACQUIRED FOR DEVELOPMENT AND SALE:
---------------------------------------------
<TABLE>
The following is a summary of the activity in real estate acquired for
development and sale during the year ended December 31, 1994:
<S> <C>
Balance at December 31, 1993 $ 67,019
Development and improvement costs 120,577
Sales (144,641)
----------
Balance at December 31, 1994 $ 42,955
==========
</TABLE>
6. PROPERTY AND EQUIPMENT:
----------------------
<TABLE>
Property and equipment, at cost, consisted of the following at December 31:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land $ 294,500 $ 294,500
Buildings and improvements 1,623,060 1,601,486
Furniture and equipment 787,632 555,960
---------- ----------
2,705,192 2,451,946
Less accumulated depreciation 645,800 508,569
---------- ----------
$2,059,392 $1,943,377
========== ==========
</TABLE>
<TABLE>
Estimated useful lives used in computing depreciation are as follows:
<CAPTION>
Years
-----
<S> <C>
Buildings 31-40
Improvements 5-25
Furniture 3-15
Equipment 5-15
</TABLE>
F - 11
<PAGE> 90
7. DEPOSITS:
--------
<TABLE>
Deposits at December 31 are summarized as follows:
<CAPTION>
Weighted 1994 1993
Average ---------------------------- ---------------------------
Rate at Percent Percent
December 31, of of
1994 Amount Total Amount Total
------------ ------------ ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Demand and NOW accounts,
including non-interest-bearing
deposits of $1,043,000 in 1994
and $761,774 in 1993 1.71% $ 6,733,932 8.4% $ 6,533,055 8.3%
Money market 3.04 5,881,655 7.3 7,369,766 9.4
Savings 2.52 6,823,602 8.5 7,773,769 9.9
----------- ----- ----------- -----
19,439,189 24.2 21,676,590 27.6
Certificates of deposit:
0.00% to 3.99% 3.61 3,791,127 4.7 26,176,359 33.3
4.00% to 4.99% 4.26 18,197,743 22.6 5,227,705 6.6
5.00% to 5.99% 5.30 24,509,206 30.5 10,140,762 12.9
6.00% to 6.99% 6.33 10,494,482 13.0 8,942,919 11.4
7.00% to 8.50% 7.18 3,993,558 5.0 6,550,314 8.2
---- ----------- ----- ----------- -----
60,986,116 75.8 57,038,059 72.4
----------- ----- ----------- -----
4.51% $80,425,305 100.0% $78,714,649 100.0%
==== =========== ===== =========== =====
</TABLE>
The aggregate amount of deposits with a minimum balance of $100,000 was
approximately $10,541,000 and $7,152,000 at December 31, 1994 and 1993,
respectively.
<TABLE>
At December 31, 1994, the scheduled maturities of certificates of deposits
were as follows:
<CAPTION>
Year Ending December 31
------------------------------------------------------------------------
1995 1996 1997 1998 1999 Thereafter
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
0.00% to 3.99% $ 3,791,127 $ - $ - $ - $ - $ -
4.00% to 4.99% 14,557,249 3,471,895 159,453 9,146 - -
5.00% to 5.99% 16,063,273 1,402,885 3,513,968 1,227,389 1,533,180 768,511
6.00% to 6.99% 732,912 4,114,670 517,156 3,124,706 1,248,010 757,028
7.00% to 8.50% 3,348,077 10,578 208,044 100,000 45,711 281,148
----------- ---------- ---------- ---------- ---------- ----------
$38,492,638 $9,000,028 $4,398,621 $4,461,241 $2,826,901 $1,806,687
=========== ========== ========== ========== ========== ==========
F - 12
<PAGE> 91
7. DEPOSITS (Continued):
--------------------
</TABLE>
<TABLE>
Interest expense on deposits for the years ended December 31 was as follows:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Demand, NOW and Money Market accounts $ 305,523 $ 310,408
Savings accounts 188,853 197,707
Certificates of deposit 2,816,547 2,790,498
---------- ----------
$3,310,923 $3,298,613
========== ==========
</TABLE>
8. ADVANCES FROM THE FHLB:
----------------------
<TABLE>
The Bank had advances from the FHLB consisting of the following at
December 31:
<CAPTION>
Maturity Interest
Date Rate 1994 1993
------------------ -------- ---------- -------
<S> <C> <C> <C>
August 1, 2008 6.20% $ 283,130 $295,912
October 1, 2008 5.82% 373,172 391,621
January 1, 2009 7.07% 934,738 -
March 1, 2009 6.37% 969,373 -
April 1, 2010 6.65% 796,478 -
---------- --------
$3,356,891 $687,533
========== ========
</TABLE>
The advances are secured by qualifying first mortgage loans of the Bank.
9. PROFIT SHARING PLAN:
-------------------
The Company maintains a non-contributory, defined contribution profit sharing
plan in which employees who are at least 21 years of age and work at least
1,000 hours per year are eligible to participate after they complete one year
of service. Contributions to the plan are made at the discretion of the
Board of Directors. For the years ended December 31, 1994 and 1993, the
Company's profit sharing plan contributions were $31,370 and $20,000,
respectively.
10. INCOME TAXES:
------------
The Bank and its subsidiaries file consolidated Federal and state income tax
returns. SSC and SIC remit or receive payments in lieu of taxes to or from
the Bank pursuant to tax-sharing agreements which call for the determination
of income tax related liabilities as if the Bank and subsidiaries filed
separate tax returns.
As discussed in Note 1, the Company adopted SFAS No. 109 as of January 1,
1993. The cumulative effect of this change in accounting principle decreased
consolidated net income by $112,000 as shown separately in the consolidated
statement of income for the year ended December 31, 1993.
F - 13
<PAGE> 92
10. INCOME TAXES (Continued):
------------------------
<TABLE>
Income tax expense for the years ended December 31 is summarized as follows:
<CAPTION>
1994 1993
<S> -------- ----------
Federal: <C> <C>
Current $410,432 $493,762
Deferred 29,757 (31,450)
-------- --------
$440,189 $462,312
======== ========
State:
Current $ 74,306 $ 55,078
Deferred 36,264 -
-------- --------
$110,570 $ 55,078
======== ========
</TABLE>
<TABLE>
Total income tax expense differed from the amounts computed by applying the
statutory Federal income tax rate of 34 percent to income before income taxes
and cumulative effect of change in accounting principle as a result of the
following:
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Expected income tax expense at Federal tax rate $476,857 $478,144
State income taxes, net of Federal tax benefit 72,976 36,351
Other 926 2,895
-------- --------
$550,759 $517,390
======== ========
</TABLE>
<TABLE>
Deferred income taxes reflected in the accompanying consolidated balance sheets
result from temporary differences in the financial statement and tax reporting
bases of certain assets. The items giving rise to deferred income taxes and
the significant components of the recorded deferred income tax balances were as
follows at December 31:
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Allowance for loan losses $102,764 $ 78,943
FHLB stock 71,126 61,955
Accumulated depreciation 40,182 17,295
Other 10,723 581
-------- ---------
$224,795 $158,774
======== ========
</TABLE>
F - 14
<PAGE> 93
10. INCOME TAXES (Continued):
------------------------
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to the tax bad debt reserve established for
the purpose of absorbing loan losses. The applicable provisions of the law
permit the Bank to deduct from taxable income an allowance for bad debts
based upon the greater of a percentage of taxable income before such
deduction, a percentage of the loan balances, or actual loss experience. The
Bank has consistently used the percentage of taxable income method and
anticipates using the same method in filing its 1994 tax returns. Use of
this method results in a substantial excess of tax basis bad debt reserves
over the reserves included in these financial statements. In December 1987,
the Internal Revenue Code was revised to allocate all previously accumulated
tax basis reserves as additions to the capitalization of the Bank and,
therefore, these reserves no longer impede the reduction of taxable income
through debt charge-offs. Because the Bank does not intend to use the
reserve for purposes other than to absorb losses, deferred income taxes have
not been provided on the exempted tax basis reserves of $1,744,261. In
conjunction with the adoption of SFAS No. 109, deferred taxes have been
provided for tax basis reserves in excess of this base year exemption.
11. REGULATORY RESTRICTIONS AND REQUIREMENTS:
----------------------------------------
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and revisions included in the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the Bank must have (i) core
capital equal to 3.0% of adjusted total assets, (ii) tangible capital equal
to 1.5% of adjusted total assets, and (iii) risk-based capital equal to 8.0%
of risk-weighted assets. In the event the Bank's core capital ratio drops
below 4.0% or its risk-based capital drops below 8.0%, the Prompt Corrective
Action provisions of FDICIA will also subject the Bank to more stringent
regulatory supervision. In measuring an institution's compliance with all
three capital standards, savings institutions must deduct from their capital
(with several exceptions, primarily mortgage banking subsidiaries and insured
depository institution subsidiaries) their investments in and advances to
subsidiaries engaged (as principal) in activities not permissible for
national banks.
In computing an institution's risk-based capital, similar deduction
provisions apply to (i) other investments in equity securities (not meeting
the definition of a subsidiary) and in real estate and (ii) that portion of
land loans and nonresidential construction loans in excess of an 80%
loan-to-value ratio.
Under these regulations, the Federal Deposit Insurance Corporation ("FDIC")
may suspend deposit insurance for an institution that has no tangible
capital. Failure by an institution to meet any of the capital requirements
may also result in the imposition of significant operating restrictions by
the FDIC.
<TABLE>
At December 31, 1994, the Bank had the following capital ratios (unaudited):
<S> <C>
Core capital to adjusted total assets 8.05%
=====
Tangible capital to adjusted total assets 8.05%
=====
Risk-based capital to risk-weighted assets 13.80%
=====
</TABLE>
F - 15
<PAGE> 94
11. REGULATORY RESTRICTIONS AND REQUIREMENTS (Continued):
----------------------------------------------------
Management believes that, under current regulations, the Bank will continue
to meet its minimum capital requirements in the foreseeable future.
Adjustments have been made to the accounts of the Bank which have not been
reflected in the records and reports filed with the Office of Thrift
Supervision ("OTS") as of December 31, 1994. The adjustments and the effects
on net income and total stockholders' equity are detailed below (dollar
amounts in thousands).
<TABLE>
<CAPTION>
Total
Net Stockholders'
Income Equity
------ -------------
<S> <C> <C>
As reported to the OTS $898 $7,801
Adjustments:
Prior year audit adjustments booked in
the current year - 10
Interest income 27 27
Depreciation (32) (32)
Income taxes (29) (29)
Other income (12) (12)
---- ------
As reported in the supplemental
consolidating schedules $852 $7,765
==== ======
</TABLE>
Regulations also require the Bank to maintain amounts equal to 5.0% of deposits
(net of loans on deposits) and short-term borrowings in cash or U.S.
government and/or other approved securities. The Bank had a liquidity ratio
of 24.1% at December 31, 1994.
SIC is required to maintain minimum net capital as defined under the Uniform
Net Capital Rule 15c3-1 of the Securities Exchange Act of 1934 (the "Rule").
Prior to February 16, 1995, management believed that SIC's minimum net
capital requirement was $5,000. On that date, the NASD concluded a routine
examination which indicated that, on certain occasions, SIC had received
customer securities which would subject SIC to a minimum net capital
requirement of $50,000. At December 31, 1994, SIC's net capital, as defined
in the Rule, was $14,159 which was $35,841 short of the required minimum net
capital of $50,000. As of February 16, 1995, SIC implemented procedures to
ensure that the future conduct of business will conform with the applicable
regulatory requirements in order to reduce SIC's minimum net capital
requirement to $5,000.
F - 16
<PAGE> 95
12. RELATED PARTY TRANSACTIONS:
--------------------------
<TABLE>
Certain of the directors and officers of the Bank and companies in which they
have interests are customers of and have transactions with the Bank in the
ordinary course of business. In the opinion of management, deposit
transactions, loans and loan commitments (i) are made on substantially the
same terms, including interest rates (subsequent to August 1989), repayment
terms and collateral as those prevailing at the time for comparable
transactions with other persons, (ii) do not involve more than a normal risk
of collectibility, and (iii) do not involve any unusual or unfavorable
features. Prior to August 1989, loans to officers and directors were made at
an annual adjusted rate of one percent above the cost of funds to the Bank.
The aggregate activity in loans to officers and directors was as follows for
the years ended December 31:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Balance at beginning of year $1,549,166 $1,147,117
New loans 406,718 741,042
Repayments (586,064) (338,993)
---------- ----------
Balance at end of year $1,369,820 $1,549,166
========== ==========
</TABLE>
During 1993, the Bank completed construction of an approximately $1.2 million
addition to its main office building. A member of the Board of Directors is
affiliated with the general contractor for this addition. Also during 1993,
the Bank entered into an agreement to purchase certain computer equipment and
receive information services from a company with whom the Bank shares a
common director. Payments related to this agreement totaled $118,000 for
computer equipment and $51,000 for information services during 1994 and
contractual obligations under this arrangement will approximate $45,000
annually from 1995 through 1998. There were no payments made related to this
agreement in 1993.
13. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK:
---------------------------------------------
In the normal course of business, various commitments are made such as the
extension of credit, including standby letters of credit to assure
performance or to support debt obligations, which are not reflected in the
accompanying financial statements. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates of one year or less or other termination clauses. Since
some of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. Collateral is obtained based on management's credit
assessment of the customer. Collateral held consists primarily of the
related project or dwelling unit and the loan-to-value ratios generally do
not exceed 80%. Most of the Bank's real estate mortgage and real estate
construction loans are to customers in Conway, Arkansas, and the surrounding
area. Standby letters of credit commit the Bank to make payments on behalf
of customers when certain specified future events occur.
F - 17
<PAGE> 96
13. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK (Continued):
---------------------------------------------------------
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Bank's normal credit
policies. The Bank's loan commitments at December 31, 1994 and 1993 were
approximately $7,295,000 and $7,748,000, respectively. The Bank's
outstanding standby letters of credit amounted to approximately $317,000 and
$659,000 at December 31, 1994 and 1993, respectively.
14. SUBSEQUENT EVENTS:
-----------------
On February 8, 1995, the Bank contributed an additional $50,000 to SIC. The
increased investment in the subsidiary did not have a material impact on the
Bank's compliance with regulatory capital requirements as discussed in Note
11.
In July 1995, the FDIC announced a proposal to restructure the federal
depository insurance funds. Among other considerations, the proposal
provides for a special, one-time premium assessment on the insured deposits
of thrift financial institutions such as the Bank. While no action has been
taken, the FDIC is seriously considering the proposal and similar
alternatives. Although ultimate resolution is uncertain, management believes
such an assessment is possible and, if enacted as currently proposed, would
result in a one-time charge to income ranging approximately from $400,000 to
$450,000 in the period in which the assessment is levied.
In addition to the proposal discussed above, Congress is also considering
legislation which could result in the tax recapture of the previously
exempted loan loss reserves discussed in Note 10. Although the ultimate
outcome of this proposal is uncertain, if enacted as currently proposed, this
legislation would result in a one-time charge to income of approximately
$700,000 in the period in which the legislation is enacted.
Based on the ranges of the potential financial impact of the matters
discussed above, management believes the outcome of these matters will not
impact the Bank's compliance with the applicable regulatory capital and
liquidity requirements.
F - 18
<PAGE> 97
Report of Independent Auditors
The Board of Directors and Shareholders
Security Savings Bank, FSB
We have audited the accompanying consolidated balance sheet of Security
Savings Bank, FSB as of December 31, 1992, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Security Savings Bank, FSB at December 31, 1992 , and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Little Rock, Arkansas
January 28, 1993
F - 19
<PAGE> 98
Security Savings Bank, FSB
<TABLE>
Consolidated Balance Sheet
December 31, 1992
<CAPTION>
ASSETS
<S> <C>
Cash, including interest bearing deposits of $6,776,304 $ 7,226,337
Federal funds sold 548,000
------------
Total cash and cash equivalents 7,774,337
Certificates of deposit 396,000
Investment securities (estimated market value: $8,258,481) 8,215,446
Mortgage-backed securities (estimated market value: $1,728,561) 1,660,903
Loans, net 64,329,952
Real estate acquired for development and sale 80,786
Real estate acquired in settlement of loans 25,398
Property and equipment, at cost, net of accumulated depreciation 1,613,651
Accrued interest receivable 346,125
Federal Home Loan Bank stock, at cost 458,200
Other assets 65,964
------------
Total assets $ 84,966,762
============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Deposits $ 78,300,074
Advances from borrowers for taxes and insurance 156,759
Accrued expenses and other liabilities 187,886
Dividends payable 61,944
------------
Total liabilities 78,706,663
Stockholders' equity:
Common stock, $100 par value; unlimited shares
authorized; 10,324 shares issued and outstanding 1,032,400
Additional paid-in capital 3,692
Retained earnings 5,224,007
------------
Total stockholders' equity 6,260,099
------------
Total liabilities and stockholders' equity $ 84,966,762
============
See accompanying notes.
</TABLE>
F - 20
<PAGE> 99
Security Savings Bank, FSB
<TABLE>
Consolidated Statement of Income
Year ended December 31, 1992
<S> <C>
Interest income:
Loans, including fees $ 5,284,629
Investments and mortgage-backed securities 182,204
Other 675,547
-----------
Total interest income 6,142,380
Interest expense on deposits 3,873,556
-----------
Net interest income 2,268,824
Provision for loan losses 60,000
-----------
Net interest income after provision for loan losses 2,208,824
Other income:
Service fees 97,039
FHLB dividends 17,212
Gain on sale of real estate, net 15,511
Gain (loss) on sale of investment securities 3,750
Other 39,087
-----------
Total other income 172,599
Other expenses:
Compensation and related expenses 438,101
Occupancy and equipment 102,784
Federal insurance premiums 195,578
Other operating expenses 329,742
-----------
Total other expenses 1,066,205
-----------
Income before income taxes 1,315,218
Income taxes - current 459,226
-----------
Net income $ 855,992
===========
See accompanying notes.
</TABLE>
F - 21
<PAGE> 100
Security Savings Bank, FSB
<TABLE>
Consolidated Statement of Stockholders' Equity
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $1,032,400 $3,692 $4,429,959 $5,466,051
- ----------------------------
Net income -- -- 855,992 855,992
Cash dividends - $6 per share (payable January 1993) -- -- (61,944) (61,944)
-------------------------------------------------------
Balance at December 31, 1992 $1,032,400 $3,692 $5,224,007 $6,260,099
=======================================================
See accompanying notes.
</TABLE>
F - 22
<PAGE> 101
Security Savings Bank, FSB
<TABLE>
Consolidated Statement of Cash Flows
Year ended December 31, 1992
<S> <C>
OPERATING ACTIVITIES
Net income $855,992
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 95,482
Provision for loan losses 60,000
Gain on sale of real estate, net (15,511)
Gain on sale of investment securities (3,750)
Federal Home Loan Bank stock dividends (17,000)
Increase in accrued interest receivable (43,679)
Increase in other assets (13,454)
Increase in advances from borrowers for taxes and insurance 7,226
Increase in accrued expenses and other liabilities 52,084
------------
Net cash provided by operating activities 977,390
INVESTING ACTIVITIES
Decrease in certificates of deposit 879,971
Purchase of investment securities (6,492,220)
Proceeds from maturity/sale of investment securities 306,555
Purchase of mortgage-backed securities (748,594)
Proceeds from repayments of mortgage-backed securities 387,823
Purchase of Federal Home Loan Bank stock (16,000)
Increase in loans (7,772,092)
Net proceeds from sale of real estate acquired for development 75,539
Proceeds from the sale of real estate owned 104,954
Purchase of property and equipment (1,083,143)
------------
Net cash used in investing activities (14,357,207)
FINANCING ACTIVITIES
Increase in time deposits 921,299
Net increase in deposit accounts, other than time deposits 3,849,971
Dividends paid (61,944)
------------
Net cash provided by financing activities 4,709,326
------------
Net decrease in cash and cash equivalents (8,670,491)
Cash and cash equivalents at beginning of year 16,444,828
------------
Cash and cash equivalents at end of year $7,774,337
============
See accompanying notes.
</TABLE>
F - 23
<PAGE> 102
Security Savings Bank, FSB
Notes to Consolidated Financial Statements
December 31, 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Security Savings
Bank, FSB (Bank) and its wholly owned subsidiaries, Security Service
Corporation and Security Investments of Conway. All significant intercompany
accounts and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Investment and mortgage-backed securities are carried at cost adjusted for
premium amortization and discount accretion over the lives of the securities
using a method which approximates the level yield method. Gains and losses on
the sale of these securities are determined by the specific identification
method. Management has the intent and the Bank has the ability to hold
securities to maturity. Investment securities pledged as collateral to secure
public funds totaled $1,500,000 at December 31, 1992.
LOANS
Loans are stated at the unpaid principal balances, less the allowance for loan
losses and net deferred loan origination fees.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of
the portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors. The
allowance is increased by provisions for loan losses charged against income.
Interest on loans is credited to income as earned. The Bank provides an
allowance for uncollectible interest on all accrued interest related to loans
90 days or more delinquent. Such interest, if collected, is credited to income
in the period of recovery.
Fees received for loan originations and commitments to make loans in the
future as well as direct underwriting costs are deferred and amortized into
income and expense over the estimated lives of the loans using a method which
approximates the level yield method.
F - 24
<PAGE> 103
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE OWNED
The Bank's wholly owned subsidiary, Security Service Corporation, has an
investment in a real estate project consisting of undeveloped lots held for
sale. Real estate acquired in settlement of loans is recorded at the lower of
cost (loan balance) or estimated fair value at the date of foreclosure. Other
investments in real estate, as well as real estate previously acquired in
settlement of loans, are stated at the lower of cost or estimated net
realizable value. Costs relating to development and improvement of property
are capitalized, whereas holding costs are expensed. These investments are
reviewed regularly and valuation allowances are established when recorded
values exceed estimated net realizable values. Interest charges during the
period of construction, if applicable, are capitalized. After construction is
complete, interest charges are expensed as a period cost.
DEPRECIATION
<TABLE>
Depreciation is provided by the straight-line method for financial reporting
purposes and by the straight-line and accelerated methods for income tax
purposes. Estimated useful lives are as follows:
<CAPTION>
YEAR
----------
<S> <C>
Buildings and improvements 15 - 40
Furniture and equipment 3 - 12
</TABLE>
INCOME TAXES
Deferred income taxes are provided for timing differences in income
recognition for financial statement and income tax reporting purposes. There
were no significant timing differences in 1992.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes".
Statement 109 supersedes both FASB 96 and APB Opinion No. 11. Security Savings
Bank must adopt the new rules by the first quarter of 1993. The adoption of
Statement 109 is not expected to have a significant impact on the Bank's
financial condition.
F - 25
<PAGE> 104
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents include amounts due from depository institutions and federal
funds sold. Generally, federal funds are purchased and sold for one-day
periods. The Bank considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES
<TABLE>
The amortized cost and estimated market values of investments in debt
securities at December 31, 1992 are as follows:
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $2,006,937 $ 9,353 $ -- $2,016,290
Mortgage-backed securities 1,660,903 67,658 -- 1,728,561
Securities of United States Government Agencies 2,380,640 7,030 -- 2,387,670
Corporate securities 3,827,869 26,652 -- 3,854,521
-----------------------------------------------------------
$9,876,349 $110,693 $ -- $9,987,042
===========================================================
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1992, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
------------------------------------------
<S> <C> <C>
Less than one year $ -- $ --
One to five year 8,215,446 8,258,481
Six to ten year -- --
Thereafter -- --
------------------------------------------
8,215,446 8,258,481
Mortgage-backed securities 1,660,903 1,728,561
------------------------------------------
$ 9,876,349 $ 9,987,042
==========================================
</TABLE>
F - 26
<PAGE> 105
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES (CONTINUED)
<TABLE>
Realized gains and losses on sales of investment and mortgage-backed
securities are summarized below for the year ended December 31, 1992:
<S> <C>
Realized gains $ 3,750
Realized losses --
-------------
Net gain (loss) $ 3,750
=============
</TABLE>
3. LOANS
<TABLE>
Loans at December 31, 1992 consist of the following:
<S> <C>
Mortgage loans:
Real estate $47,933,978
Construction 7,832,035
Bankers acceptances 7,812,426
Loans to depositors, secured by savings 767,540
Installment loans 3,347,537
-----------------
Total loans 67,693,516
Less:
Allowance for loan losses 152,683
Loans in process 3,126,872
Net deferred loan origination fees 84,009
-----------------
$64,329,952
=================
Weighted average yield on loans 7.92%
=================
</TABLE>
<TABLE>
Activity in the allowance for loan losses for the year ended December 31, 1992
is summarized below:
<S> <C>
Balance at beginning of period $107,022
Provision for loan losses 60,000
Net charge-offs (14,339)
-------------
Balance at end of period $152,683
=============
</TABLE>
Loans delinquent more than 90 days at December 31, 1992 totaled $48,719 and
consist of conventional mortgage loans.
F - 27
<PAGE> 106
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
4. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment at December 31, 1992 consists of the following:
<S> <C>
Land $294,500
Buildings and improvements 381,741
Furniture and equipment 347,356
Construction in progress 1,019,333
----------------
2,042,930
Less accumulated depreciation 429,279
----------------
$1,613,651
================
</TABLE>
Construction in progress consists of architect fees and progress billings from
the contractor for the addition to the main office building.
5. DEPOSITS
<TABLE>
Deposits at December 31, 1992 consist of the following:
<CAPTION>
RATES (%) BALANCE
--------------------------------------
<S> <C> <C>
Passbook accounts 2.75 $6,260,707
90 day notice accounts 2.75 1,084,130
Money market deposit accounts 2.95 6,259,607
NOW accounts 2.75 - 2.95 6,102,529
6 month certificates 3.04 - 5.80 17,436,862
30 month certificates 3.30 - 6.71 9,917,259
Other certificates 2.80 - 8.60 31,100,586
------------------
78,161,680
Accrued interest payable 138,394
------------------
$78,300,074
==================
Weighted average cost of deposits 4.49%
==================
</TABLE>
Interest paid on deposits during 1992 was $3,949,773.
F - 28
<PAGE> 107
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
5. DEPOSITS (CONTINUED)
<TABLE>
Certificates of deposit outstanding at December 31, 1992 mature as follows:
<S> <C>
1993 $39,208,762
1994 7,584,938
1995 5,830,458
1996 3,871,235
1997 --
Thereafter 1,959,314
-----------------
$58,454,707
=================
</TABLE>
The aggregate amount of deposits with a minimum balance of $100,000 was
approximately $6,118,000 at December 31, 1992.
<TABLE>
Interest expense (based on average interest rates) on deposits for the year
ended December 31, 1992 approximates the following:
<S> <C>
Transaction accounts $313,938
Passbook accounts 192,226
Certificates of deposit 3,367,392
-----------------
$3,873,556
=================
</TABLE>
6. REGULATORY RESTRICTIONS AND REQUIREMENTS
In 1989 and again in 1991, Congress passed, and the President signed,
legislation that substantially restructured the regulation and deposit
insurance arrangements of savings institutions. The Financial Institutions
Reform, Recovery and Enforcement Act ("FIRREA") was enacted in 1989.
Significant requirements of FIRREA included minimum capital to asset ratios, a
"risk-based" capital to "risk-weighted" asset ratio, and a new qualified
thrift lender test that requires a thrift institution to maintain a minimum
percentage of its assets (70%) in housing finance and related activities.
FIRREA limited the aggregate amount of loans to one borrower (or a group of
related borrowers) to 15% of unimpaired capital and surplus of the
institution. FIRREA also limited loans and extensions of credit to affiliates
to 10% of the institution's capital stock and surplus.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "Act")
was signed into law on December 19, 1991. The Act lowered the minimum required
level of qualified thrift investments from 70 percent (the FIRREA requirement)
to 65 percent (based on monthly averages in 9 out of every 12 months) and
liberalized the assets that can be counted as qualified thrift investments.
The Act also increased the amount of permissible consumer lending for savings
associations, and authorized the Office of Thrift Supervision to set the
amount of purchased mortgage servicing rights that savings associations may
include in regulatory capital, subject to the limitation that purchased
mortgage servicing rights included in capital may not exceed 90% of fair
market value, with fair value determined at least quarterly.
F - 29
<PAGE> 108
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
6. REGULATORY RESTRICTIONS AND REQUIREMENTS (CONTINUED)
Under provisions of FIRREA and the Act, the Bank is required to meet certain
tangible, core and risk-based capital requirements. Tangible capital generally
consists of stockholders' equity minus certain intangible assets. Core capital
generally consists of tangible capital plus qualifying supervisory goodwill.
The risk-based capital requirements presently address credit risk related to
both recorded assets and off-balance sheet commitments and obligations. An
explicit interest-rate-risk component may be added pursuant to FIRREA which
would require capital to be maintained to protect an institution from losses
due to changes in interest rates. The amount of the interest-risk component
would equal 50% of the estimated decline in the market value of portfolio
equity after an immediate 200 basis point increase or decrease (whichever
yields a larger decline) in market interest rates.
The following table summarizes the Bank's capital and capital ratios and the
ratios required by FIRREA and the Act at December 31, 1992.
<TABLE>
<CAPTION>
REQUIRED
CAPITAL ACTUAL RATIO RATIO
--------------------------------------
<S> <C> <C> <C>
Tangible capital $5,840,000 6.9% 1.5%
Core capital 5,840,000 6.9 3.0
Risk-based capital 5,981,763 13.1 8.0
</TABLE>
There is a regulatory proposal pending which would increase the required core
capital ratio to 4.0 percent.
At December 31, 1992, management believes the Bank was in substantial
compliance with the current requirements of FIRREA and the Act.
7. INCOME TAXES
<TABLE>
The reasons for the difference between actual income taxes and the expected
income taxes computed at the statutory federal income tax rate are as follows
for the year ended December 31, 1992:
<S> <C>
Statutory rate 34.0%
Effect of statutory loan loss deduction (1.5)
State income taxes, net of federal income tax benefit 3.7
Other, net (1.3)
-----------
34.9%
===========
</TABLE>
F - 30
<PAGE> 109
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purpose of absorbing loan losses. The applicable provisions of the law permit
the Bank to deduct from taxable income an allowance for bad debts based upon
the greater of a percentage of taxable income before such deduction, a
percentage of the loan balances, or actual loss experience. Because the Bank
does not intend to use the reserve for purposes other than to absorb losses,
deferred income taxes have not been provided on the reserve, which is
approximately $2,060,000 at December 31, 1992.
Cash paid during the year ended December 31, 1992 for income taxes was
$371,500.
8. RECONCILIATION OF SUPERVISORY REPORTS TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
A reconciliation of the Bank's stockholders' equity and net income as reported
in the accompanying consolidated financial statements to the net worth and net
income as reported to the Office of Thrift Supervision (OTS) at December 31,
1992 is as follows:
<S> <C>
Stockholders' equity per accompanying consolidated balance sheets $ 6,260,099
Other adjustments, net (99)
-----------------
Net worth per report to OTS $ 6,260,000
Net income per accompanying consolidated statements of income $ 855,992
Other adjustments, net (992)
-----------------
Net income per report to the OTS $ 855,000
=================
</TABLE>
9. RELATED PARTY TRANSACTIONS
<TABLE>
Certain of the directors and officers of the Bank and companies in which they
have interests are customers of and have transactions with the Bank in the
ordinary course of business. In the opinion of management, deposit
transactions, loans and loan commitments are made on substantially the same
terms, including interest rates (subsequent to August 1989), repayment terms
and collateral as those prevailing at the time for comparable transactions
with other persons, do not involve more than a normal risk of collectibility,
and do not involve any unusual or unfavorable features. Prior to August 1989,
loans to officers and directors were made at an annually adjusted rate of one
percent above the cost of funds to the Bank. The aggregate activity in loans
to officers and directors is as follows for the year ended December 31, 1992:
<S> <C>
Balance at beginning of year $1,354,213
New loans 290,806
Repayments (639,806)
----------------
Balance at end of year $1,005,213
================
</TABLE>
F - 31
<PAGE> 110
Security Savings Bank, FSB
Notes to Consolidated Financial Statements (continued)
10. PROFIT SHARING PLAN
The Bank maintains a profit sharing plan in which employees who are at least
21 year of age and work at least 1,000 hours per year are eligible to
participate after they complete one year of service. Contributions to the plan
are made at the discretion of the Board of Directors. For the year ended
December 31, 1992 , the Bank's profit sharing plan contributions were $18,968.
11. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business there are various commitments outstanding,
such as commitments to extend credit, including standby letters of credit to
assure performance or to support debt obligations, which are not reflected in
the accompanying financial statements. Loan commitments are made to
accommodate the financial needs of the Bank's customers. Standby letters of
credit commit the Bank to make payments on behalf of customers when certain
specified future events occur. Loan commitments and standby letters of credit
are primarily issued to real estate developers in the Bank's market area.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Bank's normal credit
policies. The Bank's maximum exposure to credit loss for loan commitments at
December 31, 1992 was approximately $5,800,000. The Bank's outstanding
commitments under standby letters of credit amounted to approximately $57,000
at December 31, 1992.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of one year or less or other
termination clauses. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-base basis. Collateral is obtained based on
management's credit assessment of the customer. Collateral held consists
primarily of the related project or dwelling unit and the loan to value ratios
generally do not exceed 80%. Most of the Bank's real estate mortgage and real
estate construction loans are to customers in Conway, Arkansas and the
surrounding area.
F - 32
<PAGE> 111
<TABLE>
SECURITY BANK OF CONWAY, FSB
AND SUBSIDIARIES
Consolidated Balance Sheet
as of September 30, 1995
(Unaudited)
<S> <C>
Assets
- ------
Cash, including interest bearing deposits $ 15,043,297
Federal funds sold 125,000
------------
Total cash and cash equivalents 15,168,297
------------
Certificates of deposit 99,000
Banker's acceptances 1,945,538
Investment securities 3,981,208
Mortgage-backed securities 372,083
Loans, net 75,338,125
Loans held for sale 166,949
Accrued interest receivable 437,026
Real estate acquired for development and sale 28,795
FHLB stock, at cost 576,600
Income taxes receivable 61,931
Property and equipment, net 2,019,206
Other assets 127,987
------------
Total Assets $100,322,745
============
Liabilities
- -----------
Deposits $ 87,758,300
Advances from borrowers for taxes and insurance 157,963
Accrued expenses and other liabilities 287,860
Income taxes payable 48,490
Advances from the FHLB 3,248,281
Deferred income taxes 223,489
------------
Total Liabilities $ 91,724,383
------------
Stockholders' equity:
Common stock $ 1,032,400
Additional paid-in capital 3,692
Retained earnings 7,562,270
------------
Total Stockholders' Equity 8,598,362
------------
Total Liabilities and Stockholder's Equity $100,322,745
============
See accompanying notes to consolidated financial statements.
</TABLE>
F - 33
<PAGE> 112
<TABLE>
SECURITY BANK OF CONWAY, FSB
AND SUBSIDIARIES
Consolidated Statements of Income
For the Periods Ending September 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest income:
Loans, including fees $5,040,892 $4,257,898
Other 662,652 506,713
---------- ----------
Total interest income 5,703,544 4,764,611
---------- ----------
Interest expense 3,291,070 2,564,162
---------- ----------
Net interest income 2,412,474 2,200,449
Provision for loan losses 45,000 45,000
---------- ----------
Net interest income after provision
for loan losses 2,367,474 2,155,449
---------- ----------
Other income:
Commission income 93,121 86,011
Service fees 137,739 88,738
FHLB dividends 26,623 16,376
Gain on sale of real estate 4,000 --
Other 31,003 50,938
---------- ----------
Total other income 292,486 242,063
---------- ----------
Other expense:
Compensation and related expenses 682,009 584,629
FDIC premiums 157,556 157,500
Occupancy and equipment 242,520 190,512
Other operating expenses 362,360 383,872
---------- ----------
Total other expenses 1,444,445 1,316,513
---------- ----------
Income before income taxes 1,215,515 1,080,999
Provision for income taxes 382,042 396,636
---------- ----------
Net income $ 833,473 $ 684,363
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F - 34
<PAGE> 113
<TABLE>
SECURITY BANK OF CONWAY, FSB
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1994 and 1993
and the Period Ended September 30, 1995
(Unaudited)
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $1,032,400 $3,692 $5,224,007 $6,260,099
Net income 776,917 776,917
Cash dividends declared (61,944) (61,944)
---------- ------ ---------- ----------
Balance at December 31, 1993 1,032,400 3,692 5,938,980 6,975,072
Net income 851,761 851,761
Cash dividends declared (61,944) (61,944)
---------- ------ ---------- ----------
Balance at December 31, 1994 $1,032,400 $3,692 $6,728,797 $7,764,889
Net income 833,473 833,473
Cash dividends declared -- --
---------- ------ ---------- ----------
Balance at September 30, 1995 $1,032,400 $3,692 $7,562,270 $8,598,362
========== ====== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F - 35
<PAGE> 114
<TABLE>
SECURITY BANK OF CONWAY, FSB
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 833,473 $ 684,363
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 115,812 82,205
Provision for loan losses 45,000 45,000
Federal Home Loan Bank stock dividends (26,623) (16,376)
Gain on sale of real estate, net (4,000) --
Deferred income taxes 223,489 158,774
Other, net 3,458 (213,604)
Net increase (decrease) in cash attributable to changes in:
Accrued interest receivable (104,140) 28,204
Other assets (8,347) 10,898
Advances from borrowers for taxes and insurance 26,503 (24,759)
Accrued expenses and liabilities 208,985 (12,186)
Income taxes payable 32,184 10,915
------------ -----------
Net cash provided by operating activities 1,345,794 753,434
------------ -----------
Cash flows from investing activities:
Maturity of certificates of deposit 198,000 297,000
Purchase of certificate of deposit (198,000) (198,000)
Purchase of banker's acceptances (2,917,694) (1,469,940)
Maturities of banker's acceptances 1,945,354 2,950,357
Purchases of investment securities (1,486,527) (952,933)
Proceeds from maturities of investment securities 5,465,454 4,466,537
Proceeds from repayments of mortgage-backed securities 28,283 125,288
Net increase in loans (1,995,787) (8,404,087)
Purchase of Federal Home Loan Bank stock (54,500) (40,600)
Purchases of property and equipment (40,186) (133,931)
------------ -----------
Net cash provided by (used in) investing activities 944,397 (3,360,309)
------------ -----------
Cash flows from financing activities:
Net increase in deposit accounts 7,332,995 1,495,519
Federal Home Loan Bank advances, net (108,610) 2,704,397
------------ -----------
Net cash provided by financing activities 7,224,385 4,199,916
------------ -----------
Net increase in cash and cash equivalents 9,514,576 1,593,041
Cash and cash equivalents at beginning of year 5,653,721 3,476,094
------------ -----------
Cash and cash equivalents at September 30 $ 15,168,297 $ 5,069,135
============ ===========
Cash paid during the period for:
Interest $ 2,870,391 $ 2,281,391
Taxes 361,952 376,775
See accompanying notes to consolidated financial statements.
</TABLE>
F - 36
<PAGE> 115
SECURITY BANK OF CONWAY, FSB
AND SUBSIDIARIES
Note to Consolidated Financial Statements
September 30, 1995
(Unaudited)
The information presented in the accompanying financial statements
as of and for the period ended September 30, 1995 have been prepared on a basis
consistent, in all material respects, with the 1994 financial statements.
These financial statements reflect all adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial position,
results of operations and cash flows of Security Bank of Conway, FSB as of
and for the period ended September 30, 1995. Furthermore, all such
adjustments are of a normal and recurring nature.
F - 37
<PAGE> 116
ANNEX A
-------
Following is the text of the statutory dissenters' rights as set
forth in 12 C.F.R. Section 552.14:
SECTION 552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) Right to demand payment of fair or appraised value.
Except as provided in paragraph (b) of this section, any
stockholder of a Federal stock association combining in accordance
with Section 552.13 of this part shall have the right to demand
payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only
qualified consideration for his or her stock shall have the right
under this section to demand payment of the stock's fair or
appraised value, if such stock was listed on a national securities
exchange or quoted on the National Association of Securities
Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder
action is not required for a combination made pursuant to Section
552.13(h)(2) of this part. "Qualified consideration" means cash,
shares of stock of any association or corporation which at the
effective date of the combination will be listed on a national
securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure.
(1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this
section, not less than twenty days prior to the meeting at
which the combination agreement is to be submitted for
stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a
copy of this section. Such written notice shall be mailed to
stockholders of record and may be part of management's proxy
solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder
electing to make a demand under this section shall deliver to
the Federal stock association, before voting on the
combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of
and payment for his or her shares. Such demand must be in
addition to and separate from any proxy or vote against the
combination by the stockholder.
(3) Notification of effective date and written offer.
Within ten days after the effective date of the combination,
the resulting association shall:
(i) Give written notice by mail to
stockholders of constituent Federal stock
associations who have complied with the provisions
of paragraph (c)(2) of this section and have not
voted in favor of the combination, of the effective
date of the combination;
(ii) Make a written offer to each stockholder
to pay for dissenting shares at a specified price
deemed by the resulting association to be the fair
value thereof; and
A - 1
<PAGE> 117
(iii) Inform them that, within sixty days
of such date, the respective requirements of
paragraphs (c)(5) and (c)(6) of this section (set
out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the
dissenting stockholder holds, for a fiscal year ending not more
than sixteen months before the date of notice and offer, together
with the latest available interim financial statements.
(4) Acceptance of offer. If within sixty days of the
effective date of the combination the fair value is agreed
upon between the resulting association and any stockholder who
has complied with the provisions of paragraph (c)(2) of this
section, payment therefor shall be made within ninety days of
the effective date of the combination.
(5) Petition to be filed if offer not accepted. If
within sixty days of the effective date of the combination the
resulting association and any stockholder who has complied
with the provisions of paragraph (c)(2) of this section do not
agree as to the fair value, then any such stockholder may file
a petition with the Office, with a copy by registered or
certified mail to the resulting association, demanding a
determination of the fair market value of the stock of all
such stockholders. A stockholder entitled to file a petition
under this section who fails to file such petition within
sixty days of the effective date of the combination shall be
deemed to have accepted the terms offered under the
combination.
(6) Stock certificates to be noted. Within sixty days
of the effective date of the combination, each stockholder
demanding appraisal and payment under this section shall
submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been
demanded with respect to such stock and that appraisal
proceedings are pending. Any stockholder who fails to submit
his or her stock certificates for such notation shall no
longer be entitled to appraisal rights under this section and
shall be deemed to have accepted the terms offered under the
combination.
(7) Withdrawal of demand. Notwithstanding the
foregoing, at any time within sixty days after the effective
date of the combination, any stockholder shall have the right
to withdraw his or her demand for appraisal and to accept the
terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or
she may elect, either appoint one or more independent persons
or direct appropriate staff of the Office to appraise the
shares to determine their fair market value, as of the
effective date of the combination, exclusive of any element of
value arising from the accomplishment or expectation of the
combination. Appropriate staff of the Office shall review and
provide an opinion on appraisals prepared by independent
persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The
Director after consideration of the appraisal report and the
advice of the appropriate staff shall, if he or she concurs in
the valuation of the shares, direct payment by the resulting
association of the apprised fair market value of the shares,
upon surrender of the certificates representing such stock.
Payment shall be made, together with interest from the
effective date of the combination, at a rate deemed equitable
by the Director.
(9) Costs and expenses. The costs and expenses of any
proceeding under this section may be apportioned and assessed
by the Director as he or she may deem equitable against all or
some of the parties. In making this determination the
Director shall consider whether any party
A - 2
<PAGE> 118
has acted arbitrarily, vexatiously, or not in good faith in
respect to the rights provided by this section.
(10) Voting and distribution. Any stockholder who has
demanded appraisal rights as provided in paragraph (c)(2) of
this section shall thereafter neither be entitled to vote such
stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be
taken by stockholders of record at a date which is on or prior
to, the effective date of the combination): Provided, That if
any stockholder becomes unentitled to appraisal and payment of
appraised value with respect to such stock and accepts or is
deemed to have accepted the terms offered upon the
combination, such stockholder shall thereupon be entitled to
vote and receive the distributions described above.
(11) Status. Shares of the resulting association into
which shares of the stockholders demanding appraisal rights
would have been converted or exchanged, had they assented to
the combination, shall have the status of authorized and
unissued shares of the resulting association.
A - 3
<PAGE> 119
PROXY SECURITY BANK OF CONWAY, F.S.B.
1122 Van Ronkle
Conway, Arkansas 72033
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY 31, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of SECURITY BANK OF CONWAY, F.S.B.
("Security Bank"), does hereby nominate, constitute and appoint
Richard N. Massey and Bill F. Johnson, or each of them (with full power to
act alone), true and lawful attorney(s), with full power of substitution, for
the undersigned and in the name, place and stead of the undersigned to vote
all of the shares of Common Stock, $100.00 par value, of Security Bank
standing in the name of the undersigned on its books at the close of business
on December 28, 1995 at the Special Meeting of Shareholders to be held at
Security Bank, 1122 Van Ronkle, Conway, Arkansas, on Wednesday, January 31,
1996, at 4:30 p.m. Central Time, and at any adjournments or postponements
thereof, with all the powers the undersigned would possess if personally
present, as follows:
1. A proposal to approve the Amended and Restated Agreement and Plan
of Reorganization dated as of September 18, 1995 (the "Reorganization
Agreement"), which provides for (i) the sale by Security Bank of all of its
assets and the assignment by Security Bank of all of its liabilities to
Mercantile Bancorporation Inc. of Arkansas ("MBIA"), a wholly owned
subsidiary of Mercantile Bancorporation Inc. ("MBI"), in exchange for shares
(collectively, the "Shares") of MBI common stock, (ii) the transfer by MBI
(on behalf of MBIA) of the Shares to a qualified exchange agent (the
"Exchange Agent"), on behalf of Security Bank, and (iii) upon consummation of
(i) and (ii) above, (A) and upon the surrender by each Security Bank
shareholder of his or her certificate(s) representing shares of Security Bank
common stock, the distribution by the Exchange Agent of 31.189 shares of MBI
common stock for each share of Security Bank common stock represented by a
surrendered certificate, on behalf of Security Bank, as a liquidating
distribution, and (B) the surrender by Security Bank of its charter to the
Office of Thrift Supervision ((i) and (ii) are hereinafter referred to
collectively as the "Purchase and Assumption"). Pursuant to the terms of the
Reorganization Agreement, by way of those certain Assignment Agreements dated
as of September 25, 1995, by and between (i) MBIA and The Twin City Bank, an
Arkansas state-chartered bank and wholly owned subsidiary of MBIA ("TCB"),
and (ii) MBIA and First National Bank of Conway County, a national banking
association and wholly owned subsidiary of MBIA ("FNBCC") (effective October
2, 1995, FNBCC changed its name to Mercantile Bank of Conway County National
Association ("MBCC")), MBIA has assigned its right to receive the assets and
its obligation to assume the liabilities of Security Bank to TCB and MBCC,
respectively.
/ / FOR / / AGAINST / / ABSTAIN
2. A proposal to approve the dissolution of Security Bank upon
consummation of the Purchase and Assumption.
/ / FOR / / AGAINST / / ABSTAIN
3. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
(Continued on Reverse Side)
<PAGE> 120
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN
HEREIN, THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED ABOVE.
Dated: ---------------
-------------------------------------
Signature of Shareholder
-------------------------------------
Signature of Shareholder
When signing as an attorney, executor, administrator, trustee or
guardian, please give full title. If more than one person holds the power to
vote the same shares, all must sign. All joint owners must sign.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
------------------------------------------
Item 20. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business Corporation
Law of the State of Missouri provide that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, except
that, in the case of an action or suit by or in the right of the corporation,
the corporation may not indemnify such persons against judgments and fines and
no person shall be indemnified as to any claim, issue or matter as to which
such person shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation, unless and only to the
extent that the court in which the action or suit was brought determines upon
application that such person is fairly and reasonably entitled to indemnity
for proper expenses. Section 351.355(3) provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful
in the defense of any such action, suit or proceeding or any claim, issue or
matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection with such
action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by
a shareholder-approved bylaw or agreement, and provided further that no
person shall thereby be indemnified against conduct which was finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct or which involved an accounting for profits pursuant to Section
16(b) of the Securities Exchange Act of 1934.
Article 12 of the Restated Articles of Incorporation of MBI provides
that MBI shall extend to its directors and executive officers the
indemnification specified in subsections (1) and (2) and the additional
indemnification authorized in subsection (7) and that it may extend to other
officers, employees and agents such indemnification and additional
indemnification.
Pursuant to directors' and officers' liability insurance policies,
with total annual limits of $30,000,000, MBI's directors and officers are
insured, subject to the limits, retention, exceptions and other terms and
conditions of such policy, against liability for any actual or alleged error,
misstatement, misleading statement, act or omission, or neglect or breach of
duty by the directors or officers of MBI, individually or collectively, or
any matter claimed against them solely by reason of their being directors or
officers of MBI.
II-1
<PAGE> 122
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
A. Exhibits. See Exhibit Index.
---------
B. Financial Statement Schedules. Not Applicable.
-----------------------------
Item 22. Undertakings
- ----------------------
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of MBI pursuant to the foregoing provisions, or
otherwise, MBI has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
MBI of expenses incurred or paid by a director, officer or controlling person
of MBI in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, MBI will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) MBI hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of MBI's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) MBI hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(4) MBI undertakes that every prospectus (i) that is filed pursuant
to paragraph (3) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) MBI hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
II-2
<PAGE> 123
(6) MBI hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(7) MBI hereby undertakes:
(a) To file during any period in which offers and sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof), which individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(b) That for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-3
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, MBI has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Louis, State of
Missouri, on December 15, 1995.
MERCANTILE BANCORPORATION INC.
By: /s/ Thomas H. Jacobsen
-------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/Thomas H. Jacobsen Chairman of the Board, December 15, 1995
- ------------------------------------------------ President, Chief Executive
Thomas H. Jacobsen Officer and Director
Principal Executive Officer
/s/John Q. Arnold Senior Executive Vice President and December 15, 1995
- ------------------------------------------------ Chief Financial Officer
John Q. Arnold
Principal Financial Officer
/s/Michael T. Normile Senior Vice President - Finance December 15, 1995
- ------------------------------------------------ and Control
Michael T. Normile
Principal Accounting Officer
<F*> Director December 15, 1995
- ------------------------------------------------
Richard P. Conerly
<F*> Director December 15, 1995
- ------------------------------------------------
Harry M. Cornell, Jr.
<F*> Director December 15, 1995
- ------------------------------------------------
Earl K. Dille
<F*> Director December 15, 1995
- ------------------------------------------------
William A. Hall
II-4
<PAGE> 125
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
<F*> Director December 15, 1995
- ------------------------------------------------
Thomas A. Hays
<F*> Director December 15, 1995
- ------------------------------------------------
Frank Lyon, Jr.
<F*> Director December 15, 1995
- ------------------------------------------------
Charles H. Price II
<F*> Director December 15, 1995
- ------------------------------------------------
Harvey Saligman
Director December ---, 1995
- ------------------------------------------------
Craig D. Schnuck
Director December ---, 1995
- ------------------------------------------------
Robert L. Stark
<F*> Director December 15, 1995
- ------------------------------------------------
Patrick T. Stokes
<F*> Director December 15, 1995
- ------------------------------------------------
Francis A. Stroble
<F*> Director December 15, 1995
- ------------------------------------------------
John A. Wright
</TABLE>
<F*>By: /s/John H. Beirise
-------------------------------------
John H. Beirise
Attorney-in-fact
John H. Beirise, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly
executed by such persons.
II-5
<PAGE> 126
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Page
------ ----------- ----
<C> <S> <C>
2.1 Amended and Restated Agreement and Plan of Reorganization dated as of July 7,
1995, as amended and restated as of September 18, 1995, by and between MBI and
MBIA, as Buyers, and Security Bank, as Seller.<F*>
2.2 Assignment Agreement dated as of September 25, 1995 by and between MBIA and
TCB.<F*>
2.3 Assignment Agreement dated as of September 25, 1995 by and between MBIA and
FNBCC.<F*>
2.4 Form of Voting Agreement dated as of July 7, 1995 by and between MBI and
certain shareholders of Security Bank.<F*>
3.1 MBI's Restated Articles of Incorporation, as amended and currently in effect,
filed as Exhibit 3.1 to MBI's Report on Form 10-Q for the quarter ended June
30, 1994, incorporated herein by reference.<F*>
3.2 MBI's By-Laws, as amended and currently in effect, filed as Exhibit 3.2 to
MBI's Registration Statement No. 33-57489, are incorporated herein by
reference.<F*>
4.1 Form of Indenture Regarding Subordinated Securities between MBI and The First
National Bank of Chicago, Trustee, filed as Exhibit 4.1 to MBI's Report on
Form 8-K dated September 24, 1992, is incorporated herein by reference.<F*>
4.2 Rights Agreement dated as of May 23, 1988 between MBI 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 Right Certificate), filed as Exhibits 1 and 2
to MBI's Registration Statement No. 0-6045 on Form 8-A, dated May 24, 1988,
is incorporated herein by reference.<F*>
4.3 Certificate of Designation, Preferences, and Relative Rights, Qualifications,
Limitations and Restrictions of the Series B-1 Preferred Stock of MBI, filed
as Exhibit 4-1 to MBI's Report on Form 10-Q for the quarter ended March 31,
1995 (File No. 1-11792), is incorporated herein by reference.<F*>
4.4 Certificate of Designation, Preferences, and Relative Rights, Qualifications,
Limitations and Restrictions of the Series B-2 Preferred Stock of MBI, filed
as Exhibit 4-2 to MBI's Report on Form 10-Q for the quarter ended March 31,
1995 (File No. 1-11792), is incorporated herein by reference.<F*>
5.1 Opinion of Thompson & Mitchell as to the legality of the securities being
registered.<F*>
II-6
<PAGE> 127
<CAPTION>
Exhibit
Number Description Page
------ ----------- ----
<C> <S> <C>
8.1 Opinion of Thompson & Mitchell regarding certain tax matters in the
Reorganization.<F*>
10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed
as Exhibit 10-3 to MBI's Report on Form 10-K for the year ended December 31,
1989 (File No. 1-11792), is incorporated herein by reference.<F*>
10.2 Mercantile Bancorporation Inc. Amended and Restated Retirement Plan for
Directors filed as Exhibit 10 to MBI's Report on Form 10-Q for the quarter
ended March 31, 1995 (File No. 1-11792), is incorporated herein by reference.<F*>
10.3 The Mercantile Bancorporation Inc. Executive Incentive Compensation Plan,
filed as Appendix C to MBI's definitive Proxy Statement for the 1994 Annual
Meeting of Shareholders is incorporated herein by reference.<F*>
10.4 The Mercantile Bancorporation Inc. Employee Stock Purchase Plan, filed as
Exhibit 10-7 to MBI's Report on Form 10-K for the year ended December 31,
1989 (File No. 1-11792), is incorporated herein by reference.<F*>
10.5 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as
Exhibit 10-7 to MBI's Report on Form 10-K for the year ended December 31,
1990 (File No. 1-11792), is incorporated herein by reference.<F*>
10.6 Amendment Number One to the Mercantile Bancorporation Inc. 1991 Employee
Incentive Plan, filed as Exhibit 10-6 to MBI's Report on Form 10-K for the
year ended December 31, 1994, is incorporated herein by reference.<F*>
10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan, filed as
Appendix B to MBI's definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.<F*>
10.8 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee
Directors, filed as Appendix E to MBI's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders, is incorporated herein by reference.<F*>
10.9 The Mercantile Bancorporation Inc. Voluntary Deferred Compensation Plan,
filed as Appendix D to MBI's definitive Proxy Statement for the 1994 Annual
Meeting of Shareholders, is incorporated herein by reference.<F*>
10.10 Form of Employment Agreement for Thomas H. Jacobsen, as amended, filed as
Exhibit 10-8 to MBI's Report on Form 10-K for the year ended December 31,
1989 (File No. 1-11792), is incorporated herein by reference.<F*>
10.11 Form of Employment Agreement for John W. McClure, W. Randolph Adams, John Q.
Arnold and Certain Other Executive Officers, as amended, filed as Exhibit
10-9 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File
No. 1-11792), is incorporated herein by reference.<F*>
II-7
<PAGE> 128
<CAPTION>
Exhibit
Number Description Page
------ ----------- ----
<C> <S> <C>
10.12 Form of Change of Control Employment Agreement for John W. McClure,
W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, filed
as Exhibit 10-10 to MBI's Report on Form 10-K for the year ended December 31,
1989 (File No. 1-11792), is incorporated herein by reference.<F*>
10.13 Agreement and Plan of Reorganization dated August 17, 1993, by and among MBI
and United Postal Bancorp, Inc., filed as Exhibit 2.1 to MBI's Registration
Statement No. 33-50981, is incorporated herein by reference.<F*>
10.14 Amended and Restated Agreement and Plan of Reorganization dated as of
December 2, 1994 by and among MBI and TCBankshares, Inc., filed as Exhibit
2.1 to MBI's Report on Form 8-K dated December 21, 1994, is incorporated
herein by reference.<F*>
10.15 The Mercantile Bancorporation Inc. Supplemental Retirement Plan, filed as
Exhibit 10-12 to MBI's Report on Form 10-K for the year ended December 31,
1992 (File No. 1-11792), is incorporated herein by reference.<F*>
10.16 Agreement and Plan of Reorganization dated August 4, 1995, by and between MBI
and Hawkeye Bancorporation, filed as Exhibit 2.1 to MBI's Registration
Statement No. 33-63609, is incorporated herein by reference.<F*>
23.1 Consent of KPMG Peat Marwick LLP with regard to the use of its reports on
MBI's financial statements.<F**>
23.2 Consent of Arthur Andersen LLP with regard to the use of its reports on
Security Bank's financial statements.<F**>
23.3 Consent of Ernst & Young LLP with regard to the use of its reports on
Security Bank's financial statements.<F**>
23.4 Consent of Deloitte & Touche LLP with regard to the use of its reports on
Hawkeye's financial statements.<F**>
23.5 Consent of Thompson & Mitchell (included in Exhibit 5.1).<F*>
24.1 Power of Attorney.<F*>
<FN>
- ---------------------
<F*> Previously filed.
<F**> Filed herewith.
</TABLE>
II-8
<PAGE> 1
Exhibit 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors and Stockholders
Mercantile Bancorporation Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in Amendment No. 1 to
the prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
December 15, 1995
<PAGE> 1
Exhibit 23.2
Consent of Independent Accountants
----------------------------------
As independent public accountants, we hereby consent to the use of our report
covering the financial statements of Security Bank of Conway, F.S.B. as of and
for the years ended December 31, 1994 and 1993 and to all references to our
firm included in or made a part of Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 33-63925).
/s/ Arthur Andersen LLP
Little Rock, Arkansas
December 15, 1995
<PAGE> 1
Exhibit 23.3
Consent of Independent Auditors
-------------------------------
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated January 28, 1993 with respect to the 1992 consolidated
financial statements of Security Bank of Conway, FSB, included in the Proxy
Statement of Security Bank of Conway, FSB, which is made a part of Amendment
No. 1 to the Registration Statement (Form S-4) and Prospectus of Mercantile
Bancorporation Inc. for the registration of 322,000 shares of its common stock.
/s/ Ernst & Young LLP
Little Rock, Arkansas
December 14, 1995
<PAGE> 1
Exhibit 23.4
Independent Auditors' Consent
-----------------------------
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement (No. 33-63925) of Mercantile Bancorporation Inc. on Form
S-4 of our report dated January 24, 1995, appearing in the Annual Report on
Form 10-K of Hawkeye Bancorporation for the year ended December 31, 1994 and to
the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
/s/ Deloitte & Touche LLP
Des Moines, Iowa
December 15, 1995
