<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
Registration No. 333-03475
================================================================================
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 of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
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)
----------------------
JON W. BILSTROM, ESQ.
General Counsel and Secretary
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:
JOHN Q. ARNOLD ROBERT M. LaROSE, ESQ. HOWARD H. MICK, ESQ.
Chief Financial Officer Thompson Coburn Stinson, Mag &
Mercantile Bancorporation Inc. One Mercantile Center Fizzell, P.C.
P.O. Box 524 St. Louis, Missouri 1201 Walnut Street
St. Louis, Missouri 63166-0524 63101-1693 Suite 2800
(314) 425-2525 (314) 552-6000 Kansas City, Missouri
64141
(816) 842-8600
----------------------
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>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
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> 325,843 shares N/A $8,021,730.12 $2,766.13<F3>
============================================================================================================================
<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)(2),
and based upon the $8,021,730.12 aggregate book value of the 22,500 shares of Common Stock, $100.00 par value,
of Peoples State Bank issued and outstanding as of April 30, 1996.
<F3> The registrant previously paid $2,766.13 with the original filing on May 10, 1996.
</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.
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
-----------------------------------------------------------
<TABLE>
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
A. Information about the Transaction Facing Page; Cross Reference Sheet; Outside
1. Forepart of Registration Front Cover Page of Prospectus
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Available Information; Incorporation of
Back Cover Pages of Certain Information by Reference; Table of
Prospectus Contents
3. Risk Factors, Ratio of Summary Information; Pro Forma Financial
Earnings to Fixed Charges and Information
Other Information
4. Terms of the Transaction Summary Information; Incorporation of Certain
Information by Reference; Terms of the
Proposed Acquisition; Certain Federal Income
Tax Consequences of the Acquisition;
Information Regarding MBI Common Stock
5. Pro Forma Financial Pro Forma Financial Information
Information
6. Material Contacts with Summary Information; Terms of the Proposed
the Company Being Acquired Acquisition
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters
8. Interests of Named Legal Matters
Experts and Counsel
9. Disclosure of Commission Not Applicable
Position on 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 Incorporation of Certain Information by
to S-3 Registrants Reference; Summary Information; Information
Regarding MBI Common Stock
11. Incorporation of Certain Incorporation of Certain Information by
Information by Reference Reference
12. Information with Respect Not Applicable
to S-2 or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect Not Applicable
to Registrants Other Than S-2
or S-3 Registrants
C. Information About the Company Being
Acquired
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect Summary Information; Information Regarding
to Companies Other Than S-2 Peoples Bankshares and Peoples Bank
or S-3 Companies
D. Voting and Management Information
18. Information if Proxies, Information Regarding Special Meetings;
Consents or Authorizations Incorporation of Certain Information by
are to be Solicited Reference; Dissenters' Rights of Stockholders
of Peoples Bank; Information Regarding
Peoples Bankshares and Peoples Bank
19. Information if Proxies, Not Applicable
Consents or Authorizations
are not to be Solicited in an
Exchange Offer
</TABLE>
-ii-
<PAGE> 4
[letterhead of Peoples State Bankshares, Inc.]
June 14, 1996
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Stockholders of Peoples State Bankshares, Inc. ("Peoples
Bankshares") to be held at 10:00 a.m., Central Time, on Monday, July 15, 1996,
at Peoples Bankshares, 1080 S.W. Wanamaker Road, Suite A, Topeka, Kansas (the
"Special Meeting"). At this important meeting, you will be asked to consider
and vote upon the Agreement and Plan of Reorganization (the "Reorganization
Agreement") dated as of December 19, 1995, pursuant to which (i) Ameribanc,
Inc. ("Ameribanc"), a wholly owned subsidiary of Mercantile Bancorporation Inc.
("MBI"), will acquire all of the outstanding capital stock of Peoples State
Bank, a Kansas state-chartered bank ("Peoples Bank"), through the consummation
of two concurrent and interdependent transactions: (x) the exchange (the
"Exchange") of all of the shares of common stock of Peoples Bank owned
beneficially and of record by Peoples Bankshares for shares of MBI common
stock, and (y) the merger (the "Merger") of Mercantile Bank of Shawnee County,
a Kansas state-chartered bank in organization and wholly owned subsidiary of
Ameribanc, with and into Peoples Bank and (ii) as soon as practicable but no
later than six months following the Exchange, Peoples Bankshares shall
liquidate and dissolve and effect a liquidation to the stockholders of Peoples
Bankshares of all of the shares of MBI common stock received by Peoples
Bankshares in the Exchange.
I have enclosed the following items relating to the Special
Meeting and the proposed transactions:
1. Joint Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Peoples
Bankshares for the proxy card.
The Joint Proxy Statement/Prospectus and related proxy materials
set forth, or incorporate by reference, financial data and other important
information relating to Peoples Bankshares, Peoples Bank, MBI and Ameribanc,
and describe the terms and conditions of the proposed Exchange and Merger.
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 PEOPLES BANKSHARES CAREFULLY
CONSIDERED AND APPROVED THE TERMS OF THE REORGANIZATION AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AS BEING IN THE BEST
INTEREST OF PEOPLES BANKSHARES AND ITS STOCKHOLDERS. THE PEOPLES
BANKSHARES BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
---
PROPOSAL TO APPROVE THE REORGANIZATION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY IS A CONDITION TO THE CONSUMMATION OF THE EXCHANGE AND
MERGER. 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, sign and date the enclosed proxy card and return it to
Peoples Bankshares 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 Peoples Bankshares a written
<PAGE> 5
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 Joint Proxy Statement/Prospectus, please feel
free to contact me at (913) 271-8080.
Sincerely,
Ronald D. Lutz
President
<PAGE> 6
[letterhead of Peoples State Bank]
June 14, 1996
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Stockholders of Peoples State Bank ("Peoples Bank") to be held at
9:00 a.m., Central Time, on Monday, July 15, 1996, at Peoples Bank, 1064 S.W.
Wanamaker Road, Topeka, Kansas (the "Special Meeting"). At this important
meeting, you will be asked to consider and vote upon the Agreement and Plan of
Reorganization (the "Reorganization Agreement") dated as of December 19, 1995,
and the related Plan of Merger dated as of May 2, 1996 (the "Plan of Merger"
and, collectively with the Reorganization Agreement, the "Acquisition
Agreements"), pursuant to which Ameribanc, Inc. ("Ameribanc"), a wholly owned
subsidiary of Mercantile Bancorporation Inc. ("MBI"), will acquire all of the
outstanding capital stock of Peoples Bank through the consummation of two
concurrent and interdependent transactions: (i) the exchange (the "Exchange")
of all of the shares of common stock of Peoples Bank owned beneficially and of
record by Peoples State Bankshares, Inc. ("Peoples Bankshares") for shares of
MBI common stock, and (ii) the merger (the "Merger") of Mercantile Bank of
Shawnee County, a wholly owned subsidiary of Ameribanc in organization, with
and into Peoples Bank.
I have enclosed the following items relating to the Special
Meeting and the proposed transactions:
1. Joint Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Peoples Bank for the
proxy card.
The Joint Proxy Statement/Prospectus and related proxy materials
set forth, or incorporate by reference, financial data and other important
information relating to Peoples Bank, Peoples Bankshares, MBI and Ameribanc,
and describe the terms and conditions of the proposed Exchange and Merger.
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 PEOPLES BANK CAREFULLY
CONSIDERED AND APPROVED THE TERMS OF THE ACQUISITION AGREEMENTS
AND THE TRANSACTIONS CONTEMPLATED THEREBY AS BEING IN THE BEST
INTEREST OF PEOPLES BANK AND ITS STOCKHOLDERS. THE PEOPLES BANK
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO
---
APPROVE THE ACQUISITION AGREEMENTS AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
APPROVAL OF THE ACQUISITION AGREEMENTS AND THE TRANSACTIONS
CONTEMPLATED THEREBY IS A CONDITION TO THE CONSUMMATION OF THE EXCHANGE AND
MERGER. 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, sign and date the enclosed proxy card and return it to
Peoples 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.
<PAGE> 7
You may revoke your proxy by delivering to the Secretary of Peoples 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 Joint Proxy Statement/Prospectus, please feel
free to contact Michael W. Lutz at (913) 271-8080.
Sincerely,
Ronald D. Lutz
Chairman and Chief Executive Officer
<PAGE> 8
PEOPLES STATE BANKSHARES, INC.
1080 S.W. Wanamaker Road, Suite A
Topeka, Kansas 66604-3888
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
July 15, 1996
TO THE STOCKHOLDERS OF PEOPLES STATE BANKSHARES, INC.:
Notice is hereby given that a Special Meeting of Stockholders of
PEOPLES STATE BANKSHARES, INC., a Kansas corporation ("Peoples Bankshares"),
will be held at Peoples Bankshares, 1080 S.W. Wanamaker Road, Suite A, Topeka,
Kansas on Monday, July 15, 1996, at 10:00 a.m., Central Time, for the
following purposes:
(1) To consider and vote upon the adoption and approval of the
Agreement and Plan of Reorganization dated as of December 19, 1995 (the
"Reorganization Agreement"), pursuant to which (i) Peoples Bankshares and
Ameribanc, Inc. ("Ameribanc"), a wholly owned subsidiary of Mercantile
Bancorporation Inc. ("MBI"), will effect an exchange (the "Exchange") of all
of the shares of common stock of Peoples State Bank ("Peoples Bank") owned by
Peoples Bankshares for shares of MBI common stock and (ii) Mercantile Bank of
Shawnee County, a wholly owned subsidiary of Ameribanc in organization, will
be merged with and into Peoples Bank (the "Merger"), whereby, (x) upon
consummation of the Exchange, each share of Peoples Bank common stock that is
beneficially owned by Peoples Bankshares will be transferred to Ameribanc in
exchange for 14.4819 shares of MBI common stock and, as soon as practicable but
no later than six months following the Exchange, Peoples Bankshares shall
liquidate and dissolve and effect a liquidation to the stockholders of Peoples
Bankshares of all of the shares of MBI Common Stock received by Peoples
Bankshares in the Exchange and (y) upon consummation of the Merger, each
outstanding share of Peoples Bank common stock (other than the shares that have
been transferred to Ameribanc pursuant to the Exchange or shares as to which a
stockholder has exercised dissenters' rights) will be converted into the right
to receive 14.4819 shares of MBI common stock.
(2) To consider and vote upon a proposal to permit the Special
Meeting to be adjourned or postponed, in the discretion of the proxies, which
adjournment or postponement could be used for the purpose, among others, of
allowing time for the solicitation of additional votes to approve the
Reorganization Agreement.
The record date for determining the stockholders entitled to
receive notice of, and to vote at, the Special Meeting or any adjournment
thereof has been fixed as of the close of business on June 12, 1996.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE 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 JOINT PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Joyce M. Lutz
Secretary
Topeka, Kansas
June 14, 1996
<PAGE> 9
PEOPLES STATE BANK
1064 S.W. Wanamaker Road
Topeka, Kansas 66604-3888
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
July 15, 1996
TO THE STOCKHOLDERS OF PEOPLES STATE BANK:
Notice is hereby given that a Special Meeting of Stockholders of
PEOPLES STATE BANK, a Kansas state-chartered bank ("Peoples Bank"), will be
held at Peoples Bank, 1064 S.W. Wanamaker Road, Topeka, Kansas, on Monday,
July 15, 1996, at 9:00 a.m., Central Time, for the following purposes:
(1) To consider and vote upon the adoption and approval of the
Agreement and Plan of Reorganization dated as of December 19, 1995 (the
"Reorganization Agreement") and the related Plan of Merger dated as of
May 2, 1996 (the "Plan of Merger" and, collectively with the Reorganization
Agreement, the "Acquisition Agreements"), pursuant to which (i) Peoples State
Bankshares, Inc. ("Peoples Bankshares") and Ameribanc, Inc. ("Ameribanc"), a
wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), will effect
an exchange (the "Exchange") of all of the shares of Peoples Bank common stock
owned by Peoples Bankshares for shares of MBI common stock, (ii) Mercantile
Bank of Shawnee County, a wholly owned subsidiary of Ameribanc in organization,
will be merged with and into Peoples Bank (the "Merger") whereby, (x) upon
consummation of the Exchange, each share of Peoples Bank common stock that is
beneficially owned by Peoples Bankshares will be transferred to Ameribanc in
exchange for 14.4819 shares of MBI common stock and (y) upon consummation of
the Merger, each outstanding share of Peoples Bank common stock (other than the
shares that have been transferred to Ameribanc pursuant to the Exchange or
shares as to which a stockholder has exercised dissenters' rights) will be
converted into the right to receive 14.4819 shares of MBI common stock.
(2) To consider and vote upon a proposal to permit the Special
Meeting to be adjourned or postponed, in the discretion of the proxies, which
adjournment or postponement could be used for the purpose, among others, of
allowing time for the solicitation of additional votes to approve the
Acquisition Agreements.
The record date for determining the stockholders entitled to
receive notice of, and to vote at, the Special Meeting or any adjournment
thereof has been fixed as of the close of business on June 12, 1996.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE 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 JOINT PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Joyce M. Lutz
Secretary
Topeka, Kansas
June 14, 1996
<PAGE> 10
MERCANTILE BANCORPORATION INC.
PROSPECTUS
----------
PEOPLES STATE BANKSHARES, INC.
PEOPLES STATE BANK
JOINT PROXY STATEMENT
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON JULY 15, 1996
This Prospectus of Mercantile Bancorporation Inc. ("MBI") relates
to up to 325,843 shares of common stock, $5.00 par value (the "Common Stock"),
and attached Preferred Share Purchase Rights (the "Rights"), of MBI (the
Common Stock and the Rights are collectively referred to herein as the "MBI
Common Stock"), to be issued upon the acquisition by Ameribanc, Inc., a
Missouri corporation and wholly owned subsidiary of MBI ("Ameribanc"), of all
of the outstanding common stock, $100.00 par value ("Peoples Bank Common
Stock"), of Peoples State Bank, a Kansas state-chartered bank ("Peoples
Bank"). The acquisition will be accomplished through the consummation of two
concurrent and interdependent transactions: (i) the exchange (the "Exchange")
of all of the shares of Peoples Bank Common Stock owned beneficially and of
record by Peoples State Bankshares, Inc., a Kansas corporation ("Peoples
Bankshares"), for shares of MBI Common Stock, and (ii) the merger (the
"Merger") of Mercantile Bank of Shawnee County, a wholly owned subsidiary of
Ameribanc in organization ("MBSC"), with and into Peoples Bank, whereby all
of the outstanding shares of Peoples Bank Common Stock (other than shares
received by Ameribanc pursuant to the Exchange or shares as to which a
stockholder has exercised dissenters' rights) will be converted into the
right to receive shares of MBI Common Stock (the "Merger" and the "Exchange"
are hereinafter referred to collectively as the "Acquisition"). The
Acquisition will be consummated in accordance with the terms and conditions,
including regulatory and stockholder approvals, as set forth more fully in
the Agreement and Plan of Reorganization (the "Reorganization Agreement"),
dated as of December 19, 1995, by and among MBI, Ameribanc, Peoples Bank and
Peoples Bankshares, and the related Plan of Merger (the "Plan of Merger" and,
together with the Reorganization Agreement, the "Acquisition Agreements")
dated as of May 2, 1996 by and between Peoples Bank and MBSC. This
Prospectus also serves as the Proxy Statement for each of Peoples Bankshares
and Peoples Bank in connection with the Special Meeting of Stockholders of
Peoples Bankshares (the "Peoples Bankshares Special Meeting") and the Special
Meeting of Stockholders of Peoples Bank (the "Peoples Bank Special Meeting"
and, collectively with the Peoples Bankshares Special Meeting, the "Special
Meetings"), both of which will be held on July 15, 1996, at the times and
places and for the purposes stated in the Notices of Special Meetings of
Stockholders of Peoples Bankshares and Peoples Bank accompanying this Joint
Proxy Statement/Prospectus.
Pursuant to the Acquisition, MBI will issue up to an aggregate of
325,843 shares of MBI Common Stock (the "Acquisition Consideration"). Upon
the consummation of the Exchange, Peoples Bankshares will transfer each share
of Peoples Bank Common Stock that is beneficially owned by Peoples Bankshares
to Ameribanc in exchange for 14.4819 shares of MBI Common Stock. As soon as
practicable but no later than six months following the Exchange, Peoples
Bankshares shall liquidate and dissolve and effect a liquidating distribution
to the holders of the capital stock of Peoples Bankshares of all of the shares
of MBI Common Stock received by Peoples Bankshares in the Exchange (the
"Liquidation"). Upon consummation of the Merger, the business and operations
of Peoples Bank will be continued through Peoples Bank as a wholly owned
subsidiary of Ameribanc, and each issued and outstanding share of Peoples Bank
Common Stock
<PAGE> 11
(other than those shares that have been transferred to Ameribanc pursuant to the
Exchange or those shares as to which a stockholder of Peoples Bank has
exercised dissenters' rights under Section 17-6712 of the General Corporation
Code of Kansas (the "Kansas Corporation Code")) will be converted into the
right to receive 14.4819 shares of MBI Common Stock. The fair market value
of the MBI Common Stock to be issued as the Acquisition Consideration may
fluctuate and at the consummation of the Acquisition may be more or less than
the current fair market value of such shares. See "TERMS OF THE PROPOSED
ACQUISITION - General Description of the Acquisition." No fractional shares
of MBI Common Stock will be issued in the Acquisition, but cash will be paid
in lieu of such fractional shares. See "TERMS OF THE PROPOSED ACQUISITION -
Fractional Shares."
The Acquisition is intended to qualify as a tax-deferred
reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"), and, accordingly, is intended to achieve certain tax-deferral
benefits for federal income tax purposes for Peoples Bankshares and the
stockholders of Peoples Bank and Peoples Bankshares with respect to those
shares of MBI Common Stock received pursuant to the Acquisition. See
"SUMMARY INFORMATION - Federal Income Tax Consequences in General" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION."
MBI Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "MTL." On June 12, 1996, the closing sale
price for MBI Common Stock as reported on the NYSE Composite Tape was $-----.
This Joint Proxy Statement/Prospectus, the Notices of the Special Meetings
and the forms of proxy were first mailed to the stockholders of Peoples
Bankshares and Peoples Bank on or about June 14, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Joint Proxy Statement/Prospectus is June 14, 1996.
- 2 -
<PAGE> 12
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 Securities and Exchange Commission (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 Suite 1400, Citicorp 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 also available for inspection and copying at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
This Joint 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 Joint Proxy Statement/Prospectus
omits certain information contained or incorporated by reference in the
Registration Statement. Statements contained in this Joint 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 JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES
DOCUMENTS BY REFERENCE 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 JULY 8, 1996.
The following documents filed with the Commission by MBI under
the Exchange Act are incorporated herein by reference:
(a) MBI's Annual Report on Form 10-K for the year ended
December 31, 1995.
(b) MBI's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
(c) MBI's Current Reports on Form 8-K dated January 16, 1996
and March 11, 1996.
(d) The description of MBI 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.
(e) The description of MBI 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.
- 3 -
<PAGE> 13
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 Meetings 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 Joint 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 Joint 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 JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY MBI, PEOPLES BANKSHARES OR PEOPLES BANK. THIS JOINT 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 JOINT 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 ITS SUBSIDIARIES, PEOPLES BANKSHARES OR PEOPLES BANK OR
IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF.
- 4 -
<PAGE> 14
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . 3
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Business of MBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Business of Peoples Bankshares and Peoples Bank . . . . . . . . . . . . . . . . . . 8
The Proposed Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Interests of Certain Persons in the Acquisition . . . . . . . . . . . . . . . . . . 10
Special Meetings of Stockholders of Peoples Bankshares and Peoples Bank . . . . . . 10
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Federal Income Tax Consequences in General. . . . . . . . . . . . . . . . . . . . . 12
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dissenters' Rights of Peoples Bank Stockholders . . . . . . . . . . . . . . . . . . 13
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Markets and Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . 15
Summary Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INFORMATION REGARDING SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
TERMS OF THE PROPOSED ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
General Description of the Acquisition. . . . . . . . . . . . . . . . . . . . . . . 23
Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Interests of Certain Persons in the Acquisition . . . . . . . . . . . . . . . . . . 25
Background of and Reasons for the Acquisition; Board Recommendations. . . . . . . . 25
Conditions of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Termination of the Reorganization Agreement . . . . . . . . . . . . . . . . . . . . 30
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Surrender of Peoples Bank Stock Certificates and Receipt of MBI Common Stock. . . . 31
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Business Pending the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . 32
Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
- 5 -
<PAGE> 15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION. . . . . . . . . . . . . . . . 36
DISSENTERS' RIGHTS OF STOCKHOLDERS OF PEOPLES BANK. . . . . . . . . . . . . . . . . . . . 38
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . 40
Pro Forma Combined Consolidated Financial Statements (Unaudited). . . . . . . . . . 41
INFORMATION REGARDING PEOPLES BANKSHARES AND PEOPLES BANK . . . . . . . . . . . . . . . . 47
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Management's Discussion and Analysis of Financial Condition and Results of Operations 47
Security Ownership of Certain Beneficial Owners and Management of Peoples Bankshares 65
Security Ownership of Certain Beneficial Owners and Management of Peoples Bank. . . 66
INFORMATION REGARDING MBI COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . 67
Description of MBI Common Stock and Attached Preferred Share Purchase Rights. . . . 67
Restrictions on Resale of MBI Common Stock by Affiliates. . . . . . . . . . . . . . 69
Comparison of the Rights of Shareholders of MBI and the Rights of
Stockholders of Peoples Bankshares and Peoples Bank . . . . . . . . . . . . . 69
SUPERVISION AND REGULATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Certain Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . 73
Payment of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
FDIC Insurance Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Proposals to Overhaul the Savings Association Industry. . . . . . . . . . . . . . . 74
Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
FIRREA and FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Depositor Preference Statute. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
The Interstate Banking and Community Development Legislation. . . . . . . . . . . . 76
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . 76
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
FINANCIAL STATEMENTS INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ANNEX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
- 6 -
<PAGE> 16
SUMMARY INFORMATION
-------------------
THE FOLLOWING IS A SUMMARY OF THE IMPORTANT TERMS OF
THE PROPOSED ACQUISITION AND RELATED INFORMATION DISCUSSED
ELSEWHERE IN THIS JOINT 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 JOINT PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, INCLUDING THE ANNEX ATTACHED TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF PEOPLES
BANKSHARES AND PEOPLES BANK ARE URGED TO READ THIS JOINT 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 (the
"HOLA"). At March 31, 1996, MBI owned, directly or indirectly, all of the
capital stock of Mercantile Bank of St. Louis National Association
("Mercantile Bank") and 72 other commercial banks which operate from 411
banking offices and 399 Fingertip Banking automated teller machines,
including 40 off-premises machines, located throughout Missouri, Illinois,
eastern Kansas, northern Arkansas and Iowa. MBI's services concentrate in
four major lines of business -- consumer, corporate, investment banking 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 March 31, 1996, MBI had 63,124,053
shares of its Common Stock issued and outstanding. As of March 31, 1996, MBI
reported, on a consolidated basis, total assets of $17.9 billion, total
deposits of $14.0 billion, total loans and leases of $11.8 billion and
shareholders' equity of $1.6 billion.
On January 2, 1996, MBI completed the acquisitions of (i) Hawkeye
Bancorporation ("Hawkeye"), an Iowa corporation and registered bank holding
company under the BHCA, located in Des Moines, Iowa, and (ii) First Sterling
Bancorp, Inc. ("Sterling"), an Illinois corporation and registered bank
holding company under the BHCA, located in Sterling, Illinois. These
acquisitions were accounted for under the pooling-of-interest method of
accounting. As of January 2, 1996, Hawkeye and Sterling reported total
assets of $2.0 billion and $168 million, respectively.
On February 9, 1996 and March 7, 1996, respectively, MBI
completed the acquisitions of (i) Security Bank of Conway, F.S.B. ("Conway"),
a federal stock savings bank located in Conway, Arkansas, and (ii) Metro
Savings Bank, F.S.B. ("Metro"), a federal stock savings bank located in Wood
River, Illinois. These acquisitions were accounted for under the purchase
method of accounting. As of February 9, 1996 and March 7, 1996, Conway and
Metro reported total assets of $103 million and $81 million, respectively.
On March 19, 1996, MBI entered into an agreement to acquire
TODAY'S BANCORP, INC. ("TODAY'S"), located in Freeport, Illinois. TODAY'S, a
Delaware corporation and registered bank holding company under the BHCA,
operates from twelve locations in northern Illinois. As of March 31, 1996,
TODAY'S reported total assets of $510 million, total deposits of $437
million, total loans of $368 million and stockholders' equity of $47 million.
The acquisition of TODAY'S will be accounted for under the purchase method
of accounting.
- 7 -
<PAGE> 17
In connection with the acquisition of Hawkeye, MBI restated its
consolidated financial statements as of and for the years ended December 31,
1995, 1994 and 1993. MBI filed supplemental financial statements as of and
for the years ended December 31, 1995, 1994 and 1993 in a Current Report on
Form 8-K, dated March 11, 1996, which has been incorporated by reference into
this Joint Proxy Statement/Prospectus. Due to the immateriality of the
financial condition and results of operation of Sterling to that of MBI, the
supplemental consolidated financial statements of MBI do not reflect the
acquisition of Sterling.
MBI's principal executive offices are located at One Mercantile
Center, St. Louis, Missouri 63101-1693, and its telephone number is (314)
425-2525.
BUSINESS OF PEOPLES BANKSHARES AND PEOPLES BANK
Peoples Bankshares, a Kansas corporation, commenced operations in
1973 and is a registered bank holding company under the BHCA. Peoples
Bankshares currently owns 88.88% of the issued and outstanding shares of the
capital stock of Peoples Bank, a Kansas state-chartered bank founded in 1909
which operates from five locations in eastern Kansas. As of March 31, 1996,
Peoples Bankshares had 97,455 shares of its common stock, $1.00 par value
("Peoples Bankshares Common Stock"), issued and outstanding and Peoples Bank
had 22,500 shares of Peoples Bank Common Stock issued and outstanding. As of
March 31, 1996, Peoples Bankshares reported, on a consolidated basis, total
assets of $94 million, total deposits of $76 million, net loans of $52
million and stockholders' equity of $8 million, and Peoples Bank reported
total assets of $94 million, total deposits of $77 million, net loans of
$51 million and stockholders' equity of $8 million.
The principal executive offices of Peoples Bankshares are located
at 1080 S.W. Wanamaker Road, Suite A, Topeka, Kansas 66604-3888, and the
principal executive offices of Peoples Bank are located at 1064 S.W.
Wanamaker Road, Topeka, Kansas 66604-3888.
THE PROPOSED ACQUISITION
Pursuant to the Acquisition Agreements, Ameribanc will acquire
all of the outstanding capital stock of Peoples Bank through the consummation
of two concurrent and interdependent transactions: (i) the exchange of all of
the shares of Peoples Bank Common Stock owned beneficially and of record by
Peoples Bankshares for shares of MBI Common Stock, and (ii) the merger of
MBSC, a wholly owned subsidiary of Ameribanc in organization, with and into
Peoples Bank. Upon consummation of the Acquisition, the separate corporate
existence of MBSC will terminate, and the business and operations of Peoples
Bank will be continued through Peoples Bank as a wholly owned subsidiary of
Ameribanc. Following the Closing Date (as hereinafter defined), MBI intends
to cause Mercantile Bank of Topeka, a Kansas state-chartered bank and wholly
owned subsidiary of Ameribanc, to merge with and into Peoples Bank (the
"Topeka Merger"), with the surviving entity to be a Kansas state-chartered
bank named "Mercantile Bank of Topeka."
Pursuant to the Acquisition, MBI will issue up to an aggregate of
325,843 shares of MBI Common Stock as the Acquisition Consideration. Upon
consummation of the Exchange, Peoples Bankshares will be entitled to receive
14.4819 shares of MBI Common Stock for each share of Peoples Bank Common
Stock that is beneficially owned by Peoples Bankshares. Pursuant to the
Reorganization Agreement, as soon as practicable but no later than six months
following the Exchange, Peoples Bankshares shall effect the Liquidation and
distribute all of the shares of MBI Common Stock received by Peoples Bankshares
in the Exchange to the holders of Peoples Bankshares Common Stock.
- 8 -
<PAGE> 18
Upon consummation of the Merger, each issued and outstanding
share of Peoples Bank Common Stock (other than shares transferred to
Ameribanc pursuant to the Exchange or shares as to which a stockholder has
exercised dissenters' rights under Section 17-6712) will cease to be
outstanding and will be converted into the right to receive 14.4819 shares of
MBI Common Stock. THE FAIR MARKET VALUE OF THE MBI COMMON STOCK TO
BE ISSUED AS THE ACQUISITION CONSIDERATION MAY FLUCTUATE AND AT
THE CONSUMMATION OF THE ACQUISITION MAY BE MORE OR LESS THAN THE
CURRENT FAIR MARKET VALUE OF SUCH SHARES.
The Reorganization Agreement provides that the consummation of
the Acquisition is subject to certain terms and conditions, including (i) the
approval of the Reorganization Agreement and the transactions contemplated
thereby by the affirmative vote of the holders of a majority of the
outstanding shares of Peoples Bankshares Common Stock, (ii) the approval of
the Acquisition Agreements and the transactions contemplated thereby by the
affirmative vote of the holders of a majority of the outstanding shares of
Peoples Bank Common Stock, (iii) the receipt of certain regulatory approvals
and (iv) an opinion of counsel regarding certain federal income tax aspects
of the Acquisition. For a discussion of each of the conditions to the
Acquisition, see "TERMS OF THE PROPOSED ACQUISITION - Conditions of the
Acquisition." The Acquisition will be consummated and become effective on
the date and at the time (the "Effective Time") that the authorization of the
Kansas State Bank Commissioner (the "Kansas Commissioner") is filed with the
Office of the Secretary of State of the State of Kansas.
Unless the parties otherwise agree, the date of the closing of
the Acquisition (the "Closing Date") shall be on the first business day of
the month commencing at least five business days following the last to occur
of (i) the receipt of the requisite approval of the Reorganization Agreement
and the transactions contemplated thereby by the stockholders of Peoples
Bankshares and of the Acquisition Agreements and the transactions
contemplated thereby by the stockholders of Peoples Bank and (ii) the receipt
of approval of the Acquisition by each of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation (the "FDIC"), the Kansas Commissioner and any other
bank regulatory agency that may be necessary or appropriate (the Federal
Reserve Board, the FDIC, the Kansas Commissioner and any other bank
regulatory agency that may be necessary or appropriate are collectively
referred to herein as the "Regulatory Authorities" and individually as a
"Regulatory Authority"), and the expiration of all required waiting periods.
The Reorganization Agreement may be terminated at any time prior to the
Closing Date by mutual consent of the parties thereto or unilaterally by any
party thereto upon the occurrence of certain events or if the Acquisition is
not consummated by December 31, 1996. See "TERMS OF THE PROPOSED
ACQUISITION - Conditions of the Acquisition" and "- Termination of the
Agreements."
OTHER AGREEMENTS
In addition to and contemporaneously with the Reorganization
Agreement, MBI executed separate agreements (the "Voting Agreements") with
each of Ronald D. Lutz, President of Peoples Bankshares and Chairman and
Chief Executive Officer of Peoples Bank, and Joyce M. Lutz, Secretary of
both Peoples Bankshares and Peoples Bank, whereby such individuals agreed
that they will vote all of the shares of Peoples Bankshares Common Stock
that they then owned or subsequently acquire in favor of approval of the
Reorganization Agreement and the transactions contemplated thereby at the
Peoples Bankshares Special Meeting. On a combined basis, Mr. and Mrs. Lutz
control 82.09% of the voting power of the issued and outstanding shares of
Peoples Bankshares Common Stock. The vote by Mr. and Mrs. Lutz will be
sufficient to assure the stockholder vote required to approve the
Reorganization Agreement and the transactions contemplated thereby. In
addition, pursuant to the Voting Agreements, until the earliest to occur of
the Closing Date,
- 9 -
<PAGE> 19
the termination of the Reorganization Agreement or the abandonment of the
Acquisition, Mr. and Mrs. Lutz further agreed that they each will not transfer
such shares or vote any such shares in favor of the approval of any other
competing acquisition proposal involving any merger with or sale of
substantially all of the assets of Peoples Bankshares to any person other than
MBI or its affiliates.
Pursuant to the Reorganization Agreement, Peoples Bankshares has
agreed that, upon approval of the Reorganization Agreement and the
transactions contemplated thereby by the stockholders of Peoples Bankshares,
Peoples Bankshares will vote all of its shares of Peoples Bank Common Stock,
which represent 88.88% of the total number of outstanding shares of Peoples
Bank Common Stock, in favor of the Acquisition Agreements and the
transactions contemplated thereby. The vote by Peoples Bankshares will be
sufficient to assure the stockholder vote required to approve the Acquisition
Agreements and the transaction contemplated thereby.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
MBI has entered into an arrangement with Ronald D. Lutz whereby
Mr. Lutz shall serve as a member of the Board of Directors of Peoples Bank,
which shall be renamed "Mercantile Bank of Topeka" upon consummation of the
Topeka Merger, for a period of two years commencing on the Closing Date.
During such two-year period, Mr. Lutz shall be entitled to the same
directors' fees as are paid to the other members of the Board of Directors of
Mercantile Bank of Topeka.
SPECIAL MEETINGS OF STOCKHOLDERS OF PEOPLES BANKSHARES AND PEOPLES BANK
The Peoples Bankshares Special Meeting will be held on Monday,
July 15, 1996, at 10:00 a.m., Central Time, at Peoples Bankshares, 1080 S.W.
Wanamaker Road, Suite A, Topeka, Kansas. Approval of the Reorganization
Agreement and the transactions contemplated thereby by the stockholders of
Peoples Bankshares requires the affirmative vote of the holders of a majority
of the outstanding shares of Peoples Bankshares Common Stock.
The Peoples Bank Special Meeting will be held on Monday, July 15,
1996, at 9:00 a.m. Central Time, at Peoples Bank, 1064 S.W. Wanamaker Road,
Topeka, Kansas. Approval of the Acquisition Agreements and the transactions
contemplated thereby by the stockholders of Peoples Bank requires the
affirmative vote of the holders of a majority of the outstanding shares of
Peoples Bank Common Stock.
Only holders of record of Peoples Bankshares Common Stock and
Peoples Bank Common Stock at the close of business on June 12, 1996 (the
"Record Date") will be entitled to notice of, and to vote at, the Special
Meetings. As of the Record Date, there were 97,455 shares of Peoples
Bankshares Common Stock and 22,500 shares of Peoples Bank Common Stock
outstanding.
As of the Record Date, the directors and executive officers of
Peoples Bankshares and their affiliates in the aggregate owned beneficially
all of the shares of Peoples Bankshares Common Stock entitled to vote at the
Peoples Bankshares Special Meeting. Pursuant to the Voting Agreements, Ronald
D. Lutz and Joyce M. Lutz have agreed to vote 80,008 shares, or 82.09% of the
outstanding shares of the Peoples Bankshares Common Stock, for the approval
of the Reorganization Agreement and the transactions contemplated thereby.
The vote by Mr. and Mrs. Lutz will be sufficient to assure the stockholder
vote required to approve the Reorganization Agreement and the transactions
contemplated thereby. The remaining directors and executive officers of
Peoples Bankshares, who own beneficially and of record the remaining 17,447
outstanding shares of Peoples Bankshares Common Stock, have also
- 10 -
<PAGE> 20
indicated their intention to vote such shares for the approval of the
Reorganization Agreement and the transactions contemplated thereby.
As of the Record Date, Peoples Bankshares and the directors and
executive officers of Peoples Bank and their affiliates owned beneficially an
aggregate of 20,282 shares of Peoples Bank Common Stock, or 90.01% of the
shares entitled to vote at the Peoples Bank Special Meeting. Pursuant to the
Reorganization Agreement, Peoples Bankshares has agreed to vote the 19,997
shares owned beneficially and of record by it, or 88.88% of the outstanding
shares of Peoples Bank Common Stock, for the approval of the Acquisition
Agreements and the transactions contemplated thereby. The vote by Peoples
Bankshares will be sufficient to assure the stockholder vote required to
approve the Acquisition Agreements and the transactions contemplated thereby.
The directors and executive officers of Peoples Bank and their affiliates,
who own beneficially and of record 285 shares, or 1.27% of the outstanding
shares of Peoples Bank Common Stock, have also indicated their intention to
vote such shares for the approval of the Acquisition Agreements and the
transactions contemplated thereby.
THE BOARD OF DIRECTORS OF PEOPLES BANKSHARES CAREFULLY
CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE REORGANIZATION AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AS BEING IN THE BEST INTEREST OF
PEOPLES BANKSHARES AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
REORGANIZATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE BOARD OF DIRECTORS OF PEOPLES BANK CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE ACQUISITION AGREEMENTS AND THE
TRANSACTIONS CONTEMPLATED THEREBY AS BEING IN THE BEST INTEREST OF PEOPLES BANK
AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE ACQUISITION AGREEMENTS AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
REASONS FOR THE ACQUISITION
The respective Boards of Directors of Peoples Bankshares and
Peoples Bank believe that the Acquisition will result in a combined entity
that is (i) committed to serving the banking and other financial needs of
Peoples Bank's depositors, employees, customers and communities, (ii) capable
of competing more effectively with larger financial institutions that have
exerted increased competitive pressure on Peoples Bank and (iii) well
capitalized and capable of enjoying significant market penetration throughout
the Topeka bank market. In addition, the Boards believe that the Acquisition
will provide the holders of Peoples Bankshares Common Stock and Peoples Bank
Common Stock with an opportunity to receive a premium over the book value of
their shares, and will enable such stockholders to participate as MBI
shareholders, on a tax deferred basis, in the expanded opportunities for
growth and profitability made possible by the Acquisition. See "TERMS OF THE
PROPOSED ACQUISITION - Background of and Reasons for the Acquisition; Board
Recommendations."
The Board of Directors of MBI believes that the Acquisition will
enable MBI to (i) take advantage of an opportunity for MBI to increase its
presence in eastern Kansas through the acquisition of an established banking
organization and (ii) enhance MBI's ability to compete in the increasingly
- 11 -
<PAGE> 21
competitive banking and financial services industry. See "TERMS OF THE
PROPOSED ACQUISITION - Background of and Reasons for the Acquisition; Board
Recommendations."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to
Peoples Bankshares or any other stockholders of Peoples Bank in connection
with the Acquisition. Peoples Bankshares and each other former holder of
Peoples Bank Common Stock who otherwise would have been entitled to receive a
fraction of a share of MBI Common Stock will receive in lieu thereof cash,
without interest, in an amount equal to such holder's fractional share
interest in Peoples Bank multiplied by the closing stock price of MBI Common
Stock on the NYSE Composite Tape as reported in The Wall Street Journal,
Midwest Edition, on the Closing Date of the Acquisition. Cash received by
Peoples Bankshares or the other former stockholders of Peoples Bank in lieu
of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE ACQUISITION."
WAIVER AND AMENDMENT
Any provision of the Reorganization Agreement, including, without
limitation, the conditions to the consummation of the Acquisition and the
restrictions described under the caption "TERMS OF THE PROPOSED ACQUISITION -
Business Pending the Acquisition," may be (i) waived in writing at any time
by the party that is, or whose shareholders or stockholders are, entitled to
the benefits thereof or (ii) amended at any time by written agreement of the
parties, if such written agreement is approved by or on behalf of the
parties' respective Boards of Directors, whether before or after the Special
Meetings; provided, however, that after approval at the Special Meetings of
the Reorganization Agreement and the transactions contemplated thereby by the
stockholders of Peoples Bankshares and the Acquisition Agreements and the
transactions contemplated thereby by the stockholders of Peoples Bank, no
such modification may (i) alter or change the form of the Acquisition
Consideration to be received by Peoples Bankshares or the other stockholders
of Peoples Bank, (ii) adversely affect the tax treatment of the stockholders
of Peoples Bankshares or Peoples Bank, (iii) alter or change any of the terms
of the Reorganization Agreement or the Plan of Merger if such alteration or
change would adversely affect the stockholders of Peoples Bank or (iv) impede
or delay receipt of any approval from a Regulatory Authority.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Thompson Coburn, MBI's legal counsel, has delivered its opinion
to the effect that, assuming the Acquisition occurs in accordance with the
Acquisition Agreements and conditioned on the accuracy of certain
representations made by MBI, Peoples Bankshares, Peoples Bank and certain
stockholders of Peoples Bankshares or Peoples Bank, the Acquisition will
constitute a "reorganization" for federal income tax purposes and that,
accordingly, no gain or loss will be recognized by Peoples Bankshares, the
stockholders of Peoples Bankshares or the stockholders of Peoples Bank, upon
the exchange of shares of Peoples Bank Common Stock or Peoples Bankshares
Common Stock solely for shares of MBI Common Stock pursuant to the Exchange,
the Liquidation or the Merger, respectively. However, cash received in lieu
of fractional shares in the Merger may give rise to taxable income. EACH
STOCKHOLDER OF PEOPLES BANKSHARES OR PEOPLES BANK IS URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE EXCHANGE, THE LIQUIDATION OR THE MERGER TO
SUCH STOCKHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE,
LOCAL AND FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE ACQUISITION."
- 12 -
<PAGE> 22
REGULATORY APPROVALS
The Acquisition is subject to the prior approval of each of the
Federal Reserve Board, the FDIC and the Kansas Commissioner. MBI will file
the required applications for approval with such Regulatory Authorities. In
reviewing the Acquisition, the Regulatory Authorities will consider various
factors, including possible anticompetitive effects of the Acquisition, and
will 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 ACQUISITION - Certain Regulatory Approvals" and
"SUPERVISION AND REGULATION."
DISSENTERS' RIGHTS OF PEOPLES BANK STOCKHOLDERS
Under Section 9-1724 of the Kansas Banking Code (the "Kansas
Banking Code"), which incorporates by reference Section 17-6712 of the Kansas
Corporation Code, each holder of shares of Peoples Bank Common Stock may, in
lieu of the consideration such stockholder would otherwise receive in the
Merger, seek payment of the value of such shares and receive payment of such
value in cash upon consummation of the Merger by following certain procedures
set forth in Section 17-6712, the text of which is attached hereto as Annex A.
-------
Failure to follow such procedures may result in the loss of such dissenters'
rights. Any Peoples Bank stockholder who returns a blank executed proxy card
will be deemed to have approved the Acquisition Agreements and the transactions
contemplated thereby and to have waived any such dissenters' rights.
Stockholders of Peoples Bankshares do not have dissenters' rights with respect
to the Exchange or the Liquidation. See "DISSENTERS' RIGHTS OF STOCKHOLDERS OF
PEOPLES BANK."
ACCOUNTING TREATMENT
It is intended that the Acquisition will be accounted for under
the purchase method of accounting. See "TERMS OF THE PROPOSED ACQUISITION -
Accounting Treatment."
- 13 -
<PAGE> 23
MARKETS AND MARKET PRICES
MBI Common Stock is currently traded on the NYSE under the symbol
"MTL." The last sale price reported for MBI Common Stock on December 19,
1995, the last trading date preceding the public announcement of the
Acquisition, was $44.375. As of the Record Date, Peoples Bank had thirteen
stockholders of record and Peoples Bankshares had six stockholders of record.
Management of Peoples Bank is not aware of any transactions in Peoples Bank
Common Stock during the years ended December 31, 1994 and 1995 or during the
current fiscal year. The last sale price for Peoples Bank Common Stock known
to management prior to the public announcement of the Acquisition on December
20, 1995 was $270 per share in March 1993. Because of the lack of an
established trading market for shares of Peoples Bank Common Stock, this sale
price may not reflect the prices that would have been paid in an active market.
<TABLE>
<CAPTION>
MBI<F1> PEOPLES BANK
------- ------------
SALES PRICE CASH SALES PRICE CASH
----------- DIVIDEND ----------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1994
- ----
First Quarter. . . . . . . $34.125 $29.875 $.28 <F2> <F2> $15.56
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> --
1995
- ----
First Quarter. . . . . . . $37.250 $31.250 $.33 <F2> <F2> $10.00
Second Quarter . . . . . . 44.875 36.000 .33 <F2> <F2> --
Third Quarter. . . . . . . 47.000 41.625 .33 <F2> <F2> --
Fourth Quarter . . . . . . 46.500 41.500 .33 <F2> <F2> --
1996
- ----
First Quarter. . . . . . . $46.500 $41.500 $.41 <F2> <F2> $20.00
Second Quarter
(through June 12, 1996). . <F2> <F2> 5.00
<FN>
- ------------
<F1> For a recent sale price of MBI Common Stock, see the cover of this Joint Proxy Statement/Prospectus.
<F2> No trades known to management of Peoples Bank.
</TABLE>
- 14 -
<PAGE> 24
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and Peoples Bank and the corresponding pro
forma per share amounts, giving effect to the proposed acquisitions of
Peoples Bank and TODAY'S. The data presented is based upon the consolidated
financial statements and related notes of MBI and Peoples Bank included in
this Joint Proxy Statement/Prospectus or in the documents incorporated herein
by reference, TODAY'S consolidated financial statement and related note, 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. Due to the immateriality of the
financial condition and results of operations of Sterling, Conway and Metro,
individually and in the aggregate, to that of MBI, the table only reflects
the acquisitions of Sterling, Conway and Metro from their closing dates
forward. The assumptions used in the preparation of this table are set forth
in the notes to the pro forma financial information appearing elsewhere in
this Joint 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 proposed acquisitions of Peoples Bank and TODAY'S had been
consummated prior to the periods indicated.
<TABLE>
<CAPTION>
MBI/ MBI/ PEOPLES BANK/
PEOPLES PEOPLES BANK PEOPLES BANK ALL ENTITIES ALL ENTITIES
MBI 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:
March 31, 1996 . . . . . . . . . . . . $ 25.47 $ 360.09 $ 25.36 $ 367.26 $ 25.27 $ 365.96
December 31, 1995. . . . . . . . . . . 26.04 376.09 25.94 375.66 25.83 374.07
Cash Dividends Declared per Share:
Three months ended March 31, 1996. . . . $ .41 $ 20.00 $ .41 $ 5.94 $ .41 $ 5.94
Year ended December 31, 1995 . . . . . 1.32 10.00 1.32 19.11 1.32 19.11
Earnings per Share:
Three months ended March 31, 1996. . . $ .07 $ 12.27 $ .07 $ 1.01 $ (.05) $ (.72)
Year ended December 31, 1995 . . . . . 3.74 51.69 3.75 54.31 3.57 51.70
Market Price per Share:
At December 19, 1995<F4> . . . . . . . $ 44.375 N/A -- -- -- --
At June 12, 1996<F4>. . . . . . . . . N/A -- -- -- --
<FN>
- ----------
<F1> Includes the effect of pro forma adjustments for Peoples Bank as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F2> Based on the pro forma combined per share amounts multiplied by 14.4819, the exchange ratio applicable to one share of
Peoples Bank Common Stock. Further explanation of the assumptions used in the preparation of these 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 Peoples Bank and TODAY'S, as appropriate.
<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 Joint Proxy Statement/
Prospectus, based on the last sale price as reported on the NYSE Composite Tape. The market values of Peoples Bank
Common Stock as of the dates set forth in the table can not be accurately estimated because the last transaction in
Peoples Bank Common Stock known to management of Peoples Bank prior to the public announcement of the proposed
Acquisition occurred in March 1993.
</TABLE>
- 15 -
<PAGE> 25
SUMMARY FINANCIAL DATA
The following table sets forth for the periods indicated certain
summary historical consolidated financial information for MBI and certain
summary historical financial information for Peoples Bankshares and Peoples
Bank. The balance sheet data and income statement data included in the
summary financial data for the five years ended December 31, 1995 are taken
from the audited supplemental consolidated financial statements of MBI as of
and for such years, the audited consolidated financial statements of Peoples
Bankshares and the audited financial statements of Peoples Bank as of and for
the year ended December 31, 1995 and the unaudited consolidated financial
statements of Peoples Bankshares and the unaudited financial statements of
Peoples Bank as of and for the four years ended December 31, 1994. The
balance sheet data and income statement data included in the summary
financial data as of and for the three months ended March 31, 1996 and 1995
are taken from the unaudited consolidated financial statements of MBI and
Peoples Bankshares and the unaudited financial statements of Peoples Bank as
of and for the three months ended March 31, 1996 and 1995. This data
includes all adjustments which are, in the opinion of the respective
managements of MBI, Peoples Bankshares and Peoples Bank, necessary to present
a fair statement of these periods and are of a normal recurring nature
(except non-recurring merger expenses for MBI of $40,012,000, or $.63 per
share, for the three months ended March 31, 1996). Results for the three
months ended March 31, 1996 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, the consolidated
financial statements of Peoples Bankshares and the financial statements of
Peoples 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 Joint Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL
INFORMATION."
- 16 -
<PAGE> 26
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Three Months Ended As of or for the
March 31 Year Ended December 31
------------------ ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income<F1>. . . . . . . . . . . . $ .07 $ .91 $ 3.74 $ 3.19 $ 2.79 $ 2.40 $ 2.34
Dividends declared. . . . . . . . . . .41 .33 1.32 1.12 .99 .93 .93
Book value at period end. . . . . . . 25.47 23.82 26.04 23.32 21.59 19.44 18.12
Average common shares outstanding
(thousands) . . . . . . . . . . . . 63,052 60,774 61,884 59,757 58,751 55,050 47,159
EARNINGS (THOUSANDS)
Interest income . . . . . . . . . . . $325,240 $314,196 $1,293,944 $1,118,069 $1,094,611 $1,139,807 $1,156,821
Interest expense. . . . . . . . . . . 155,504 142,283 620,534 450,950 444,573 549,642 668,578
-------- -------- ---------- ---------- ---------- ---------- ----------
Net interest income . . . . . . . . . 169,736 171,913 673,410 667,119 650,038 590,165 488,243
Provision for possible loan losses. . 33,168 13,990 36,530 43,265 64,302 79,551 64,028
Other income. . . . . . . . . . . . . 59,284 62,701 273,653 236,561 245,589 224,456 195,237
Other expense . . . . . . . . . . . . 182,770 135,926 553,748 555,176 570,182 529,645 486,490
Income taxes. . . . . . . . . . . . . 8,517 29,265 124,109 113,165 96,074 69,681 28,418
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income. . . . . . . . . . . . . . $ 4,565 $ 55,433 $ 232,676 $ 192,074 $ 165,069 $ 135,744 $ 104,544
======== ======== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (MILLIONS)
Total assets. . . . . . . . . . . . . $ 17,902 $ 17,097 $ 17,928 $ 16,724 $ 16,293 $ 16,033 $ 14,045
Earning assets. . . . . . . . . . . . 16,483 15,872 16,264 15,427 14,980 14,678 12,854
Investment securities . . . . . . . . 4,321 4,288 4,211 4,280 4,670 4,632 3,412
Loans and leases,
net of unearned income. . . . . . . 11,840 11,322 11,731 10,904 9,809 9,570 8,809
Deposits. . . . . . . . . . . . . . . 14,002 13,021 13,714 12,865 13,243 13,260 11,685
Long-term debt. . . . . . . . . . . . 324 323 325 330 316 336 238
Shareholders' equity. . . . . . . . . 1,608 1,456 1,640 1,409 1,295 1,143 939
Reserve for possible loan losses. . . 212 217 202 216 206 199 176
SELECTED RATIOS
Return on average assets. . . . . . . .10% 1.30% 1.33% 1.17% 1.03% .89% .78%
Return on average equity. . . . . . . 1.09 15.35 15.14 14.06 13.46 12.76 11.81
Net interest rate margin. . . . . . . 4.23 4.48 4.28 4.53 4.52 4.33 4.12
Equity to assets. . . . . . . . . . . 8.98 8.52 9.15 8.42 7.95 7.13 6.68
Reserve for possible loan losses to:
Outstanding loans . . . . . . . . . 1.79 1.92 1.72 1.98 2.10 2.08 2.00
Non-performing loans. . . . . . . . 259.41 548.87 245.18 583.17 290.02 154.17 109.79
<FN>
- ------------------------------
<F1> Based on weighted average common shares outstanding.
</TABLE>
- 17 -
<PAGE> 27
<TABLE>
PEOPLES STATE BANKSHARES, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Three Months Ended As of or for the
March 31 Year Ended December 31
------------------ ------------------------------------------------------
1996 1995 1995 1994<F1> 1993 1992 1991
---- ---- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income (loss) . . . . . . . . . . $ 1.07 $ (.38) $ 7.01 $ 14.77 $ 7.56 $ 7.49 $ 5.42
Dividends declared. . . . . . . . . . -- -- -- -- -- -- --
Book value at period end. . . . . . . 82.08 71.16 82.70 70.70 57.54 49.91 42.58
Average common shares outstanding . . 97,455 97,455 97,455 97,455 97,588 99,847 100,000
EARNINGS (THOUSANDS)
Interest income . . . . . . . . . . . $ 1,837 $ 1,568 $ 7,114 $ 6,860 $ 7,450 $ 8,121 $ 9,459
Interest expense. . . . . . . . . . . 919 753 3,512 3,127 3,499 4,316 6,085
-------- -------- -------- -------- -------- -------- --------
Net interest income . . . . . . . . . 918 815 3,602 3,733 3,951 3,805 3,374
Provision for possible loan losses. . -- 15 45 97 144 170 167
Other income. . . . . . . . . . . . . 146 112 581 1,886 708 669 547
Other expense . . . . . . . . . . . . 854 932 2,879 3,086 3,285 3,052 2,864
Minority interest . . . . . . . . . . (31) (24) (129) (106) (109) (114) (93)
Income taxes. . . . . . . . . . . . . 75 (7) 447 891 383 390 255
-------- -------- -------- -------- -------- -------- --------
Net Income (loss) . . . . . . . . . . $ 104 $ (37) $ 683 $ 1,439 $ 738 $ 748 $ 542
======== ======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET (THOUSANDS)
Total assets. . . . . . . . . . . . . $ 94,306 $ 84,682 $ 97,860 $ 85,656 $112,875 $109,304 $104,382
Earning assets. . . . . . . . . . . . 88,405 78,228 90,664 78,034 104,942 98,478 94,670
Investment securities . . . . . . . . 36,757 28,550 37,364 29,345 50,158 38,913 45,142
Loans and leases, net . . . . . . . . 51,625 49,556 52,325 47,479 54,774 51,799 49,528
Deposits. . . . . . . . . . . . . . . 76,285 64,520 74,130 64,836 86,435 86,985 89,773
Other borrowings. . . . . . . . . . . 8,661 12,105 14,138 12,448 15,100 11,352 5,287
Long-term debt. . . . . . . . . . . . -- -- -- -- 4,100 4,251 3,216
Stockholders' equity. . . . . . . . . 7,999 6,935 8,060 6,890 5,608 4,955 4,258
Reserve for possible loan losses. . . 712 688 713 673 808 732 621
SELECTED RATIOS
Return on average assets. . . . . . . .43% (.17)% .75% 1.43% .67% .71% .51%
Return on average equity. . . . . . . 5.21 (2.08) 9.48 23.86 14.48 16.23 13.44
Net interest rate margin. . . . . . . 4.07 4.07 4.29 3.98 3.82 3.90 3.39
Equity to assets. . . . . . . . . . . 8.48 8.19 8.24 8.04 4.97 4.53 4.08
Reserve for possible loan losses to:
Outstanding loans . . . . . . . . . 1.38 1.39 1.36 1.42 1.48 1.41 1.25
Non-performing loans. . . . . . . . 501.41 380.11 584.43 384.57 153.61 306.28 453.28
<FN>
- -----------------
<F1> On July 31, 1994, Peoples Bankshares sold its majority-owned subsidiary,
Citizens State Bank ("Citizens"), located in Osage City, Kansas. The
consolidated financial condition and result of operations of Peoples
Bankshares for the period ended July 31, 1994 and preceding periods include
Citizens. In 1994, Peoples Bankshares' consolidated results of operations
include a gain resulting from the sale of Citizens of $1,241,000 ($734,000
net of tax).
</TABLE>
- 18 -
<PAGE> 28
<TABLE>
PEOPLES STATE BANK
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Three Months Ended As of or for the
March 31 Year Ended December 31
------------------ -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income. . . . . . . . . . . . . . $ 12.27 $ 9.47 $ 51.69 $ 35.56 $ 30.62 $ 33.87 $ 26.98
Dividends declared. . . . . . . . . . 20.00 10.00 10.00 15.56 15.56 5.01 --
Book value at period end. . . . . . . 360.09 313.64 376.09 310.04 297.91 280.89 252.04
Average common shares outstanding . . 22,500 22,500 22,500 22,500 22,500 22,500 22,500
EARNINGS (THOUSANDS)
Interest income . . . . . . . . . . . $ 1,832 $ 1,557 $ 7,086 $ 5,700 $ 5,411 $ 5,853 $ 6,903
Interest expense. . . . . . . . . . . 923 753 3,517 2,558 2,476 3,017 4,382
------- ------- ------- ------- ------- ------- -------
Net interest income . . . . . . . . . 909 804 3,569 3,142 2,935 2,836 2,521
Provision for possible loan losses. . -- 15 45 68 120 120 90
Other income. . . . . . . . . . . . . 146 112 581 502 475 465 371
Other expense . . . . . . . . . . . . 633 578 2,314 2,372 2,259 2,047 1,910
Income taxes. . . . . . . . . . . . . 146 110 628 404 342 372 285
------- ------- ------- ------- ------- ------- -------
Net income. . . . . . . . . . . . . . $ 276 $ 213 $ 1,163 $ 800 $ 689 $ 762 $ 607
======= ======= ======= ======= ======= ======= =======
ENDING BALANCE SHEET (THOUSANDS)
Total assets. . . . . . . . . . . . . $93,985 $84,434 $97,566 $84,582 $81,930 $78,822 $75,185
Earning assets. . . . . . . . . . . . 88,145 78,054 90,439 77,054 76,247 72,344 70,030
Investment securities . . . . . . . . 36,757 28,550 37,364 28,565 34,794 26,493 33,808
Loans and leases, net . . . . . . . . 51,365 49,382 52,100 47,279 41,443 38,085 35,072
Deposits. . . . . . . . . . . . . . . 76,684 64,823 74,369 64,846 61,523 61,710 64,626
Stockholders' equity. . . . . . . . . 8,102 7,057 8,462 6,976 6,703 6,320 5,671
Other borrowings. . . . . . . . . . . 8,661 12,105 14,138 12,448 12,355 9,347 4,287
Reserve for possible loan losses. . . 712 688 713 673 621 518 441
SELECTED RATIOS
Return on average assets. . . . . . . 1.16% 1.01% 1.29% .94% .86% 1.01% .78%
Return on average equity. . . . . . . 13.41 12.29 15.68 12.02 10.94 12.99 11.47
Net interest rate margin. . . . . . . 4.04 4.06 4.28 3.94 3.90 4.04 3.46
Equity to assets. . . . . . . . . . . 8.62 8.36 8.67 8.25 8.18 8.02 7.54
Reserve for possible loan losses to:
Outstanding loans . . . . . . . . . 1.39 1.39 1.37 1.42 1.50 1.36 1.26
Non-performing loans. . . . . . . . 501.41 380.11 584.43 384.57 118.06 216.74 321.90
</TABLE>
- 19 -
<PAGE> 29
INFORMATION REGARDING SPECIAL MEETINGS
--------------------------------------
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to
holders of Peoples Bankshares Common Stock and Peoples Bank Common Stock in
connection with the solicitation of proxies by the respective Boards of
Directors of Peoples Bankshares and Peoples Bank for use at the Special
Meetings and any adjournments thereof at which the stockholders of Peoples
Bankshares and Peoples Bank will consider and vote upon proposals to approve
the Reorganization Agreement and the transactions contemplated thereby and
the Acquisition Agreements and the transactions contemplated thereby,
respectively, and consider and vote upon any other business which may
properly be brought before the Special Meetings or any adjournments thereof.
Each copy of this Joint Proxy Statement/Prospectus is accompanied by a Notice
of Special Meeting of Stockholders of Peoples Bankshares or Notice of Special
Meeting of Stockholders of Peoples Bank, as the case may be, a proxy card and
related instructions and a self-addressed return envelope to Peoples
Bankshares or Peoples Bank for the proxy card.
This Joint Proxy Statement/Prospectus is also furnished by MBI to
each holder of Peoples Bankshares Common Stock and Peoples Bank Common Stock
as a prospectus in connection with the issuance of shares of MBI Common Stock
upon the consummation of the Acquisition. This Joint Proxy
Statement/Prospectus and the Notices of Special Meetings, proxy card and
related materials are being first mailed to stockholders of Peoples
Bankshares and Peoples Bank on June 14, 1996.
DATE, TIME AND PLACE
The Peoples Bankshares Special Meeting will be held at the
offices of Peoples Bankshares at 1080 S.W. Wanamaker Road, Suite A, on Monday,
July 15, 1996, at 10:00 a.m., Central Time. The Peoples Bank Special Meeting
will be held at the offices of Peoples Bank at 1064 S.W. Wanamaker Road, on
Monday, July 15, 1996, at 9:00 a.m., Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 97,455 shares of Peoples
Bankshares Common Stock outstanding and entitled to vote at the Peoples
Bankshares Special Meeting. Each such share is entitled to one vote on each
matter properly brought before the Peoples Bankshares Special Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Peoples Bankshares Common Stock is required to approve the Reorganization
Agreement and the transactions contemplated thereby.
As of the Record Date, the directors and officers of Peoples
Bankshares and their affiliates in the aggregate owned beneficially all of
the shares of Peoples Bankshares Common Stock entitled to vote at the Peoples
Bankshares Special Meeting. Pursuant to the Voting Agreements, Ronald D.
Lutz and Joyce M. Lutz, President and Secretary, respectively, of
Peoples Bankshares, have agreed to vote 80,008 shares owned beneficially and
of record by them, or 82.09% of the outstanding shares of Peoples Bankshares
Common Stock, for approval of the Reorganization Agreement and the
transactions contemplated thereby. The vote by Mr. and Mrs. Lutz will be
sufficient to assure the stockholder vote required to approve the
Reorganization Agreement and the transactions contemplated
- 20 -
<PAGE> 30
thereby. The remaining directors and executive officers of Peoples Bankshares,
who own beneficially and of record the remaining 17,447 outstanding shares of
Peoples Bankshares Common Stock, have also indicated their intention to vote
such shares for the approval of the Reorganization Agreement and the
transactions contemplated thereby.
On the Record Date, there were 22,500 shares of Peoples Bank
Common Stock outstanding and entitled to vote at the Peoples Bank Special
Meeting. Each such share is entitled to one vote on each matter properly
brought before the Peoples Bank Special Meeting. The affirmative vote of the
holders of a majority of the outstanding shares of Peoples Bank Common Stock
is required to approve the Acquisition Agreements and the transactions
contemplated thereby.
As of the Record Date, Peoples Bankshares and the directors and
officers of Peoples Bank and their affiliates owned beneficially an aggregate
of 20,282 shares of Peoples Bank Common Stock, or 90.01% of the outstanding
shares of Peoples Bank Common Stock entitled to vote at the Peoples Bank
Special Meeting. Pursuant to the Reorganization Agreement, Peoples
Bankshares has agreed to vote 19,997 shares owned beneficially and of record
by it, or 88.88% of the outstanding shares of Peoples Bank Common Stock, for
the approval of the Acquisition Agreements and the transactions contemplated
thereby. The vote by Peoples Bankshares will be sufficient to assure the
stockholder vote required to approve the Acquisition Agreements and the
transactions contemplated thereby. The directors and executive officers of
Peoples Bank and their affiliates, who own beneficially and of record 285
shares, or 1.27% of the outstanding shares of Peoples Common Stock, have also
indicated their intention to vote such shares for the approval of the
Acquisition Agreements and the transactions contemplated thereby.
VOTING AND REVOCATION OF PROXIES
Shares of Peoples Bankshares Common Stock or Peoples Bank Common
Stock which are represented by a properly executed proxy received prior to
the vote at the Peoples Bankshares or Peoples Bank 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 PEOPLES BANKSHARES OR PEOPLES BANK STOCKHOLDER RETURNING A BLANK
EXECUTED PROXY CARD WILL BE DEEMED TO HAVE APPROVED THE REORGANIZATION AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACQUISITION AGREEMENTS AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AS THE CASE MAY BE. Failure to
return a properly executed proxy card or to vote in person at the Peoples
Bankshares or Peoples Bank Special Meeting will have the practical effect of
a vote against the Reorganization Agreement and the transactions contemplated
thereby or the Acquisition Agreements and the transactions contemplated
thereby, as the case may be.
Shares subject to abstentions will be treated as shares that are
present at the Special Meetings for purposes of determining the presence of a
quorum and as voted for the purposes of determining the base number of shares
voting on the proposal. Shares subject to abstentions will, therefore, have
the effect of a vote against the approval of the Reorganization Agreement and
the transactions contemplated thereby or the Acquisition Agreements and the
transactions contemplated thereby, as the case may be. If a broker or other
nominee holder indicates on the proxy card that it does not have
discretionary authority to vote the shares it holds of record on the
proposal, those shares will not be treated as shares that are present at the
Special Meetings for purposes of determining the presence of a quorum and
will not be considered as voted for purposes of determining the approval of
stockholders on the proposal.
- 21 -
<PAGE> 31
Any stockholder of Peoples Bankshares or Peoples Bank giving a
proxy may revoke it at any time prior to the vote at the Peoples Bankshares
or Peoples Bank Special Meeting. Stockholders of Peoples Bankshares or
Peoples Bank wishing to revoke a proxy prior to the vote may do so by
delivering to the Secretary of Peoples Bankshares at 1080 S.W. Wanamaker
Road, Suite A, Topeka, Kansas 66604-3888, or the Secretary of Peoples Bank at
1064 S.W. Wanamaker Road, Topeka, Kansas 66604-3888, as the case may be, 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 Peoples Bankshares
Special Meeting or Peoples Bank Special Meeting and voting such shares in
person. Attendance at a Special Meeting will not in itself constitute the
revocation of a proxy.
The respective Boards of Directors of Peoples Bankshares and
Peoples Bank are not currently aware of any business to be brought before the
Special Meetings other than that described herein. If, however, any other
matters are properly brought before such Special Meetings, or any
adjournments thereof, the persons appointed as proxies will have authority to
vote the shares represented by duly executed proxies in accordance with their
discretion and judgment as to the best interest of Peoples Bankshares or
Peoples Bank.
SOLICITATION OF PROXIES
Each of Peoples Bankshares and Peoples Bank will bear its own
costs of soliciting proxies, except that MBI will pay printing and mailing
expenses and registration fees incurred in connection with preparing this
Joint Proxy Statement/Prospectus. Proxies will initially be solicited by
mail, but directors, officers and selected other employees of Peoples
Bankshares and Peoples Bank may also solicit proxies in person or by
telephone. Directors, executive officers and any other employees of Peoples
Bankshares or Peoples Bank who solicit proxies will not be specially
compensated for their 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 PEOPLES BANKSHARES COMMON STOCK OR PEOPLES BANK COMMON
STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE APPROPRIATE ACCOMPANYING
PROXY CARD(S) AND RETURN SUCH PROXY CARD(S) PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- 22 -
<PAGE> 32
TERMS OF THE PROPOSED ACQUISITION
---------------------------------
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS AND CONDITIONS OF
THE ACQUISITION AGREEMENTS, WHICH DOCUMENTS ARE INCORPORATED BY REFERENCE
HEREIN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF THE
ACQUISITION AGREEMENTS. MBI, UPON WRITTEN REQUEST, WILL FURNISH A COPY OF THE
ACQUISITION AGREEMENTS, WITHOUT CHARGE, TO ANY PERSON WHO RECEIVES A COPY OF
THIS JOINT 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 ACQUISITION
Pursuant to the Acquisition Agreements, Ameribanc will acquire
all of the outstanding capital stock of Peoples Bank through the consummation
of two concurrent and interdependent transactions: (i) the Exchange of all of
the shares of Peoples Bank Common Stock owned beneficially and of record by
Peoples Bankshares for shares of MBI Common Stock, and (ii) the Merger of
MBSC with and into Peoples Bank. Upon consummation of the Exchange and the
Merger, the separate corporate existence of MBSC will terminate, and the
business and operations of Peoples Bank will be continued through Peoples
Bank as a wholly owned subsidiary of Ameribanc. Following the Closing Date,
MBI intends to cause Mercantile Bank of Topeka, a Kansas state-chartered bank
and wholly owned subsidiary of Ameribanc, to merge with and into Peoples
Bank, with the surviving entity being a Kansas state-chartered bank named
"Mercantile Bank of Topeka."
Pursuant to the Acquisition, MBI will issue up to an aggregate of
325,843 shares of MBI Common Stock as Acquisition Consideration. Upon
consummation of the Exchange, Peoples Bankshares will be entitled to receive
14.4819 shares of MBI Common Stock for each share of Peoples Bank Common
Stock that is beneficially owned by Peoples Bankshares. Pursuant to the
Reorganization Agreement, as soon as practicable but no longer than six
months following the Exchange, Peoples Bankshares shall effect the Liquidation
and distribute all of the shares of MBI Common Stock received by Peoples
Bankshares in the Exchange to the stockholders of Peoples Bankshares. Upon
consummation of the Merger, each issued and outstanding share of Peoples Bank
Common Stock (other than shares that have been transferred to Ameribanc or
shares as to which stockholder of Peoples Bank has exercised dissenters' rights
under Section 17-6712) shall cease to be outstanding and will be converted into
the right to receive 14.4819 shares of MBI Common Stock.
The amount and nature of the Acquisition Consideration was
established through arm's-length negotiations between MBI, Ameribanc, Peoples
Bankshares and Peoples Bank, and reflects the balancing of a number of
countervailing factors. The total amount of the Acquisition Consideration
reflects a price all parties concluded was appropriate. The fair market value
of MBI Common Stock to be issued as the Acquisition Consideration may
fluctuate and at the consummation of the Acquisition may be more or less than
the current fair market value of such shares. See "- Background of and
Reasons for the Acquisition; Board Recommendations." The fact that the
Acquisition Consideration is payable in shares of MBI Common Stock reflects
the desire to have the favorable tax attributes of a "reorganization" for
federal income tax purposes (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE ACQUISITION"), and the potential for appreciation in the value of the MBI
Common Stock.
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
- 23 -
<PAGE> 33
PEOPLES BANKSHARES OR PEOPLES BANK STOCKHOLDER OR AT ANY OTHER TIME. THE FAIR
MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A PEOPLES BANKSHARES OR PEOPLES
BANK STOCKHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF
MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
At the closing of the Acquisition, Peoples Bankshares shall
deliver to MBI certificates evidencing all shares of Peoples Bank Common
Stock owned beneficially and of record by Peoples Bankshares on the Closing
Date in exchange for the number of shares of MBI Common Stock to which
Peoples Bankshares is entitled. Following the Closing Date, the stockholders
of Peoples Bank (other than Peoples Bankshares) will be required to submit to
KeyCorp Shareholder Services, Inc., which has been appointed as Exchange
Agent in the Acquisition (the "Exchange Agent"), a properly executed letter
of transmittal and to surrender to the Exchange Agent the stock
certificate(s) formerly representing the shares of Peoples Bank Common Stock
prior to the issuance by the Exchange Agent of the stock certificate
evidencing the shares of MBI Common Stock to which each such stockholder is
entitled. No dividends or other distributions will be paid to any such
Peoples Bank stockholder with respect to shares of MBI Common Stock until
such stockholder's letter of transmittal and stock certificates formerly
representing Peoples Bank Common Stock, or documentation acceptable to the
Exchange Agent in lieu of lost or destroyed certificates, is delivered to the
Exchange Agent. See "TERMS OF THE PROPOSED ACQUISITION - Surrender of
Peoples Bank Stock Certificates and Receipt of MBI Common Stock." No
fractional shares of MBI Common Stock will be issued pursuant to the
Acquisition, but cash will be paid in lieu of such fractional shares, such
cash being calculated by multiplying each such 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, Midwest Edition, on the Closing
Date of the Acquisition. See "TERMS OF THE PROPOSED ACQUISITION - Fractional
Shares." The shares of MBI Common Stock to be issued pursuant to the
Acquisition will be freely transferable except by certain stockholders of
Peoples Bankshares or Peoples Bank who are deemed to be "affiliates" of
Peoples Bankshares or Peoples Bank, as the case may be. 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 COMMON STOCK - Restrictions on
Resale of MBI Common Stock by Affiliates."
OTHER AGREEMENTS
In addition to and contemporaneously with the Acquisition
Agreements, MBI executed separate Voting Agreements with each of Ronald D.
Lutz, President of Peoples Bankshares and Chairman and Chief Executive
Officer of Peoples Bank, and Joyce M. Lutz, Secretary of both Peoples
Bankshares and Peoples Bank. Pursuant to the Voting Agreements, each of Mr.
and Mrs. Lutz agreed that he or she will vote all of the shares of Peoples
Bankshares Common Stock that he or she then owned or subsequently acquires
in favor of the approval of the Reorganization Agreement and the
transactions contemplated thereby at the Peoples Bankshares Special Meeting.
On a combined basis, Mr. and Mrs. Lutz control 82.09% of the voting power of
the issued and outstanding shares of Peoples Bankshares Common Stock. The
vote by Mr. and Ms. Lutz will be sufficient to assure the stockholder vote
required to approve the Reorganization Agreement and the transactions
contemplated thereby. In addition, until the earliest to occur of the
Closing Date, the termination of the Reorganization Agreement or the
abandonment of the Acquisition, each of Mr. and Mrs. Lutz further agreed that
he or she will not transfer any such shares or vote any such
- 24 -
<PAGE> 34
shares in favor of the approval of any other competing acquisition proposal
involving any merger with or sale of substantially all of the assets of Peoples
Bankshares to any person other than MBI or its affiliates.
Pursuant to the Reorganization Agreement, Peoples Bankshares has
agreed that, upon approval of the Reorganization Agreement and the
transactions contemplated thereby by the stockholders of Peoples Bankshares,
Peoples Bankshares will vote all of its shares of Peoples Bank Common Stock,
which represent 88.88% of the total number of outstanding shares of Peoples
Bank Common Stock, in favor of the Acquisition Agreements and the
transactions contemplated thereby. The vote by Peoples Bankshares will be
sufficient to assure the stockholder vote required to approve the Acquisition
Agreements and the transactions contemplated thereby.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
MBI has entered into an arrangement with Ronald D. Lutz whereby
Mr. Lutz shall serve as a member of the Board of Directors of Peoples Bank,
which shall be named "Mercantile Bank of Topeka" upon consummation of the
Topeka Merger, for a period of two years, commencing on the Closing Date.
During such two-year period, Mr. Lutz shall be entitled to the same
directors' fees as are paid to the other members of the Board of Directors of
Mercantile Bank of Topeka. Mr. Lutz's arrangement with MBI will replace Mr.
Lutz's other employment agreements with Peoples Bankshares and Peoples Bank.
BACKGROUND OF AND REASONS FOR THE ACQUISITION; BOARD RECOMMENDATIONS
BACKGROUND. Throughout its history, Peoples Bank has been an
independent bank with its headquarters located outside the downtown Topeka
area in the western part of Topeka and branches located throughout Shawnee
County, Kansas. Peoples Bank has been a subsidiary of Peoples Bankshares
since 1973. Prior to 1994, Peoples Bankshares also owned and controlled
Citizens State Bank ("Citizens"), located in Osage City, Kansas.
In 1994, Peoples Bankshares determined that, in view of the
changing banking environment, emphasis should be given to expansion of
Peoples Bank in the Topeka market and, as a result, Citizens was sold. The
Board of Peoples Bankshares was not necessarily committed to affiliating with
a larger institution, but felt that Peoples Bank could continue to be a
viable competitor as an independent institution.
Beginning in 1993, a number of contacts were initiated by other
banking organizations to determine whether Peoples Bank might be interested
in a potential combination. Two such contacts were from other community
banking organizations which were interested in acquiring Peoples Bank.
Peoples Bankshares, however, was only interested in either acquiring smaller
institutions in Topeka or being acquired by a large organization in a
tax-deferred exchange for a marketable stock which the stockholders of
Peoples Bankshares (all of whom are on the Board of Directors of Peoples
Bankshares) would be interested in holding for the long term.
In 1993, a large holding company initiated merger negotiations
with Peoples Bankshares, but it was only interested in proceeding with a
merger if it could acquire an additional bank in Topeka. When the efforts to
acquire the other institution were unsuccessful, negotiations were
terminated. In 1995, Peoples Bankshares made an attempt to acquire a small
Topeka bank which it
- 25 -
<PAGE> 35
planned to combine with Peoples Bank. After several meetings with the proposed
seller, negotiations were terminated. The Board believed there were only about
two other organizations, including MBI, which might be interested in acquiring
Peoples Bank and which met the Board's criteria for a combination.
Although Peoples Bankshares did not engage a financial advisor to
assist it in considering options for expansion, the management and Board of
Directors of Peoples Bankshares took active measures to keep themselves
informed concerning trends in the banking industry and prices being paid for
community banks. For example, for several years, Peoples Bankshares has been
a member of the Sheshunoff High Performance Affiliation Group ("Sheshunoff"),
a nationally recognized expert in bank valuations which provides materials,
including pricing information, to Peoples Bankshares and sponsors seminars
regarding bank mergers and acquisitions. Such actions were designed to keep the
Board and management informed of developments in the industry and equip them to
respond to any proposals which they might receive.
MBI approached Ronald D. Lutz, the President of Peoples Bankshares
and the Chairman of the Board of Directors of Peoples Bank in July of 1995 and
indicated an interest in acquiring Peoples Bank and requested information which
would enable MBI to make an acquisition proposal. An additional request for
information was made in September and negotiations commenced in earnest in
November 1995.
During the course of negotiations, the Board consulted with GRA,
Thompson, White & Co., P.C., which, in addition to accounting services,
provides merger and acquisition advice to community banks, and obtained from
Sheshunoff updated information with respect to prices paid in comparable
transactions. The Board also engaged the law firm of Stinson, Mag & Fizzell,
P.C., which is experienced in representing financial institutions in mergers
and acquisitions, to assist in negotiating the Reorganization Agreement. MBI
conducted due diligence on the premises of Peoples Bank in early December
1995. The terms of the Acquisition were unanimously approved by the Boards
of Directors of Peoples Bank and Peoples Bankshares and the Reorganization
Agreement was executed on December 19, 1995.
PEOPLES BANKSHARES' AND PEOPLES BANK'S REASONS AND
BOARD RECOMMENDATIONS. The recommendations of the respective Boards of
Directors of each of Peoples Bankshares and Peoples Bank are based upon a
number of factors, including the terms of the Acquisition Agreements, the
substantial benefits expected to result from the combination of Peoples Bank
and MBI, information concerning the financial condition, results of
operations and prospects of MBI and Peoples Bank, on both a stand-alone and a
combined basis, the market price of MBI Common Stock and the value which
Peoples Bankshares, as the principal stockholder of Peoples Bank, believed
should be realized in a sale transaction. The Acquisition Consideration was
determined pursuant to arms-length negotiations between MBI, Ameribanc,
Peoples Bankshares and Peoples Bank. In arriving at the Acquisition
Consideration, Peoples Bank and Peoples Bankshares considered information
provided by a bank consulting firm public information regarding prices paid for
comparable banks in similar transactions, but did not engage an outside firm
for advice on the fairness of the Acquisition Consideration. See "SUMMARY
INFORMATION - Markets and Market Prices."
- 26 -
<PAGE> 36
The Boards of Directors of both Peoples Bank and Peoples
Bankshares were influenced by the fact that the Acquisition Consideration
was favorable in relation to prices paid for comparable banks in recent
transactions. The Boards did not seek competing offers because they felt
that the Acquisition Consideration was favorable to the stockholders of the
Peoples Bank and Peoples Bankshares and that, based on their knowledge of the
market and previous negotiations with one potential acquiror, and the
organizations which might be interested in entering or expanding their
presence in the Topeka market, there was no other such organization which
met the Boards' criteria for a merger partner.
Although the financial aspects of the MBI proposal were
considered paramount, the Board of Peoples Bankshares considered MBI to be
the most appropriate merger partner from the standpoint of the strategic
objectives of Peoples Bank. Central to the decision was the fact that MBI's
subsidiary, Mercantile Bank of Topeka, is headquartered in downtown Topeka,
where Peoples Bank is not located, and also has branches in other areas where
Peoples Bank is not represented. In addition, the Board believed that MBI
and Peoples Bank share similar philosophies with respect to lending and bank
operations and that these factors will help assure that the combination will
be beneficial to the employees and customers of Peoples Bank and to the
greater Topeka community at large.
The respective Boards of Directors of each of Peoples Bankshares
and Peoples Bank believe that the Acquisition will provide the holders of
Peoples Bank Common Stock with the opportunity to receive a substantial
premium over the estimated market value of Peoples Bank Common Stock and will
enable them to participate as MBI shareholders, on a tax-deferred basis, in
the expanded opportunities for growth and profitability made possible by the
Acquisition. The respective Boards of Directors of each of Peoples
Bankshares and Peoples Bank also believe that the Acquisition and the
anticipated merger of Peoples Bank with Mercantile Bank of Topeka will result
in a combined entity that is (i) committed to serving the banking and other
financial needs of Peoples Bank's depositors, employees, customers and
communities, (ii) capable of competing more effectively with larger financial
institutions that have exerted increasing competitive pressure on Peoples
Bank, (iii) well-capitalized and (iv) capable of enjoying significant market
penetration in Topeka and the northeast Kansas banking market.
THE BOARD OF DIRECTORS OF EACH OF PEOPLES BANKSHARES AND PEOPLES
BANK BELIEVES THAT THE ACQUISITION IS IN THE BEST INTEREST OF PEOPLES BANKSHARES
AND PEOPLES BANK, RESPECTIVELY, AND THEIR RESPECTIVE STOCKHOLDERS. THE BOARD OF
DIRECTORS OF PEOPLES BANKSHARES UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
PEOPLES BANKSHARES VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION
---
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD OF DIRECTORS OF
PEOPLES BANK UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF PEOPLES BANK VOTE
FOR THE PROPOSAL TO APPROVE THE ACQUISITION AGREEMENTS AND THE TRANSACTIONS
- ---
CONTEMPLATED THEREBY.
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 Peoples Bankshares
and Peoples Bank and the projected synergies which are anticipated to result
from the Acquisition. The Executive Committee concluded that the Acquisition
presents an unique opportunity for MBI to increase its presence in the
regional banking market in eastern Kansas through the addition of an established
banking organization. MBI believes that the most effective and least costly
- 27 -
<PAGE> 37
means to achieve this presence is the acquisition of a banking organization with
significant operations in the targeted area. MBI's decision to pursue
discussions with Peoples Bankshares and Peoples Bank was primarily a result of
MBI's assessment of the value of Peoples Bank's banking franchise, its
substantial asset base within eastern Kansas and the compatibility of the
businesses of the two banking organizations.
CONDITIONS OF THE ACQUISITION
The respective obligations of MBI, Ameribanc, Peoples Bankshares
and Peoples Bank to effect the Acquisition are subject to the satisfaction of
certain mutual conditions, including the following:
(1) The Reorganization Agreement and the transactions
contemplated thereby shall be approved by the holders of a
majority of the outstanding shares of Peoples Bankshares Common
Stock at the Peoples Bankshares Special Meeting.
(2) The Acquisition Agreements and the transactions
contemplated thereby shall be approved by the holders of a
majority of the outstanding shares of Peoples Bank Common Stock
at the Peoples Bank Special Meeting.
(3) The Acquisition Agreements and the transactions
contemplated thereby shall have been approved by the Federal
Reserve Board, the FDIC, the Kansas Commissioner and any other
federal and/or state regulatory agency whose approval is
required for the consummation of the transactions contemplated
thereby.
(4) The Registration Statement of which this Joint Proxy
Statement/Prospectus is a part and which registers the shares of
MBI Common Stock to be issued in the Acquisition shall have been
declared effective and not be subject to a stop order or any
threatened stop order.
(5) None of MBI, Ameribanc, Peoples Bankshares, Peoples
Bank or MBSC shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or
prohibits the he Acquisition.
(6) MBI, Ameribanc and Peoples Bankshares shall have
taken all actions as are necessary to effect the Exchange
simultaneously with the Merger.
(7) Each of MBI, Peoples Bankshares and Peoples Bank
shall have received from Thompson Coburn, counsel for MBI, an
opinion to the effect that the Acquisition will constitute a
reorganization within the meaning of Section 368 of the Code and
that no gain or loss will be recognized by the stockholders of
Peoples Bankshares or Peoples Bank to the extent that they
receive MBI Common Stock in exchange for shares of Peoples
Bankshares Common Stock or Peoples Bank Common Stock,
respectively.
The respective obligations of MBI and Ameribanc to effect the
Acquisition are subject to the satisfaction, unless waived, of certain other
conditions, including the following:
(1) The representations and warranties of Peoples
Bankshares and Peoples Bank made in the Reorganization Agreement
shall be true and correct in all material
- 28 -
<PAGE> 38
respects, except such as are not of a magnitude as to be materially
adverse to the business, financial condition, results of operations
or prospects of Peoples Bank, as of December 19, 1995 and as of the
Closing Date (as though made on and as of the Closing Date) except
(i) to the extent such representations and warranties are by their
express provisions made as of a specific 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 condition of
Peoples Bank and (iii) for the effect of the transactions
contemplated by the Reorganization Agreement, and all obligations
required to be performed by Peoples Bankshares and Peoples Bank
under the Reorganization Agreement prior to the Closing Date
shall have been performed in all material respects, and MBI shall
have received an officers' certificate from each of Peoples
Bankshares and Peoples Bank to that effect.
(2) Peoples Bankshares and Peoples Bank shall have
obtained any and all material consents or waivers from other
parties to loan agreements, leases or other contracts material to
Peoples Bank's business and any and all material permits,
authorizations, consents, waivers or approvals required for the
lawful consummation of the Acquisition.
(3) Since December 19, 1995, there shall have been no
material adverse change in the business, financial condition,
results of operations or prospects of Peoples Bank.
(4) Stinson, Mag & Fizzell, P.C., counsel to Peoples
Bankshares and Peoples Bank, shall have delivered to MBI an
opinion regarding certain legal matters.
(5) Peoples Bankshares shall have delivered
to the Exchange Agent the certificates evidencing shares of
Peoples Bank Common Stock owned beneficially or of record by
Peoples Bankshares, and such other documentation as shall be
reasonably required by MBI or the Exchange Agent to effect the
Exchange.
The respective obligations of Peoples Bankshares and
Peoples Bank to effect the Acquisition are subject to the
satisfaction, unless waived, of certain other conditions,
including the following:
(1) The representations and warranties of MBI
and Ameribanc made in the Reorganization Agreement shall be true
and correct in all material respects, except such as are not of a
magnitude as to be materially adverse to the business, financial
condition, results of operations or prospects of MBI and its
subsidiaries taken as a whole, as of December 19, 1995 and as of
the Closing Date (as though made on and as of the Closing Date)
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 condition
of MBI and its subsidiaries taken as a whole, and (iii) for the
effect of the transactions contemplated by the Reorganization
Agreement and all obligations required to be performed by MBI and
Ameribanc under the Reorganization Agreement prior to the
Effective Time shall have been performed in all
- 29 -
<PAGE> 39
material respects, and Peoples Bankshares and Peoples Bank shall
have received an officers' certificate from MBI and Ameribanc to
that effect.
(2) MBI and Ameribanc shall have obtained any
and all material permits, authorizations, consents, waivers and
approvals required of MBI or Ameribanc for the lawful
consummation of the Acquisition.
(3) Since the date of the Reorganization Agreement, there
shall have been no material adverse change in the business,
financial condition, results of operations or prospects of MBI and
its subsidiaries taken as a whole.
(4) Thompson Coburn, counsel to MBI and Ameribanc, shall
have delivered to Peoples Bankshares and Peoples Bank an opinion
regarding certain legal matters.
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 stockholders of
Peoples Bankshares and Peoples Bank, by mutual consent of the Executive
Committee of the Board of Directors of MBI and the Boards of Directors of
Ameribanc, Peoples Bankshares and Peoples Bank, or unilaterally by the
Executive Committee of the Board of Directors of MBI or the Boards of
Directors of Ameribanc, Peoples Bankshares or Peoples Bank: (i) at any time
after December 31, 1996 if the Acquisition has not been consummated by such
date or (ii) if the Federal Reserve Board, the FDIC, the Kansas Commissioner
or any other Regulatory Authority has denied approval of the Acquisition.
The Reorganization Agreement may also be terminated by the Executive
Committee of the Board of Directors of MBI or the Board of Directors of
Ameribanc, on the one hand, or the Board of Directors of Peoples Bankshares
and the Board of Directors of Peoples Bank, on the other, in the event of a
breach of the Reorganization Agreement by the other party, which breach is
of such a magnitude as to be materially adverse to the business, financial
condition, results of operations or prospects of the breaching party taken
as a whole, and is not cured or waived within forty-five days following
written notice of such breach given to the party committing such breach by
the other party.
INDEMNIFICATION
MBI and Ameribanc, on the one hand, and Peoples Bankshares and
Peoples Bank, on the other, have agreed to indemnify each other against any
claims or liabilities to which either 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 an omission by such other party to
state a necessary or material fact in the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part.
- 30 -
<PAGE> 40
CLOSING DATE
The Acquisition will be consummated and become effective on the
Closing Date at the time that the authorization of the Kansas Commissioner is
filed with the Office of the Secretary of State of the State of Kansas.
Pursuant to the Reorganization Agreement, unless the parties otherwise agree,
the Closing Date shall be the first business day of the month commencing at
least five business days following the last to occur of: (i) the receipt of
the requisite approval of the Reorganization Agreement and the transactions
contemplated thereby by the stockholders of Peoples Bankshares and the
Acquisition Agreements and the transactions contemplated thereby by the
stockholders of Peoples Bank; or (ii) the approval of the Acquisition by the
Regulatory Authorities and the expiration of any required waiting period.
SURRENDER OF PEOPLES BANK STOCK CERTIFICATES AND RECEIPT OF MBI
COMMON STOCK
Except for the shares of Peoples Bank Common Stock subject to the
exercise of dissenters' rights, at the Effective Time of the Acquisition,
each outstanding share of Peoples Bank Common Stock will be converted into
the right to receive 14.4819 shares of MBI Common Stock. See "TERMS OF THE
PROPOSED ACQUISITION - General Description of the Acquisition." At the
closing of the Acquisition, Peoples Bankshares will deliver to the Exchange
Agent the stock certificates representing the shares of Peoples Bank Common
Stock owned beneficially and of record by Peoples Bankshares on the Closing
Date and any other documentation reasonably required to effect the Exchange.
Upon such delivery, Peoples Bankshares will be entitled to receive a stock
certificate evidencing the shares of MBI Common Stock to which Peoples
Bankshares is entitled.
As soon as practicable following the Effective Time of the
Acquisition, the Exchange Agent will mail to each former Peoples Bank
stockholder of record as of the Closing Date (other than Peoples Bankshares)
a notification of the consummation of the Acquisition, a letter of
transmittal and instructions as to the procedure for the surrender of stock
certificates evidencing Peoples Bank Common Stock and the receipt of stock
certificates evidencing the shares of MBI Common Stock to which each former
Peoples Bank stockholder is entitled. It will be the responsibility of such
former Peoples Bank stockholders to submit the certificates evidencing such
shares of Peoples Bank Common Stock to the Exchange Agent. No dividends or
other distributions will be paid to a former Peoples Bank stockholder with
respect to shares of MBI Common Stock until the stockholder delivers to the
Exchange Agent a properly completed letter of transmittal and all stock
certificates formerly representing shares of Peoples Bank Common Stock, or
documentation acceptable to the Exchange Agent in lieu of a lost or destroyed
certificate. The Exchange Agent may also require the stockholder of a lost
or destroyed certificate to post an insurance bond acceptable to the Exchange
Agent. All dividends or other distributions on MBI Common Stock declared
between the Closing Date of the Acquisition and the date of the surrender of
a Peoples Bank stock certificate will be held for the benefit of the former
Peoples Bank stockholders and will be paid to each such stockholder, 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 Peoples
Bankshares or the other former stockholders of Peoples Bank in connection with
the Acquisition. Each former holder of Peoples Bank Common Stock who otherwise
would have been entitled to receive a fraction of a share of
- 31 -
<PAGE> 41
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. Cash received by
Peoples Bank stockholders in lieu of fractional shares may give rise to
taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
ACQUISITION."
CERTAIN REGULATORY APPROVALS
In addition to the approval of the Reorganization Agreement and
the transactions contemplated thereby by the stockholders of Peoples
Bankshares and the Acquisition Agreements and the transactions contemplated
thereby by the stockholders of Peoples Bank, the obligations of the parties
to effect the Acquisition are subject to prior approval of the Federal
Reserve Board, the FDIC and the Kansas Commissioner. Applications for
approval will be filed with such Regulatory Authorities.
In reviewing the applications, the Regulatory Authorities will
consider, among other things, whether the effect of the Acquisition would be
to substantially lessen competition in the relevant market. 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 the applications if they conclude that
the combined organization would have inadequate capital.
MBI, Ameribanc, Peoples Bankshares and Peoples Bank are not aware
of any governmental approvals or actions that may be required for the
consummation of the Acquisition 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 necessary
approvals or actions will be timely received or taken, that no action will be
brought challenging a necessary 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 Acquisition. See "SUPERVISION AND REGULATION."
BUSINESS PENDING THE ACQUISITION
The Reorganization Agreement provides that, during the period
from December 19, 1995 to the Effective Time, Peoples Bankshares and Peoples
Bank will conduct their respective businesses according to the ordinary and
usual course consistent with past and current practices and use their best
efforts to maintain and preserve their respective business organizations,
employees and advantageous business relationships and to retain the services
of their officers and key employees.
Furthermore, from December 19, 1995 to the Closing Date, Peoples
Bankshares and Peoples Bank will not, without the prior written consent of
MBI and Ameribanc:
(1) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of their
capital stock, except that (i) Peoples Bank may declare and
- 32 -
<PAGE> 42
pay a cash dividend of not more than $20.00 per share on the
Peoples Bank Common Stock in January of 1996 for the year
ended December 31, 1995, and (ii) Peoples Bank may declare
and pay dividends of not more than $5.00 per share for each
of the first and second quarter of 1996; provided, however,
that Peoples Bank will coordinate the record and payment
dates of each such quarterly dividend such that the record
and payment dates for a given quarterly dividend are the
same as MBI's record and payment dates for its regular
quarterly dividend for that quarter; and provided further
that if the Effective Time has not occurred on or before
September 10, 1996, Peoples Bank may declare and pay a
dividend for each quarter ending thereafter in which the MBI
Board of Directors shall declare a dividend on shares of MBI
Common Stock that in the aggregate is not in excess of the
greater of (A) the aggregate quarterly dividend that would
have been paid by MBI on the Acquisition Consideration if
the Acquisition had been consummated on September 10, 1996
and (B) $112,500; provided further, however, that Peoples
Bank may not declare or pay a dividend for any quarter in
which Peoples Bank's stockholders will be entitled to
receive a regular quarterly dividend on the shares of MBI
Common Stock to be issued in the Acquisition;
(2) enter into or amend any employment, severance or
similar agreement or arrangement with any director or
officer or employee, materially modify any of their employee
plans, grant any salary or wage increase or materially
increase any employee benefit (including incentive or bonus
payments), except (i) normal individual increases in
compensation to employees consistent with past practice,
(ii) as required by law or contract and (iii) increases of
which Peoples Bank and Peoples Bankshares notify MBI and
Ameribanc in writing and which MBI and Ameribanc do not
disapprove within ten days of the receipt of such notice;
(3) authorize, recommend, propose, announce an
intention to authorize, so recommend or propose, or enter
into an agreement in principle with respect to, any merger,
consolidation or business combination (other than the
Acquisition and the Topeka Merger), 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 their
articles of incorporation, charter documents or By-Laws;
(5) issue, sell, grant, confer or award any of their
equity securities, effect any stock split or adjust,
combine, reclassify or otherwise change their capitalization
as it existed on December 19, 1995;
(6) purchase, redeem, retire, repurchase or
exchange, or otherwise acquire or dispose of, directly or
indirectly, any of their shares of capital stock or other
equity securities, whether pursuant to the terms of such
securities or otherwise;
(7) (i) without first consulting with MBI, 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
- 33 -
<PAGE> 43
otherwise extend the maturity date of any existing loan or credit
commitment (collectively, "Lend to") in an amount in excess of
$250,000 or in any amount which, when aggregated with any and all
loans or credit commitments of Peoples Bank to such person
or entity, would be in excess of $250,000, provided that no
such consultation is required in respect of single-family
residential loans or credits that (A) remain in Peoples
Bank's loan portfolio, (B) do not exceed $125,000 and (C)
are salable in recognized secondary markets pursuant to
Peoples Bank's lending policies as in effect on
December 19, 1995, (ii) without first obtaining the written
consent of MBI, Lend to any person or entity, in an amount
in excess of $400,000 or in any amount which, when
aggregated with any and all loans or credit commitments of
Peoples Bank to such person or entity would be in excess of
$400,000, (iii) Lend to any person other than in accordance
with Peoples Bank's lending policies as in effect on
December 19, 1995, provided that in the case of clauses (i)
and (ii), Peoples Bank may make any such loan in the event
(A) Peoples Bank delivers to MBI or its designated
representative a notice of its intention to make such loan
and such information as MBI or its designated representative
reasonably requires in respect thereof and (B) MBI or its
designated representative do not reasonably object to such
loan by giving written or facsimile notice of such objection
within two business days following the delivery to MBI or
its 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 or internal report of Peoples Bank (except those
denoted "pass" thereon), in an amount in excess of $25,000;
provided, however, that Peoples Bank may honor any
contractual obligation in existence on December 19, 1995 or,
with respect to loans described in clause (i) above, may
make such loans after consulting with MBI. Notwithstanding
clauses (i) and (ii), however, Peoples Bankshares and
Peoples Bank are authorized, without first consulting with
or obtaining the written consent of MBI or Ameribanc, to
increase the aggregate amount of any 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 may 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 their
officers, directors, employees or other representatives) (i)
initiate, solicit or encourage any discussions, inquiries or
proposals with any third party (other than the MBI,
Ameribanc or the affiliates thereof) relating to the
disposition of any significant portion of the business or
assets of Peoples Bankshares or Peoples Bank, the
acquisition of the capital stock or other equity securities
of Peoples Bankshares or Peoples Bank, the merger of Peoples
Bankshares or Peoples Bank with any person (other than MBI,
Ameribanc or the affiliates thereof) or any similar
transaction, or (ii) provide any such person with
information or assistance or negotiate with any such person
with respect to such a transaction, and Peoples Bankshares
and Peoples Bank will promptly notify MBI orally of all the
relevant details relating to all inquiries, indications of
interest and proposals which they receive with respect to
any such transaction;
(9) take any action that would (i) materially impede
or delay the consummation of the transactions contemplated
by the Acquisition Agreements, or the ability of MBI, Ameribanc,
Peoples Bankshares or Peoples Bank to obtain any approval
- 34 -
<PAGE> 44
of any Regulatory Authority required for the transactions
contemplated by the Acquisition Agreements or perform their
covenants and agreements under the Acquisition Agreements or (ii)
prevent or impede the Acquisition 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) in the case of Peoples Bank, materially
restructure or change its investment securities portfolio,
through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported, or execute
individual investment transactions of greater than $500,000
for U.S. Treasury Securities and Federal Agency securities
and $100,000 for all other investment instruments, provided
that the prior written consent of MBI and Ameribanc is not
unreasonably withheld;
(12) agree in writing or otherwise 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 in Article II of 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
(13) enter into or increase any loan or credit
commitment (including standby letters of credit) to any
executive officer or director of Peoples Bankshares or
Peoples Bank, any stockholder of Peoples Bankshares or
Peoples 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. Sec. 371c and
12 U.S.C. Sec. 371c-1, without first obtaining the prior
written consent of MBI, which consent may not be
unreasonably withheld.
From December 19, 1995 to the Closing Date, MBI and Ameribanc
will not, without the prior consent of Peoples Bankshares and Peoples Bank,
agree in writing or otherwise engage in any activity, enter into any
transaction or take or omit to take any other action which would make any of
the representations and warranties in Article III of 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 Acquisition and the
restrictions described under the caption "TERMS OF THE PROPOSED ACQUISITION -
Business Pending the Acquisition," may be (i) waived in writing at any time
by the party that is, or whose shareholders or stockholders, as the case may
be, are entitled to the benefits thereof or (ii) amended at any time by
written agreement of the parties to the Reorganization Agreement, if such
agreement is approved by or on behalf of their respective Boards of
- 35 -
<PAGE> 45
Directors, whether before or after the Special Meetings; provided, however,
that after approval of the Reorganization Agreement and the transactions
contemplated thereby by the stockholders of Peoples Bankshares and the
Acquisition Agreements and the transactions contemplated thereby by the
stockholders of Peoples Bank at the Special Meetings, no such modification
may: (A) alter the amount or change the form of Acquisition Consideration to
be received by Peoples Bankshares and the other stockholders of Peoples Bank
in the Acquisition; (B) adversely affect the tax treatment of the
stockholders of Peoples Bankshares or Peoples Bank; (C) alter or change any
of the terms of the Reorganization Agreement if such alteration or change
would adversely affect the stockholders of Peoples Bank; or (D) impede or
delay the receipt of any approval from a Regulatory Authority or the
consummation of the Acquisition.
ACCOUNTING TREATMENT
The Acquisition will be accounted for under the purchase method
of accounting. Accordingly, data regarding the financial condition and
results of operations of Peoples Bank will be included in MBI's consolidated
financial statements on and after the Closing Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
----------------------------------------------------------
The following discussion is based upon an opinion of Thompson
Coburn, counsel to MBI ("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 Exchange, the Merger and the Liquidation to certain stockholders of
Peoples Bankshares and to certain stockholders of Peoples Bank 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 Agreement, the Acquisition Agreements and the
transactions contemplated by each. The discussion does not address all
aspects of federal income taxation that may be applicable to stockholders of
Peoples Bankshares or Peoples Bank in light of their status or personal
investment circumstances, nor does it address the federal income tax
consequences that are applicable to any stockholder subject to special
federal income tax treatment including (without limitation) foreign persons,
insurance companies, tax-exempt entities, retirement plans, dealers in
securities, persons who acquired their stock pursuant to the exercise of
employee stock options or otherwise as compensation, persons who hold their
stock as part of a "straddle," "hedge" or "conversion transaction," and
persons who acquired their stock after December 19, 1995. 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 STOCKHOLDER OF
PEOPLES BANKSHARES OR PEOPLES BANK IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
EXCHANGE, THE MERGER AND THE LIQUIDATION TO SUCH STOCKHOLDER. The
discussion assumes that shares of Peoples Bankshares Common Stock and shares
of Peoples Bank Common Stock are held as capital assets (within the meaning
of Section 1221 of the Code) at the Effective Time.
Peoples Bankshares and Peoples Bank have each received an opinion
from Counsel to the effect that, assuming the Exchange and the Merger occur
in accordance with the Acquisition Agreements, each of the Exchange and the
Merger will constitute a "reorganization" for federal income tax purposes
under Section 368(a)(1) with the following federal income tax consequences:
1. No gain or loss will be recognized by Peoples Bankshares on
its transfer of Peoples Bank Common Stock solely in exchange for MBI Common
Stock in the Exchange.
- 36 -
<PAGE> 46
2. No gain or loss will be recognized by Peoples Bankshares on
its distribution of MBI Common Stock to its stockholders in the Liquidation.
3. Each stockholder of Peoples Bankshares who exchanges, in
the Liquidation, his, her or its shares of Peoples Bankshares Common Stock
solely for shares of MBI Common Stock:
a) will recognize no gain or loss;
b) will have an aggregate adjusted basis for the shares
of MBI Common Stock received equal to the aggregate basis of the
shares of Peoples Bankshares Common Stock surrendered; and
c) will have a holding period for the share of MBI
Common Stock received which includes the period during which the
shares of Peoples Bankshares Common Stock surrendered were held.
4. Each stockholder of Peoples Bank who exchanges in the
Merger his, her or its shares of Peoples Bank Common Stock solely for shares
of MBI Common Stock:
a) will recognize no gain or loss, except with regard to
cash received in lieu of a fractional share, as discussed;
b) will have an aggregate adjusted basis for the shares
of MBI Common Stock received (including any fractional share of
MBI Common Stock deemed to be received, as described in paragraph
5, below) equal to the aggregate basis of the shares of Peoples
Bank Common Stock surrendered; and
c) will have a holding period for the shares of MBI
Common Stock received (including any fractional share of MBI
Common Stock deemed to be received, as described in paragraph 5,
below) which includes the period during which the shares of
Peoples Bank Common Stock surrendered were held.
5. Each stockholder of Peoples Bank who receives cash in lieu
of a fractional share of MBI Common Stock will be treated as if the
fractional share had been received and then redeemed by MBI. 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.
Counsel's opinion is subject to the conditions and assumptions
stated therein and relies upon representations made by MBI, Peoples
Bankshares, Peoples Bank, and certain stockholders of Peoples Bankshares or
Peoples Bank. If any of these representations or assumptions is inaccurate,
the federal income tax consequences of the Acquisition or Liquidation 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. Copies of the opinion are
available without charge upon written request to MBI.
- 37 -
<PAGE> 47
Consummation of the Acquisition is subject to the condition that Counsel's
opinion shall have been received (and not withdrawn) before the Effective Time.
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 the opinion and, if the matter were
litigated, a court may reach a decision contrary to the opinion. Neither
MBI, Peoples Bankshares nor Peoples Bank has requested an advance ruling as
to the federal income tax consequences of the Exchange, the Merger or the
Liquidation, 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 EXCHANGE, THE MERGER AND THE LIQUIDATION TO
CERTAIN STOCKHOLDERS AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT,
THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY
NOT APPLY TO EACH STOCKHOLDER OF PEOPLES BANKSHARES OR PEOPLES BANK.
ACCORDINGLY, EACH SUCH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE, THE MERGER, AND THE
LIQUIDATION, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL
AND OTHER TAX LAWS AND THE POSSIBLE EFECTS OF CHANGES IN FEDERAL AND OTHER
TAX LAWS.
DISSENTERS' RIGHTS OF STOCKHOLDERS OF PEOPLES BANK
--------------------------------------------------
Under Section 9-1724 of the Kansas Banking Code, which
incorporates by reference Section 17-6712 of the Kansas Corporation Code,
each stockholder of Peoples Bank has the right to dissent from the Merger
with respect to some or all of his or her shares of Peoples Bank Common Stock
and to receive the fair value of such shares in cash by following the
procedures set forth under Section 17-6712, attached hereto as Annex A and
-------
the material provisions of which are summarized below. Stockholders of
Peoples Bankshares do not have dissenters' rights in connection with the
Exchange.
Under Section 17-6712, a stockholder of Peoples Bank who (i)
files with Peoples Bank prior to the vote on the Merger a written objection
to the Merger, (ii) is not entitled to vote or does not vote in favor of the
approval of the Merger and (iii) within twenty days of receiving notice of
the Merger from Peoples Bank, delivers to Peoples Bank a written demand for
payment of the value of his or her shares, shall be entitled to receive from
Peoples Bank, within thirty days following the expiration of the twenty-day
period for a written demand, the value of his or her shares on the Closing
Date, exclusive of any value derived from the consummation of the Merger. A
VOTE AGAINST THE MERGER WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN
OBJECTION FOR PURPOSES OF ASSERTING APPRAISAL RIGHTS.
If, within thirty days following the expiration of the twenty-day
period for a written demand, Peoples Bank and any such dissenting stockholder
do not agree on the value of his or her shares, the dissenting stockholder
may, within four months after the expiration of such thirty-day period for
agreement, file a complaint in the District Court of Kansas asking for a
finding and determination of the value of such shares. Such dissenting
stockholder shall be entitled to judgment for the amount of the fair value as
determined by a court-appointed appraiser with interest thereon to the date
of such judgment. Any stockholder who demands payment of stock pursuant to
Section 17-6712 will not thereafter be
- 38 -
<PAGE> 48
entitled to vote for any purpose and will not be entitled to dividends or other
distributions following the Closing Date, unless the appraisal proceedings are
dismissed or such stockholder delivers to the corporation a written withdrawal
of objection and acceptance of the Merger.
THE PRECEDING DISCUSSION IS A FAIR SUMMARY OF THE PROVISIONS
REGARDING DISSENTERS' RIGHTS UNDER THE KANSAS CORPORATION CODE AND IS QUALIFIED
IN ITS ENTIRETY BY THE TEXT OF SECTION 17-6712 OF THE KANSAS CORPORATION CODE,
WHICH IS ATTACHED HERETO AS ANNEX A. PEOPLES BANK STOCKHOLDERS WHO ARE
-------
INTERESTED IN PERFECTING THEIR DISSENTERS' RIGHTS PURSUANT TO SECTION 17-6712
IN CONNECTION WITH THE MERGER MAY WISH TO CONSULT WITH THEIR COUNSEL FOR ADVICE
AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED.
- 39 -
<PAGE> 49
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 Peoples Bank and the corresponding pro
forma per share amounts, giving effect to the proposed acquisitions of
Peoples Bank and TODAY'S. The data presented is based upon the consolidated
financial statements and related notes of MBI and Peoples Bank included in
this Joint Proxy Statement/Prospectus or in the documents incorporated herein
by reference, TODAY'S consolidated financial statements and related notes 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. Due to the immateriality of the
financial condition and results of operations of Sterling, Conway and Metro,
individually and in the aggregate, to that of MBI, the table only reflects
the acquisitions of Sterling, Metro and Conway from their closing dates
forward. The assumptions used in the preparation of this table are set forth
in the notes to the pro forma financial information appearing elsewhere in
this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
MBI/ MBI/ PEOPLES BANK/
PEOPLES PEOPLES BANK PEOPLES BANK ALL ENTITIES ALL ENTITIES
MBI 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:
March 31, 1996 . . . . . . . . . . . $25.47 $360.09 $25.36 $367.26 $25.27 $365.96
December 31, 1995. . . . . . . . . . 26.04 376.09 25.94 375.66 25.83 374.07
Cash Dividends Declared per Share:
Three months ended March 31, 1996. . $ .41 $ 20.00 $ .41 $ 5.94 $ .41 $ 5.94
Year ended December 31, 1995 . . . . 1.32 10.00 1.32 19.11 1.32 19.11
Earnings per Share:
Three months ended March 31, 1996. . $ .07 $ 12.27 $ .07 $ 1.01 $ (.05) $ (.72)
Year ended December 31, 1995 . . . . 3.74 51.69 3.75 54.31 3.57 51.70
Market Price per Share:
At December 19, 1995 <F4>. . . . . . $44.375 N/A -- -- -- --
At June 12, 1996 <F4>. . . . . . . . N/A -- -- -- --
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for Peoples Bank as
appropriate.
<F2> Based on the pro forma combined per share amounts multiplied by
14.4819, the per share exchange ratio applicable to one share of
Peoples Bank Common Stock. Further explanation of the
assumptions used in the preparation of this pro forma combined
consolidated financial statements is included in the notes to pro
forma financial statements.
<F3> Includes the effect of pro forma adjustments for Peoples Bank and
TODAY'S, as appropriate.
<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 Joint Proxy Statement/Prospectus, based on the
last sale price as reported on the NYSE Composite Tape. The
market values of Peoples Bank Common Stock as of the dates set
forth in the table can not be accurately estimated because the
last transaction in Peoples Bank Common Stock known to management
of Peoples Bank occurred in March 1993.
</TABLE>
- 40 -
<PAGE> 50
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance
sheet gives effect to the proposed acquisitions of Peoples Bank and TODAY'S
as if each of the acquisitions had been consummated on March 31, 1996.
The following unaudited pro forma combined consolidated income
statements for the three months ended March 31, 1996 and for the year ended
December 31, 1995 set forth the results of operations of MBI combined with
the results of operations of Peoples Bank and TODAY'S as if the acquisitions
of Peoples Bank and TODAY'S 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, Peoples Bank and TODAY'S. The historical interim
financial information for the three months ended March 31, 1996, 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 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 operation of Sterling, Conway and Metro, individually and in the
aggregate, to that of MBI, the unaudited pro forma combined consolidated
financial statements only reflect the acquisitions of Sterling, Metro and
Conway from their closing dates forward.
- 41 -
<PAGE> 51
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI/Peoples Bank All Entities
Pro Forma Pro Forma
Peoples Peoples Bank Combined TODAY'S Combined
MBI<F1> Bank Adjustments<F2> Consolidated TODAY'S Adjustments<F2> Consolidated
------------ ------- --------------- ------------ ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . $ 888,924 $ 2,612 $ (14,670)<F3> $ 876,866 $ 15,770 $(52,965)<F3> $ 805,386
(34,285)<F6>
Due from banks-interest bearing. . 77,206 23 77,229 77,229
Federal funds sold and repurchase
agreements. . . . . . . . . . . . 245,037 -- 245,037 -- 245,037
Investments in debt and equity
securities. . . . . . . . . . . . --
Trading. . . . . . . . . . . . 13,245 -- 13,245 -- 13,245
Available-for-sale . . . . . . 4,307,504 36,757 4,344,261 74,119 4,418,380
Held-to-maturity . . . . . . . -- -- -- 30,780 30,780
----------- ------- --------- ----------- -------- -------- -----------
Total. . . . . . . . . . . 4,320,749 36,757 -- 4,357,506 104,899 -- 4,462,405
Loans and leases . . . . . . . . . 11,840,242 52,077 11,892,319 368,053 12,260,372
Reserve for possible loan losses . (211,608) (712) (212,320) (3,312) (215,632)
----------- ------- --------- ----------- -------- -------- -----------
Net Loans and Leases . . . . . 11,628,634 51,365 -- 11,679,999 364,741 -- 12,044,740
Other assets . . . . . . . . . . . 741,776 3,228 8,102<F4> 751,004 24,259 47,149<F6> 815,963
(8,102)<F5> (47,149)<F7>
6,000<F8> 40,700<F8>
Total Assets . . . . . . . . . . $17,902,326 $93,985 $ (8,670) $17,987,641 $509,669 $(46,550) $18,450,760
=========== ======= ========= =========== ======== ======== ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 42 -
<PAGE> 52
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI/Peoples Bank All Entities
Pro Forma Pro Forma
Peoples Peoples Bank Combined TODAY'S Combined
MBI<F1> Bank Adjustments<F2> Consolidated TODAY'S Adjustments<F2> Consolidated
------------ ------- --------------- ------------ ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing . . . . . . $ 2,040,285 $ 8,972 $ $ 2,049,257 $ 43,020 $ $ 2,092,277
Interest bearing . . . . . . . . 11,801,245 67,712 11,868,957 394,077 12,263,034
Foreign. . . . . . . . . . . . . 160,478 -- 160,478 -- 160,478
----------- ------- --------- ----------- -------- -------- -----------
Total Deposits . . . . . . . . 14,002,008 76,684 -- 14,078,692 437,097 -- 14,515,789
Federal funds purchased
and repurchase agreements . . 1,220,321 8,261 1,228,582 8,539 1,237,121
Other borrowings . . . . . . . 220,891 400 221,291 12,497 233,788
Other liabilities. . . . . . . 851,219 538 851,757 4,387 856,144
----------- ------- --------- ----------- -------- -------- -----------
Total Liabilities . . . . . . . 16,294,439 85,883 -- 16,380,322 462,520 -- 16,842,842
SHAREHOLDERS' EQUITY
Common stock . . . . . . . . . 316,058 2,250 1,630<F4> 317,688 13,714 5,885<F6> 323,573
(2,250)<F5> (13,714)<F7>
Capital surplus. . . . . . . . 234,689 2,250 12,472<F4> 247,161 6,447 47,679<F6> 294,840
(2,250)<F5> (6,447)<F7>
Retained earnings. . . . . . . 1,060,542 3,602 (3,602)<F5> 1,060,542 26,988 (26,988)<F7> 1,060,542
Treasury stock . . . . . . . . (3,402) -- (14,670)<F3> (18,072) -- (52,965)<F3> (71,037)
----------- ------- --------- ----------- -------- -------- -----------
Total Shareholders' Equity . . 1,607,887 8,102 (8,670) 1,607,319 47,149 (46,550) 1,607,918
----------- ------- --------- ----------- -------- -------- -----------
Total Liabilities and
Shareholders' Equity. . . . . $17,902,326 $93,985 $ (8,670) $17,987,641 $509,669 $(46,550) $18,450,760
=========== ======= ========= =========== ======== ======== ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 43 -
<PAGE> 53
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/Peoples Bank All Entities
Pro Forma Pro Forma
Peoples Peoples Bank Combined TODAY'S Combined
MBI<F1> Bank Adjustments<F2> Consolidated TODAY'S Adjustments<F2> Consolidated
------------ ------- --------------- ------------ ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . $ 325,240 $1,832 (183) $ 326,889 $9,755 $ (1,091) $ 335,553
Interest Expense . . . . . . . . . . 155,504 923 156,427 4,955 161,382
----------- ------ -------- ----------- ------ --------- -----------
Net Interest Income. . . . . . . . 169,736 909 (183) 170,462 4,800 (1,091) 174,171
Provision for Possible Loan Losses . 33,168 -- 33,168 280 33,448
----------- ------ -------- ----------- ------ --------- -----------
Net Interest Income after Provision
for Possible Loan Losses . . . . 136,568 909 (183) 137,294 4,520 (1,091) 140,723
Other Income
Trust. . . . . . . . . . . . . . . 19,354 -- 19,354 476 19,830
Service charges. . . . . . . . . . 19,272 106 19,378 420 19,798
Credit card fees . . . . . . . . . 1,449 -- 1,449 -- 1,449
Securities gains (losses). . . . . (2,956) -- (2,956) 7 (2,949)
Other. . . . . . . . . . . . . . . 22,165 40 22,205 305 22,510
----------- ------ -------- ----------- ------ --------- -----------
Total Other Income . . . . . . . 59,284 146 -- 59,430 1,208 -- 60,638
Other Expense
Salaries and employee benefits . . 79,256 293 79,549 1,885 81,434
Net occupancy and equipment. . . . 21,316 128 21,444 1,017 22,461
Other. . . . . . . . . . . . . . . 82,198 212 100 82,510 899 10,680 94,089
----------- ------ -------- ----------- ------ --------- -----------
Total Other Expense. . . . . . . 182,770 633 100 183,503 3,801 10,680 197,984
----------- ------ -------- ----------- ------ --------- -----------
Income Before Income Taxes . . . 13,082 422 (283) 13,221 1,927 (11,771) 3,377
Income Taxes . . . . . . . . . . . . 8,517 146 (66) 8,597 674 (2,607) 6,664
----------- ------ -------- ----------- ------ --------- -----------
Net Income . . . . . . . . . . . $ 4,565 $ 276 $ (217) $ 4,624 $1,253 $ (9,164) $ (3,287)
=========== ====== ======== =========== ====== ========= ===========
Per Share Data
Average Common Shares Outstanding. 63,052,401 63,052,401 63,052,401
Net Income . . . . . . . . . . . . $ 0.07 $ 0.07 $ (.05)
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 44 -
<PAGE> 54
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/Peoples Bank All Entities
Pro Forma Pro Forma
Peoples Peoples Bank Combined TODAY'S Combined
MBI<F1> Bank Adjustments<F2> Consolidated TODAY'S Adjustments<F2> Consolidated
------------ ------- --------------- ------------ ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . $ 1,293,944 $7,086 (734) $ 1,300,296 $39,180 $ (4,362) $ 1,335,114
Interest Expense . . . . . . . . . . 620,534 3,517 624,051 19,775 643,826
----------- ------ -------- ----------- ------- --------- -----------
Net Interest Income. . . . . . . . 673,410 3,569 (734) 676,245 19,405 (4,362) 691,288
Provision for Possible Loan Losses . 36,530 45 36,575 960 37,535
----------- ------ -------- ----------- ------- --------- -----------
Net Interest Income after Provision
for Possible Loan Losses . . . . 636,880 3,524 (734) 639,670 18,445 (4,362) 653,753
Other Income
Trust. . . . . . . . . . . . . . . 70,751 -- 70,751 1,624 72,375
Service charges. . . . . . . . . . 75,408 452 75,860 1,655 77,515
Credit card fees . . . . . . . . . 19,690 -- 19,690 -- 19,690
Securities gains (losses). . . . . 4,042 (14) 4,028 62 4,090
Other. . . . . . . . . . . . . . . 103,762 143 103,905 1,640 105,545
----------- ------ -------- ----------- ------- --------- -----------
Total Other Income . . . . . . . 273,653 581 274,234 4,981 279,215
Other Expense
Salaries and employee benefits . . 298,625 1,148 299,773 7,318 307,091
Net occupancy and equipment. . . . 82,674 576 83,250 3,863 87,113
Other. . . . . . . . . . . . . . . 172,449 590 400 173,439 4,779 12,710 190,928
----------- ------ -------- ----------- ------- --------- -----------
Total Other Expense. . . . . . . 553,748 2,314 400 556,462 15,960 12,710 585,132
----------- ------ -------- ----------- ------- --------- -----------
Income Before Income Taxes . . . 356,785 1,791 (1,134) 357,442 7,466 (17,072) 347,836
Income Taxes . . . . . . . . . . . . 124,109 628 (264) 124,473 2,587 (1,430) 125,630
----------- ------ -------- ----------- ------- --------- -----------
Net Income . . . . . . . . . . . $ 232,676 $1,163 $ (870) $ 232,969 $ 4,879 $ (15,642) $ 222,206
=========== ====== ======== =========== ======= ========= ===========
Per Share Data
Average Common Shares Outstanding. 61,883,723 61,883,723 61,883,723
Net Income . . . . . . . . . . . . $ 3.74 $ 3.75 $ 3.57
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 45 -
<PAGE> 55
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
[FN]
<F1> Represents MBI restated historical consolidated financial
statements reflecting the acquisition of Hawkeye effective
January 2, 1996. Such acquisition was accounted for as a
pooling-of-interests. The acquisition of Sterling was also
accounted for as a pooling-of-interests; however, due to
immateriality of the financial condition and results of
operations of Sterling to that of MBI, MBI did not restate its
historical financial statements to reflect the acquisition of
Sterling. Sterling, along with Conway and Metro, is included in
these pro forma financial statements only from its acquisition
date forward. The full impact of these acquisitions is immaterial to
the pro forma combined financial statements.
<F2> The acquisitions of Peoples Bank and TODAY'S will be
accounted for as purchase transactions. Purchase price
adjustments offset each other or are immaterial. Included herein
are the amortization of goodwill over a 15-year period (see
footnote <F8> below) and the lost interest income on the cash
consideration (TODAY'S) and stock buybacks. Also included for
TODAY'S is $10,000,000 that MBI expects to record upon closing to
conform TODAY'S accounting and credit policies to those of MBI.
Goodwill is considered non-deductible and a lower tax rate is
used on the conforming charges since some portion of those will
be non-deductible. The balance sheet impact of goodwill
amortization, lost interest income and the conforming charges is
ignored due to immateriality.
<F3> In connection with the proposed acquisitions, MBI may repurchase
up to 1,503,000 shares of MBI Common Stock in the open market.
Assumed price is $45.00 per share.
<F4> Purchase entry of Peoples Bank with assumed consideration of
$14,466,000, consisting of 326,000 shares at $44.375 per share,
the closing price for MBI Common Stock on December 19, 1995 (the
date of the execution of the Reorganization Agreement).
<F5> Elimination of MBI's investment in Peoples Bank.
<F6> Purchase entry of TODAY'S with assumed consideration consisting of
1,177,000 shares at $45.50 per share, plus $34,285,000 in cash.
The closing price for MBI Common Stock on March 20, 1996 (the date
of the execution of the definitive merger agreement between MBI
and TODAY'S) was $45.50.
<F7> Elimination of MBI's investment in TODAY'S.
<F8> The pro forma excess of cost over fair value of net assets
acquired was $6,000,000 and $40,700,000 as of December 31, 1995
for People's and TODAY'S, respectively.
- 46 -
<PAGE> 56
INFORMATION REGARDING PEOPLES BANKSHARES AND PEOPLES BANK
---------------------------------------------------------
BUSINESS
GENERAL. Peoples Bankshares was organized in October 1973 and
is a one-bank holding company registered with the Federal Reserve Board under
the BHCA. Peoples Bankshares currently owns 88.88% of the issued and
outstanding shares of capital stock of Peoples Bank, a Kansas state-chartered
bank founded in 1909 which operates from five locations in eastern Kansas.
As of March 31, 1996, on a consolidated basis, Peoples Bankshares had assets
of $94 million, deposits of $76 million, net loans of $52 million and
stockholders' equity of $8 million.
Peoples Bank is a full-service community bank that provides a
full complement of banking services to its customers, who are primarily
individuals and small businesses in Shawnee County, Kansas. Peoples Bank
accepts demand, savings and time deposits, makes commercial, agricultural,
consumer and real estate loans and provides other customary commercial
banking services.
COMPETITION. The activities in which Peoples Bank engages are
highly competitive and the communities in which it provides services are also
served by other banks. Competition among these financial institutions is
based upon interest rates offered on deposit accounts, interest rates charged
on loans, other credit and service charges, the convenience of banking
facilities and the quality of services rendered. Peoples Bank believes that
it has successfully competed in its marketplace by providing superior service
to its customers. Additional competition for depositors' funds may come from
a variety of sources, including United States government securities, private
issues of debt obligations, mutual funds and suppliers of other investment
alternatives.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is an analysis of the consolidated financial
condition and the consolidated results of operations of Peoples Bankshares
and Peoples Bank as of and for the three months ended March 31, 1996 and 1995
and the years ended December 31, 1995, 1994 and 1993. The analysis should be
read in conjunction with the consolidated financial statements, notes to
consolidated financial statements and financial data presented elsewhere in
this Joint Proxy Statement/Prospectus. Peoples Bankshares' principal asset
is its subsidiary, Peoples Bank. Peoples Bankshares also owned Citizens
State Bank, located in Osage City, Kansas, until July 31, 1994. The analysis
of the consolidated financial condition of Peoples Bankshares for purposes of
comparison between years includes its investment in Citizens as if it were an
unconsolidated subsidiary. Accordingly, the average investment in Citizens
is included in Other Assets in the average balance sheets as of December 31,
1994 and 1993.
On July 31, 1994, Citizens had total assets of $31,263,000 and
total stockholders' equity of $2,977,000. On that date, Peoples Bankshares
sold its 91.6% interest in Citizens, resulting in a gain of $1,241,000. For
purposes of this analysis, net income of Peoples Bankshares includes its
equity in the earnings of Citizens in 1994 and 1993 of $183,000 and $347,000,
respectively, as well as its gain on the sale of Citizens in 1994 ($734,000
net of tax). Accordingly, the ratios of return on average equity, return on
average assets and average equity to average assets of Peoples Bankshares
include its average investment in Citizens and the additional equity and
earnings resulting from that investment in 1994 and 1993.
- 47 -
<PAGE> 57
Except as discussed above, the following financial schedules and
related narrative do not address the financial condition and the results of
operations of Citizens, but focus on the changes in financial condition and
results of operations of Peoples Bank.
March 31, 1996 and 1995
RESULTS OF OPERATIONS
NET INCOME. Net income for the three months ended March 31,
1996 was $104,000, or $1.07 per share, compared to a loss of $37,000, or $.38
per share, for the three months ended March 31, 1995. The increase in net
income was primarily a result of increased net interest income of $103,000,
increased noninterest income of $34,000 and decreased noninterest expense of
$78,000, which was somewhat offset by an $82,000 increase in income tax
expense.
NET INTEREST INCOME. Net interest income increased $103,000,
or 12.6%, from $815,000 for the three-month period ended March 31, 1995 to
$918,000 for the same period in 1996. Interest income increased $269,000 and
interest expense increased $166,000 for the three months ended March 31,
1995. The increase in interest income was primarily attributable to an
increase in average deposits (offset somewhat by reduced other borrowings).
An overall rise in the level of interest rates in the economy also
contributed to the increased net interest income.
PROVISION FOR LOAN LOSSES. There was no provision for loan
losses for the three months ended March 31, 1996, compared to $15,000 for the
three months ended March 31, 1995. The provision for loan losses is
established based upon management's estimate of the allowance for loan losses
required to absorb losses inherent in existing loans and commitments to
extend credit.
NONINTEREST INCOME. For the three months ended March 31,
1996, deposit service charge income remained stable and other noninterest
income increased $18,000, as compared to the three months ended March 31,
1995. This increase included a $20,000 gain resulting from the sale of loans
in the secondary market during 1996. There were no gains or losses on sales
of investment securities for the three months ended March 31, 1996, compared
to losses of $14,000 on sales of investment securities during the three
months ended March 31, 1995.
OTHER EXPENSES. Compensation and benefits decreased $124,000,
or 20.1%, during the three months ended March 31, 1996, as compared to the
same period in 1995. This decrease was primarily due to the higher than
normal bonuses paid to Peoples Bankshares employees during the three months
ended March 31, 1995. Occupancy expense decreased $10,000, or 8.4%, during
the three months ended March 31, 1996, as compared to March 31, 1995. The
decrease was primarily due to a decrease in depreciation expense of $6,000.
Other operating expenses increased $56,000 or 28.6%. Issues related to the
pending sale of Peoples Bank led to increased legal, accounting and other
expenses of $60,000 during the first quarter of 1996. Also, expenses related
to converting the data processing system and purchasing supplies to allow
Peoples Bank to provide a check imaging system totaled approximately $32,000.
The FDIC insurance assessment, which has been reduced since the Bank
Insurance Fund became fully funded, decreased $35,000, which partially offset
the specific increases noted.
INCOME TAXES. Income tax expense increased $82,000 for the
three months ended March 31, 1996 compared to 1995 due to the increased
taxable income of $230,000.
- 48 -
<PAGE> 58
December 31, 1995, 1994 and 1993
RESULTS OF OPERATIONS
NET INCOME. Net income of Peoples Bankshares for 1995 was
$683,000, or $7.01 per share, compared to $1,439,000, or $14.77 per share, in
1994 and $738,000, or $7.56 per share, in 1993. Net income of Peoples
Bankshares' includes its equity in the earnings of Citizens in 1994 and 1993
of $183,000 and $347,000, respectively, as well as its gain on the sale of
Citizens of $734,000, net of tax, in 1994.
Net income of Peoples Bank for 1995 was $1,163,000, or $51.69 per
share, compared to $800,000, or $35.56 per share, in 1994 and $689,000, or
$30.62 per share, in 1993. Net income increased $363,000 from 1994 to 1995.
The increase in net income from 1993 to 1994 was $111,000. The primary
sources of these increases were the asset growth and increased interest rate
spread.
The following are analyses and comments regarding net interest
income, noninterest income and expense and income taxes for the years ended
December 31, 1995, 1994 and 1993. These comparisons provide additional
details of the increases in net income and include a discussion of the
changes between these periods. As noted above, the following financial
schedules and related narrative do not address the financial condition and
results of operations of Citizens, which was sold on July 31, 1994.
NET INTEREST INCOME. The following schedule provides a summary
concerning net interest income, average balances and the related
interest rates/yields for the past three years. Impaired/nonaccrual loans are
included in the interest-earning assets and interest income on such loans is
recorded when received. Interest income on loans includes loan fees of
$244,000, $266,000 and $243,000 in 1995, 1994 and 1993, respectively.
Interest-earning assets includes tax exempt investments and the
related income is presented on a tax-equivalent basis assuming a tax rate of
34%. The amount of the tax-equivalent adjustment was $84,000, $93,000 and
$96,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
- 49 -
<PAGE> 59
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1995 1994
---------------------------------------------- ---------------------------------------------
PERCENT OF INTEREST AVERAGE PERCENT OF INTEREST AVERAGE
AVERAGE TOTAL INCOME/ YIELD/ AVERAGE TOTAL INCOME/ YIELD/
BALANCE ASSETS EXPENSE RATE BALANCE ASSETS EXPENSE RATE
-------- ---------- -------- ------- ------- ---------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans. . . . . . . . . . . . . $ 51,804 56.96% $ 5,025 9.70% $ 47,241 54.21% $ 4,147 8.78%
Taxable securities . . . . . . 29,578 32.53 1,868 6.32 28,900 33.16 1,352 4.68
Nontaxable securities. . . . . 2,824 3.11 247 8.75 3,228 3.70 273 8.46
Restricted equity securities . 518 .57 31 5.98 404 .46 23 5.69
Interest-bearing deposits
with other banks. . . . . . 26 .03 2 7.69 14 .02 -- --
Federal funds sold . . . . . . 424 .47 25 5.90 402 .46 15 3.73
-------- ------ ------- ----- -------- ------ ------- -----
Total interest-earning assets 85,174 93.67 7,198 8.45 80,189 92.01 5,810 7.25
Noninterest-bearing assets:
Cash and due from banks. . . . 2,807 3.09 2,672 3.07
Premises and equipment . . . . 2,037 2.24 2,054 2.36
Accrued interest receivable. . 1,002 1.10 830 .95
Deferred tax asset . . . . . . 157 .17 215 .25
Other assets . . . . . . . . . 87 .10 1,396 1.59
Intangibles. . . . . . . . . . 364 .40 445 .51
Allowance for loan losses. . . (699) (.77) (649) (.74)
-------- ------ -------- ------
Total assets . . . . . . . . $ 90,929 100.00% $ 87,152 100.00%
======== ====== ======== ======
Interest-bearing liabilities:
NOW accounts . . . . . . . . . $ 7,214 7.93% $ 146 2.02% $ 7,140 8.19% $ 144 2.02%
Savings accounts . . . . . . . 5,399 5.94 126 2.33 5,555 6.37 125 2.25
Money market accounts. . . . . 7,841 8.62 254 3.24 8,520 9.78 225 2.64
Time deposits and individual
retirement accounts . . . . 39,353 43.28 2,254 5.73 33,563 38.51 1,421 4.23
Short-term borrowings. . . . . 13,241 14.56 732 5.53 14,580 16.73 613 4.20
FHLB long-term debt. . . . . . -- -- -- -- 417 .48 30 7.19
Notes payable. . . . . . . . . -- -- -- -- 1,550 1.78 108 6.97
-------- ------ ------- ----- -------- ------ ------- -----
Total interest-bearing
liabilities . . . . . . . . 73,048 80.33 3,512 4.81 71,325 81.84 2,666 3.74
Noninterest-bearing liabilities:
Demand deposits. . . . . . . . 9,113 10.02 8,469 9.72
Accrued interest payable . . . 344 .38 326 .37
Accrued income tax payable . . 322 .36 210 .24
Other liabilities. . . . . . . 69 .08 49 .06
-------- ------ -------- ------
Total liabilities. . . . . . 82,896 91.17 80,379 92.23
Minority interest. . . . . . . . 829 .91 743 .85
Stockholders' equity . . . . . . 7,204 7.92 6,030 6.92
-------- ------ -------- ------
Total liabilities and
stockholders' equity. . . . $ 90,929 100.00% $ 87,152 100.00%
======== ====== ======== ======
Net interest income. . . . . . . $ 3,686 $ 3,144
======= =======
Interest rate spread . . . . . . 3.64% 3.51%
==== ====
Net interest margin. . . . . . . 4.33% 3.92%
==== ====
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1993
----------------------------------------------
PERCENT OF INTEREST AVERAGE
AVERAGE TOTAL INCOME/ YIELD/
BALANCE ASSETS EXPENSE RATE
-------- ---------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 40,705 48.97% $ 3,601 8.85%
Taxable securities 29,472 35.45 1,561 5.30
Nontaxable securities 3,451 4.15 283 8.20
Restricted equity securities 253 .30 18 7.11
Interest-bearing deposits
with other banks 9 .01 -- --
Federal funds sold 1,271 1.53 44 3.46
-------- ------ ------- -----
Total interest-earning assets 75,161 90.41 5,507 7.33
Noninterest-bearing assets:
Cash and due from banks 2,660 3.20
Premises and equipment 1,456 1.75
Accrued interest receivable 883 1.06
Deferred tax asset 113 .14
Other assets 2,873 3.46
Intangibles 577 .69
Allowance for loan losses (588) (.71)
-------- ------
Total assets $ 83,135 100.00%
======== ======
Interest-bearing liabilities:
NOW accounts $ 5,998 7.21% $ 140 2.33%
Savings accounts 4,830 5.81 132 2.73
Money market accounts 8,427 10.14 239 2.84
Time deposits and individual
retirement accounts 34,432 41.42 1,491 4.33
Short-term borrowings 12,131 14.59 400 3.30
FHLB long-term debt 1,000 1.20 74 7.40
Notes payable 3,176 3.82 185 5.82
-------- ------ ------- -----
Total interest-bearing
liabilities 69,994 84.19 2,661 3.80
Noninterest-bearing liabilities:
Demand deposits 6,560 7.89
Accrued interest payable 422 .51
Accrued income tax payable 93 .11
Other liabilities 268 .32
-------- ------
Total liabilities 77,337 93.02
Minority interest 703 .85
Stockholders' equity 5,095 6.13
-------- ------
Total liabilities and
stockholders' equity $ 83,135 100.00%
======== ======
Net interest income $ 2,846
=======
Interest rate spread 3.53%
====
Net interest margin 3.79%
====
</TABLE>
- 50 -
<PAGE> 60
In summary, the above tables indicate the following trends:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1995 1994 1993
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Average earning assets. . . . . . . . . . . . . $85,174 $80,189 $75,161
Increase from prior year . . . . . . . . . 4,985 5,028
Average interest-bearing liabilities. . . . . . 73,048 71,325 69,994
Increase from prior year . . . . . . . . . 1,723 1,331
Fully taxable equivalent net interest income. . 3,686 3,144 2,846
Increase from prior year . . . . . . . . . 542 298
Net interest margin (net interest income
divided by average earning assets) . . . . 4.33% 3.92% 3.79%
</TABLE>
The increases in average earning assets and interest-bearing
liabilities were mainly a result of normal growth and an improving economy.
The improvement in net interest margin illustrates the benefits of a rising
interest rate environment nationally and in Peoples Bankshares' primary
market. Peoples Bankshares' loan and investment portfolio are fairly
short-term which allows them to benefit quickly when interest rates are
rising.
Net interest income is affected by the volume and rate of both
interest-earning assets and interest-bearing liabilities. The following
table depicts the dollar effect and rate changes for the different categories
of interest-earning assets and interest-bearing liabilities and the resultant
change in interest income and interest expense. Nonperforming loans are
included with loans in the table.
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 COMPARED TO
1994 INCREASE 1993 INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
------------------------------- -------------------------------
VOLUME RATE<F1> COMBINED VOLUME RATE<F1> COMBINED
------ -------- -------- ------ -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans . . . . . . . . . . . . . . . . $ 401 $ 477 $ 878 $ 578 $ (32) $ 546
Taxable securities. . . . . . . . . . 32 484 516 (30) (179) (209)
Nontaxable securities . . . . . . . . (34) 8 (26) (18) 8 (10)
Restricted equity securities. . . . . 6 2 8 11 (6) 5
Interest-bearing deposits
with other banks. . . . . . . . . . 1 1 2 -- -- --
Federal funds sold. . . . . . . . . . 1 9 10 (30) 1 (29)
----- ----- ------ ----- ----- -----
Total interest earning assets. . . . . 407 981 1,388 511 (208) 303
----- ----- ------ ----- ----- -----
Interest paid on:
NOW accounts. . . . . . . . . . . . . 1 1 2 27 (23) 4
Savings accounts. . . . . . . . . . . (4) 5 1 20 (27) (7)
Money market deposits . . . . . . . . (18) 47 29 3 (17) (14)
Time deposits and individual
retirement accounts . . . . . . . . 245 588 833 (38) (32) (70)
Short-term borrowings . . . . . . . . (56) 175 119 81 132 213
FHLB long-term debt . . . . . . . . . (30) -- (30) (43) (1) (44)
Notes payable . . . . . . . . . . . . (108) -- (108) (95) 18 (77)
----- ----- ------ ----- ----- -----
Total interest-bearing liabilities . . 30 816 846 (45) 50 5
----- ----- ------ ----- ----- -----
Net interest income. . . . . . . $ 377 $ 165 $ 542 $ 556 $(258) $ 298
===== ===== ====== ===== ===== =====
<FN>
- ---------------
<F1> Changes in interest income and interest expense due to both rate and volume are included in rate
variances.
</TABLE>
- 51 -
<PAGE> 61
During 1995, average interest-earning assets increased
$4,985,000. This increase in volume accounted for increased interest income
of $407,000. Of this total, $401,000 can be attributed to increased loan
volume of $4,563,000. Taxable securities increased $678,000, while
nontaxable securities decreased $404,000. Restricted equity securities
increased by $114,000, and the combined Federal funds sold and
interest-bearing deposits in other banks increased by $34,000. These
increases in the volume of average assets were largely due to Peoples
Bankshares' effort to expand its construction real estate loan portfolio
causing interest income to increase by $407,000, while changes in interest
rates on the average volume of interest-earning assets increased interest
income $981,000. The increase in interest income associated with higher
interest rates reflects the general increase in the level of rates during
1995. The combined effect of the volume and rate changes associated with
interest-earning assets increased interest income $1,388,000.
Average interest-bearing liabilities increased $1,723,000 during
1995. Average deposits increased $5,029,000 as a result of Peoples
Bankshares' effort to increase its deposit base by offering higher interest
rates on certificates of deposits and demand deposits with no service
charges. Because of the increase in deposits, Peoples Bankshares had less
need for borrowings to fund asset growth. Therefore, short-term borrowings,
FHLB long-term debt and notes payable combined decreased by $3,306,000. The
changes in the volume of deposits led to a $224,000 overall net increase in
interest expense while the decrease in borrowings resulted in a decreased
interest expense of $194,000. The rising interest rate environment caused an
increase in interest expense of $816,000, creating an overall increase in
interest expense of $846,000 in 1995 as compared to 1994.
The combined or net effect of changes in rate and volume on
interest-earning assets and interest-bearing liabilities in 1995 resulted in
increased net interest income of $542,000.
During 1994, average interest-earning assets increased $5,028,000
and average interest-bearing liabilities increased $1,331,000, resulting in a
net increase of $298,000 in net interest income. The most significant change
in average assets was an increase in loans of $6,536,000, which was somewhat
offset by a decrease in combined federal funds sold and interest-bearing
deposits with other banks of $864,000 and a decrease in taxable and
nontaxable securities of $795,000. These changes in the mix of average
assets and the overall increase in balances resulted in $511,000 in
additional interest income; however, reduced yields in all categories, as
experienced in the industry, decreased interest income $208,000 for a net
overall increase of $303,000.
Average interest-bearing deposits increased $1,091,000, while
overall borrowings increased $240,000. Because interest rates on deposits
were very low, customers tended not to invest in long-term instruments.
Therefore, deposits generally moved from longer term time deposits to shorter
term, less expensive, demand accounts. In total, volume changes in average
interest-bearing liabilities caused a net decrease in expense of $45,000.
Increasing rates on Peoples Bankshares' short-term borrowings and notes
payable more than offset the effect of declining rates on deposits, resulting
in an increase in interest expense of $50,000 due to rate changes. Overall,
interest expense increased by $5,000 during 1994.
The major influence on the net interest margin or net interest
income was the growth in earning assets during both 1995 and 1994 and the
increasing interest rate environment experienced in 1995. The increase in
interest income of $1,388,000, or 24%, in 1995 was primarily due to the
increased yields on loan and investment portfolios. Interest expense
increased as interest rates increased on deposits and borrowings used to fund
the asset growth. The increase in interest income of $303,000, or 6%, in
1994 was primarily due to growth in the loan portfolio. Overall, interest
expense remained relatively stable during 1994.
- 52 -
<PAGE> 62
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN
LOSSES. The provision for loan losses results in an allowance against
which loan losses are charged as those losses become evident. Management
evaluates the appropriate level of the allowance for loan losses on a
quarterly basis. The analyses take into consideration the results of an
internal analysis, the purpose of which is to determine the level of credit
risk within the portfolio and to ensure proper adherence to underwriting and
documentation standards. A specific portion of the allowance is allocated to
those loans which appear to represent a higher than normal exposure to risk.
In addition, estimates are made for potential losses on loans not
specifically reviewed, based on historical loan loss experience and other
factors and trends.
Provisions for loan losses of $45,000, $68,000 and $120,000 were
recorded by Peoples Bank in 1995, 1994 and 1993, respectively, based on
management's evaluation.
Factors that influenced management's determination that a
provision for loan losses was appropriate included (i) an evaluation of each
nonperforming, classified and potential problem loan to ascertain an estimate
of loss exposure based upon circumstances then known to management,
(ii) current economic conditions and outlook and (iii) an overall review of
the loan portfolio in light of past loan loss experience. Net charge-offs
(loan losses charged against the allowance for loan losses less recoveries of
prior charge-offs) for 1995, 1994 and 1993 were $5,000, $16,000 and $17,000,
respectively.
NONINTEREST INCOME. A significant portion of a banking
institution's earnings are typically generated through noninterest income
from fees and service charges. The following tables outline the components
of this income source for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED CHANGE CHANGE
DECEMBER 31 1995/1994 1994/1993
---------------------------- ------------------ -----------------
1995 1994 1993 AMOUNT PERCENT AMOUNT PERCENT
---- ---- ---- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges. . . . . $452 $432 $393 $20 4.63% $39 9.92%
Other operating
income. . . . . . . 143 120 149 23 19.17 (29) (19.46)
---- ---- ---- --- ------ ---- -------
Subtotal. . . . . . . 595 552 542 43 7.79 10 1.85
Securities gains
(losses). . . . . . (14) (8) 5 (6) (75.00) (13) (260.00)
---- --- -- --- ---
Total noninterest
income. . . . . . . $581 $544 $547 $37 6.80% $(3) (5.48)%
---- ---- ---- --- ------ --- -------
</TABLE>
As noted above, noninterest income increased each year due to
increased service charges. The growth in service charges was due to the
growth in deposit accounts, which provided a majority of this income. The
growth in other operating income was primarily due to increased gains on the
sale of mortgage loans in the secondary market in 1995.
- 53 -
<PAGE> 63
OTHER EXPENSES. The following tables outline the components
of expenses for the years ended December 31, 1995, 1994 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED CHANGE CHANGE
DECEMBER 31 1995/1994 1994/1993
------------------------------ ------------------- --------------------
1995 1994 1993 AMOUNT PERCENT AMOUNT PERCENT
---- ---- ---- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Compensation and employee benefits . . . . . . $1,626 $1,374 $1,279 $252 18.34% $ 95 7.43%
Occupancy expense. . . . . . . . . . . . . . . 494 406 399 88 21.67 7 1.75
FDIC assessment. . . . . . . . . . . . . . . . 75 137 137 (62) (45.26) -- --
Other expenses . . . . . . . . . . . . . . . . 684 691 665 (7) (1.01) 26 3.91
------ ------ ------ ---- ------ ------- ----
Total noninterest expense $2,879 $2,608 $2,480 $271 10.39% $ 128 5.16%
====== ====== ====== ==== ====== ======= ====
</TABLE>
Noninterest expense increased in 1995 due largely to an increase
in compensation expense. The increase in compensation expense during 1995
was due to an increase in bonuses for Peoples Bankshares' employees of
$205,000 from 1994 to 1995 and due to normal salary and benefits increases.
The increase from 1993 to 1994 was primarily due to the opening of an
additional branch location in Topeka in the fall of 1993.
Occupancy expense remained flat from 1993 to 1994 and increased
by $88,000 in 1995. Peoples Bank had accrued additional real estate taxes in
years prior to 1994 for the potential payment of real estate taxes on a
problem loan because Peoples Bank considered it possible that it would be
required to initiate foreclosure proceedings and pay the tax liability. In
1994, the financial condition of the borrower improved and the Bank was able
to reverse the accrued real estate taxes resulting in real estate tax expense
of $(15,000) for 1994 as compared to an expense of $54,000 for 1995, a net
change of $69,000. Without the reversal of the accrued real estate taxes on
the problem loan, real estate taxes would have been $52,000 in 1994 and
$39,000 in 1993. Real estate taxes increased in 1994 due to the addition of
a branch bank.
The decrease in the FDIC assessment from 1994 to 1995 relates to
the reduction in assessment rates as determined by the FDIC once the Bank
Insurance Fund became fully funded in 1995.
INCOME TAXES. Peoples Bankshares files a consolidated
federal income tax return with Peoples Bank. Peoples Bank makes federal
income tax payments to Peoples Bankshares based on the taxable income of
Peoples Bank on a stand-alone basis. Deferred income taxes are provided on
certain transactions which are reported for financial reporting purposes in
different periods than for income tax purposes.
- 54 -
<PAGE> 64
A reconciliation of expected income tax expense, computed by
applying the effective federal statutory rate of 34% to income before the
provision for income taxes, follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1995 1994 1993
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Federal income taxes at statutory rate. . . . $428 $312 $237
Less effect of tax exempt income. . . . . . . (53) (59) (61)
State taxes, net of Federal income
tax benefit . . . . . . . . . . . . . . . . 71 51 43
Other, net. . . . . . . . . . . . . . . . . . 1 4 10
---- ---- ----
Total provision for income taxes. . . . . . $447 $308 $229
==== ==== ====
</TABLE>
Peoples Bankshares adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, during 1993. The effect of
such adoption was not material to the consolidated financial condition or
consolidated results of operations.
INVESTMENTS. Peoples Bankshares' holdings of short-term
investments and scheduled maturities of investment securities serve as a
source of liquidity to meet depositor and borrower fund requirements, in
addition to constituting a significant element of total interest income.
Federal funds sold had outstanding balances of $900,000 and $1,200,000 at
December 31, 1995 and 1994, respectively. Investment securities at
December 31, 1995 of $37,364,000 increased $8,019,000 as compared to
investment securities at December 31, 1994 of $29,345,000. This increase in
the balance of investment securities was due primarily to the growth in total
assets experienced by Peoples Bank, which was invested principally in
mortgage-backed securities. Management invested excess funds primarily in
collateral mortgage obligations because they provided a short duration (less
than three years) with a slightly higher yield than was available in U.S.
Treasuries or agencies.
- 55 -
<PAGE> 65
SECURITIES PORTFOLIO. The following table presents the
composition of investments at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993
----------------------- ---------------------- -----------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
AMOUNT SECURITIES AMOUNT SECURITIES AMOUNT SECURITIES
-------- ---------- -------- ---------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held-to-Maturity:
U.S. Treasuries and agencies . . . . . . . . $ -- --% $ 8,698 29.65% $ 6,105 17.55%
Obligations of states and
political subdivisions. . . . . . . . . . -- -- 2,865 9.76 3,575 10.27
Mortgage-backed securities . . . . . . . . . -- -- 5,362 18.27 7,266 20.88
------- ------ ------- ------ ------- ------
Total investments held-to-maturity . . . . . -- -- 16,925 57.68 16,946 48.70
------- ------ ------- ------ ------- ------
Available-for-sale:
U.S. Treasuries and agencies . . . . . . . . 22,294 59.67 11,783 40.15 15,083 43.35
Obligations of states and political
subdivisions. . . . . . . . . . . . . . . 3,321 8.89 -- -- -- --
Mortgage-backed securities . . . . . . . . . 11,222 30.03 118 .40 2,512 7.22
Restricted equity securities . . . . . . . . 527 1.41 519 1.77 253 .73
------- ------ ------- ------ ------- ------
Total investments available for sale . . . . 37,364 100.00 12,420 42.32 17,848 51.30
------- ------ ------- ------ ------- ------
Total investments. . . . . . . . . . . . . . $37,364 100.00% $29,345 100.00% $34,794 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The fair market value of total investment securities was
$37,364,000, $29,248,000 and $35,223,000 at December 31, 1995, 1994 and 1993,
respectively.
On December 31, 1993, Peoples Bankshares adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS 115"). Restricted equity securities are not
included in the SFAS 115 classifications due to the lack of a published
market value and certain restrictions that limit their marketability. Such
securities are included in the securities totals at cost and labeled as "All
other equity securities" for reporting on the Call Report beginning in
December 31, 1993.
As of December 31, 1995, there were no investment securities of
any issuer, other than securities of the U.S. Government and U.S. Government
Agencies and corporations, which exceeded 10% of stockholders' equity.
- 56 -
<PAGE> 66
INVESTMENT SECURITIES-MATURITIES AND YIELDS. The
following table shows the components and yields for the various forms of debt
securities as of December 31, 1995:
<TABLE>
<CAPTION>
WITHIN OVER 1-5 OVER 5-10 OVER 10
ONE YEAR YEARS YEARS YEARS
------------------- ------------------- ------------------ ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and agencies . . . . . . $6,065 6.53% $16,229 6.13% $ -- --% $ -- --%
Obligations of states and other
political subdivisions<F1>. . . . . . 325 8.30 2,303 8.59 693 9.48 -- --
Mortgage-backed securities<F2> . . . . . -- -- 3,772 6.26 303 9.07 7,147 6.53
------ ---- ------- ---- ---- ---- ------ ----
$6,390 6.62% $22,304 6.41% $996 9.36% $7,147 6.53%
====== ==== ======== ==== ==== ==== ====== ====
<FN>
- ----------------------
<F1> Yield presented on a tax-equivalent basis assuming a tax rate of 34%.
<F2> Expected maturities will differ from contractual maturities due to normal amortization and because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties. The table above does not take into
consideration the effects of scheduled repayments or the effects of possible prepayments.
</TABLE>
Restricted equity securities of $527,000 held at December 31,
1995 are not included in this table as an equity security has no stated
maturity.
LOANS. The loan portfolio constitutes the major earning
asset of most bank holding companies and typically offers the best
alternative for obtaining the maximum interest spread above the cost of
funds. The overall economic strength of any bank holding company generally
parallels the quality and yield of its loan portfolio. Peoples Bankshares'
total loans outstanding on the dates indicated are presented in the following
table:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Agricultural . . . . . . . . . . . . . . . . $ 6,052 11.41% $ 6,184 12.84% $ 6,130 14.57%
Commercial
and industrial. . . . . . . . . . . . . . 11,937 22.51 9,870 20.50 10,288 24.46
Real estate
Construction. . . . . . . . . . . . . . . 5,906 11.14 4,111 8.54 2,836 6.74
Agricultural. . . . . . . . . . . . . . . 1,970 3.71 2,365 4.91 2,110 5.02
Commercial. . . . . . . . . . . . . . . . 5,745 10.83 5,419 11.25 4,682 11.13
Residential . . . . . . . . . . . . . . . 15,497 29.22 14,973 31.10 11,223 26.68
Consumer . . . . . . . . . . . . . . . . . . 5,356 10.10 4,587 9.53 4,023 9.56
Other. . . . . . . . . . . . . . . . . . . . 575 1.08 643 1.33 772 1.84
------- ------ ------- ------ ------- ------
$53,038 100.00% $48,152 100.00% $42,064 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The loan portfolio experienced an increase of $4,886,000, or
10.1%, from December 31, 1994 to December 31, 1995, primarily in real estate
and commercial loans. An increase of $6,088,000, or 14.5%, from 1993 to 1994
was experienced primarily in real estate loans, due to a strong local real
estate sector. A portion of the increase in real estate loans was due to the
opening of an additional Peoples Bank branch location in North Topeka in the
fall of 1993. This branch positioned Peoples Bank closer to the areas in
Topeka with the largest growth of new real estate activity. To take
advantage of this opportunity, Peoples Bankshares concentrated on increasing
its construction real estate portfolio during 1994.
- 57 -
<PAGE> 67
MATURITY CLASSES. The following tables set forth the maturity
composition and interest sensitivity of total loans at December 31, 1995:
<TABLE>
<CAPTION>
AGRICULTURAL,
COMMERCIAL REAL REAL
AND ESTATE ESTATE
INDUSTRIAL CONSTRUCTION OTHER CONSUMER OTHER TOTAL
------------- ------------ ------ -------- ----- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
In one year or less. . . . . . . . . . . . . $10,107 $5,827 $ 3,661 $ 550 $316 $20,461
After one through
five years. . . . . . . . . . . . . . . . 5,105 79 4,994 4,243 52 14,473
After five years . . . . . . . . . . . . . . 2,777 -- 14,557 563 207 18,104
------- ------ ------- ------ ---- -------
$17,989 $5,906 $23,212 $5,356 $575 $53,038
======= ====== ======= ====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
FIXED RATE VARIABLE RATE
---------- -------------
(in thousands)
<S> <C> <C>
In one year or less. . . . . . . . . . $12,350 $ 8,111
After one through five years . . . . . 9,119 5,354
After five years . . . . . . . . . . . 7,112 10,992
------- -------
Total Loans $28,581 $24,457
======= =======
<FN>
- -------------------
<F1> Certain variable rate loans have reached a floor or ceiling interest
rate level and can no longer adjust. These loans are treated as fixed
rate loans as required by the Consolidated Reports of Condition and
Income.
</TABLE>
NONPERFORMING ASSETS. Nonperforming assets are defined as
impaired loans, nonaccrual loans, loans delinquent ninety or more days,
restructured loans and foreclosed assets. Such assets do not necessarily
represent future losses to Peoples Bankshares since underlying collateral can
be sold and the financial condition of the borrowers may improve. The
following table sets forth the detail of nonperforming assets. Peoples
Bankshares had no restructured loans at the following dates.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1995 1994 1993
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Impaired loans . . . . . . . . . . . . . $118 $ -- $ --
Nonaccrual loans . . . . . . . . . . . . -- 169 222
Loans past due 90 days or more . . . . . 4 6 21
---- ---- ----
Total nonperforming loans. . . . . . $122 $175 $243
Foreclosed property. . . . . . . . . . . -- -- 38
---- ---- ----
Total nonperforming assets . . . . . $122 $175 $281
==== ==== ====
</TABLE>
Effective January 1, 1995, Peoples Bankshares implemented
Statement of Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan ("SFAS 114"), and Statement of Financial Accounting
Standards No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures ("SFAS 118"), which amends SFAS 114.
SFAS 114 (as amended) defines the recognition criteria for loan
impairment and the measurement methods for certain impaired loans and loans
for which terms have been modified in troubled-debt restructurings
(restructured loans). Specifically, a loan is considered impaired when it is
probable that a creditor will be unable to collect all amounts due - both
principal and interest - according to
- 58 -
<PAGE> 68
the contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan are required to be discounted
at the loan's effective interest rate. Alternatively, impairment can be
measured by reference to an observable market price, if one exists, or to the
fair value of the collateral for a collateral-dependent loan. Regardless of
the historical measurement method used, SFAS 114 requires a creditor to
measure impairment based on the fair value of the collateral when the creditor
determines foreclosure is probable. Additionally, impairment of a restructured
loan is measured by discounting the total expected future cash flows at the
loan's effective rate of interest as stated in the original loan agreement.
SFAS 118 amends SFAS 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. Peoples
Bankshares has elected to continue to use its existing nonaccrual methods for
recognizing interest on impaired loans. Peoples Bankshares continues to
apply all payments received on impaired loans to the outstanding balance of
the loan until such a time as the loan balance is reduced to zero, after
which time payments are applied to interest income until such time as the
foregone interest is recovered, or until such time as an improvement in the
condition of the loan has occurred which would warrant the resumption of
interest accruals.
Peoples Bankshares' policy is to discontinue accruing interest on
loans when principal or interest is due and remains unpaid for ninety days or
more, unless the loan is well secured and in the process of collection.
Peoples Bankshares would have recorded additional interest income of
approximately $11,000, $13,000 and $14,000 for 1995, 1994 and 1993,
respectively, if contractual interest on these loans had been recognized. No
interest was actually collected in 1995, 1994 or 1993.
At December 31, 1995, 1994 and 1993, there were no significant
commitments to lend additional funds to borrowers whose loans were considered
nonperforming.
The loan portfolio does not include any loans to foreign
countries or highly leveraged transaction loans. Approximately 40% of the
loans at Peoples Bankshares on December 31, 1995 were residential real estate
loans. Commercial loans to individuals and businesses in the local lending
area represented 33% of the loans. The remaining 27% consisted largely of
agricultural and consumer lending. Peoples Bankshares has adopted policies
that require security for loans, including liens on residential mortgage
loans and certain of the other loans secured by real estate. In addition,
policies and procedures are in place to assess the creditworthiness of
borrowers for all loans and commitments. Borrowers' abilities to honor their
loan contracts can be largely dependent upon weather conditions and economic
conditions within their market areas and on a national level.
Management attributes the lack of significant nonperforming
assets to a relatively stable economy in its primary market, strong efforts
in the credit review of potential borrowers and close monitoring of potential
problem loans.
- 59 -
<PAGE> 69
The following table sets forth the activity for loan losses and
selected financial ratios for the dates indicated:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1995 1994 1993
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . $673 $621 $518
---- ---- ----
Loans charged off:
Agricultural. . . . . . . . . . . . . . . . -- -- --
Commercial and industrial . . . . . . . . . -- -- 4
Residential real estate-mortgage. . . . . . 5 12 6
Consumer. . . . . . . . . . . . . . . . . . 3 4 9
---- ---- ----
Total charge-offs. . . . . . . . . . . . . . . 8 16 19
---- ---- ----
Recoveries:
Agricultural. . . . . . . . . . . . . . . . -- -- --
Commercial and industrial . . . . . . . . . -- -- --
Residential real estate-mortgage. . . . . . 3 -- --
Consumer. . . . . . . . . . . . . . . . . . -- -- 2
---- ---- ----
Total recoveries . . . . . . . . . . . . . . . 3 -- 2
---- ---- ----
Net loans recovered (charged off). . . . . . (5) (16) (17)
Provision for loan losses. . . . . . . . . . . 45 68 120
---- ---- ----
Balance at end of period . . . . . . . . . . . $713 $673 $621
==== ==== ====
Net loan charge-offs
to average loans . . . . . . . . . . . . . . .01% .03% .04%
Allowance to total loans . . . . . . . . . . . 1.34 1.40 1.48
Allowance to nonperforming loans . . . . . . . 584 385 256
</TABLE>
The allowance for loan losses is not allocated to specific
categories of loans. However, based on Peoples Bankshares' review of
remaining collateral and/or financial condition of identified loans with
characteristically more than a normal degree of risk, historical loan loss
percentages, and economic conditions, management believes the allowance for
loan losses at December 31, 1995 is adequate to cover losses inherent in the
portfolio.
DEPOSITS. The deposit base provides the major funding source
for interest-earning assets of most bank holding companies. Peoples
Bankshares' deposits have increased steadily during the period from
December 31, 1993 to December 31, 1995. Generally, demand, savings and
certificates of deposit less than $100,000 are recognized as the core base of
deposits, while certificates of deposit of $100,000 or more and public funds
are more interest rate sensitive and, thus, are not considered part of the
core deposit base. Because of these factors, management views the growth in
deposits other than certificates of deposit of $100,000 or more as more
stable growth.
- 60 -
<PAGE> 70
The following table indicates the mix and average levels of
deposits and the average interest rates for each category of deposits for the
three months ended March 31, 1996 and the years ended December 31, 1995, 1994
and 1993:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
------------------ -----------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ----------------- ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand and other
noninterest bearing. . . . . . . . . $ 9,027 n/a% $ 9,113 n/a% $ 8,469 n/a% $ 6,560 n/a%
NOW accounts . . . . . . . . . . . . . 7,919 2.02 7,214 2.02 7,140 2.02 5,998 2.33
Savings accounts . . . . . . . . . . . 5,259 2.28 5,399 2.33 5,555 2.25 4,830 2.73
Money market deposit accounts. . . . . 11,376 3.73 7,841 3.24 8,520 2.64 8,427 2.84
Certificates of deposit including
individual retirement accounts . . . 42,388 5.84 39,353 5.73 33,563 4.23 34,432 4.33
------- ---- ------- ---- ------- ---- ------- ----
Total deposits. . . . . . . . . . . $75,969 4.19% $68,920 4.03% $63,247 3.03% $60,247 3.32%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
AMOUNT AND MATURITIES OF TIME DEPOSITS OF $100,000
OR MORE. The following table sets forth the amount and maturities of time
deposits of $100,000 or more at December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31 PERCENT OF
1995 TOTAL
---------- ----------
(dollars in thousands)
<S> <C> <C>
Three months or less. . . . . . . . . . . $ 305 7.43%
Over three through six months . . . . . . 912 22.21
Over six through twelve months. . . . . . 2,251 54.82
Over twelve months. . . . . . . . . . . . 638 15.54
------ ------
Total . . . . . . . . . . . . . . . . $4,106 100.00%
====== ======
</TABLE>
SHORT-TERM BORROWINGS. Amounts and interest rates related
to short-term borrowings at the dates indicated were as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-------- -------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Federal funds purchased and securities sold
under agreements to repurchase:
Outstanding balance at period-end . . . . . . . $ 8,261 $10,188 $10,448 $12,355
Average interest rate at period-end . . . . . . 5.01% 4.84% 5.52% 3.11%
Average outstanding during the period . . . . . $ 9,889 $12,002 $13,459 $12,131
Year-to-date average interest rate. . . . . . . 4.81% 5.46% 4.09% 3.30%
Highest outstanding balance at any month-end. . $13,066 $14,343 $16,294 $19,128
Federal Home Loan Bank advances:
Outstanding balance at period-end . . . . . . . $ 400 $ 3,950 $ 2,000 $ --
Average interest rate at period-end . . . . . . 5.90% 6.15% 6.65% --%
Average outstanding during the period . . . . . $ 345 $ 1,239 $ 1,121 $ --
Year-to-date average interest rate. . . . . . . 5.82% 6.21% 5.53% --%
Highest outstanding balance at any month-end. . $ 400 $ 3,950 $ 3,150 $ --
</TABLE>
- 61 -
<PAGE> 71
RETURN ON EQUITY AND ASSETS. The following tables compare net
income as a percent of average assets and average equity for the dates
indicated:
<TABLE>
<CAPTION>
RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY
------------------------------------------ -------------------------------------------
MARCH 31 DECEMBER 31 MARCH 31 DECEMBER 31
-------- ---------------------------- -------- -----------------------------
1996 1995 1994 1993 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income . . . . . . . . . .43% .75% 1.43% .67% 5.21% 9.48% 23.86% 14.48%
</TABLE>
As discussed previously, these ratios include the financial
condition and results of operations of Peoples Bankshares investment in
Citizens for 1994 and 1993.
During the three months ended March 31, 1996 and the years ended
December 31, 1995, 1994 and 1993, no dividends were declared by Peoples
Bankshares.
LIQUIDITY AND INTEREST RATE SENSITIVITY. Liquidity is
the measure of Peoples Bankshares' ability to meet its customers' present and
future deposit withdrawals or increased loan demand without unduly penalizing
earnings. Interest rate sensitivity involves the relationship between rate
sensitive assets and liabilities and is an indication of the probable effects
of interest rate fluctuations on Peoples Bankshares' net interest income.
Peoples Bankshares manages both liquidity and interest sensitivity through a
GAP analysis report prepared monthly.
Liquidity is provided for Peoples Bankshares by projecting credit
demand and other financial needs and then maintaining sufficient cash and
assets readily convertible into cash to meet these projected requirements.
Peoples Bankshares provided for its liquidity needs through core deposits,
maturing loans and scheduled maturities of investments in securities, and by
maintaining adequate balances in Federal funds sold. Other sources of
liquidity include federal funds purchased and other short-term borrowings.
At December 31, 1995, cash and cash equivalents amounted to $3,710,000, or
3.79%, of total assets. This is a decrease of $271,000 from December 31,
1994, when cash and cash equivalents totaled $3,981,000, or 4.65%, of total
assets. This level of cash and cash equivalents is considered to be adequate
in view of projected liquidity needs.
Peoples Bankshares' liquidity is generally provided by dividends
received from Peoples Bank. These funds are available for the overhead
expenses and the payment of dividends to stockholders. Dividends paid by
Peoples Bank during 1995, 1994 and 1993 were $225,000, $350,000 and $350,000,
of which 88.88% was received by Peoples Bankshares.
Interest rate-sensitive assets and liabilities are those with
yields or rates subject to change within a future time period due to maturity
or changes in market rates. An ongoing objective of Peoples Bankshares'
asset/liability management program is to match rate-adjustable assets and
liabilities at similar maturity horizons, so that changes in interest rates
will not result in wide fluctuations in net interest income. The rate
sensitivity position is managed by matching funds acquired having a specific
maturity with loans, securities or other liquid assets with similar
maturities.
At December 31, 1995, $32,303,000, or 60.9%, of the loan
portfolio matured or repriced in one year or less. In addition, investment
securities maturing or repricing in one year or less of $13,806,000, Federal
funds sold of $900,000 and interest-bearing deposits of $75,000 bring total
rate-sensitive assets maturing or repricing within one year to $47,084,000,
or 51.9%, of total
- 62 -
<PAGE> 72
interest-earning assets. Rate sensitive liabilities consist of interest-
bearing demand deposits, savings deposits, and time deposits maturing or
repricing within one year of $56,135,000 and short-term borrowings of
$14,138,000, bringing total rate-sensitive liabilities maturing or repricing
within one year to $70,273,000, or 89.5%, of interest-bearing liabilities.
This represented a position which management believed appropriate, given the
decreasing interest rate environment expected at December 31, 1995.
CAPITAL. The strength of its capital position determines
the ability of a financial institution to take advantage of growth
opportunities and handle unforeseen financial difficulties. Peoples
Bankshares' stockholders' equity at December 31, 1995 was $8,060,000, an
increase of $1,170,000, or 17%, from the December 31, 1994 total of
$6,890,000. Stockholders' equity includes Peoples Bankshares' equity in
Peoples Bank's unrealized gain (loss) on investment securities available for
sale of $369,000 and $(118,000) at December 31, 1995 and 1994, respectively.
The average equity to average assets ratios for the years ended December 31,
1995, 1994 and 1993, respectively, were 7.92%, 6.92% and 6.13%. As
discussed previously, this ratio includes the financial condition of Peoples
Bankshares' investment in Citizens for 1994 and 1993.
At March 31, 1996, stockholders' equity was $7,999,000, which
includes Peoples Bankshares' equity in Peoples Bank's unrealized gain on
investment securities available-for-sale of $204,000. The average equity to
average assets ratio at March 31, 1996 was 8.35%.
Peoples Bankshares is subject to the issuance of capital adequacy
guidelines by its regulators, all of which have issued similar guidelines for
the measurement of capital adequacy. One measure is the leverage capital
ratio, which equals the ratio of ending total capital less intangible assets
to average total assets on a quarterly basis from the latest Consolidated
Reports of Income and Condition ("Call Report") less intangible assets. The
guidelines also include a definition of capital and provide a framework for
calculating risk-weighted assets by assigning assets and off-balance-sheet
instruments to broad risk categories. The risk-based capital standards
establish a minimum ratio of total capital to risk-weighted assets with a
minimum of 4% when using Tier 1 capital and a minimum of 8% when including
total capital. Tier 1 capital is the sum of the core capital elements (common
stockholders' equity less intangible assets and excluding any unrealized
gains or losses on available-for-sale securities). Total capital includes the
allowance for loan losses limited to a maximum of 1.25% of risk-weighted
assets.
- 63 -
<PAGE> 73
As the following table indicates, Peoples Bankshares exceeded the
minimum risk-based and leverage ratios at the date indicated:
<TABLE>
<CAPTION>
DECEMBER 31 MINIMUM
1995 LEVELS
----------- -------
(dollars in thousands)
<S> <C> <C>
Capital Components:
Tier 1 capital . . . . . . . . . $ 7,367 n/a
Total capital. . . . . . . . . . 8,068 n/a
Assets:
Risk-weighted assets and
off-balance-sheet instruments. $56,073 n/a
Capital ratios
Leverage . . . . . . . . . . . . 7.65% 3.00%
Tier 1 risk-based capital. . . . 13.14 4.00
Total risk-based capital . . . . 14.39 8.00
</TABLE>
- 64 -
<PAGE> 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PEOPLES
BANKSHARES
The following table sets forth as of the Record Date the number
of shares of Peoples Bankshares Common Stock beneficially owned and the
percentage of ownership of outstanding shares of Peoples Bankshares Common
Stock by (a) each director of Peoples Bankshares, (b) each person who is
known by Peoples Bankshares to own beneficially 5% or more of such stock and
(c) all directors and executive officers of Peoples Bankshares as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER ADDRESS OWNED CLASS
- ------------------------ ------- ------------ ----------
<S> <C> <C> <C>
Ronald D. Lutz . . . . . . . . . 1935 S.W. Indian Woods Lane
Topeka, Kansas 66611 40,004 41%
Joyce M. Lutz. . . . . . . . . . 1935 S.W. Indian Woods Lane
Topeka, Kansas 66611 40,004 41
Michael W. Lutz. . . . . . . . . 6142 S.W. 38th Terrace
Topeka, Kansas 66610 6,952 <F1> 7
Craig E. Lutz. . . . . . . . . . 3835 S.W. Stonybrook Drive
Topeka, Kansas 66610 5,020 <F2> 5
Laurie L. Carney . . . . . . . . 2415 N. Vinegate Court
Wichita, Kansas 67226 5,475 <F3> 6
Directors and Executive Officers 97,455 <F1><F2><F3> 100
as a Group (five persons)
<FN>
- ------------------------------
<F1> Five thousand (5,000) of these shares are held by Bank IV Kansas, N.A., Trustee, 534
Kansas Avenue, P.O. Box 88, Topeka, Kansas 66601, pursuant to the Ronald D. and Joyce M.
Lutz Irrevocable Trust for the Benefit of the Lutz Children ("the Trust"). The terms of
the Trust provide that Michael W. Lutz holds sole voting power for the shares so held.
<F2> Five thousand (5,000) of these shares are held by Bank IV Kansas, N.A., Trustee, 534
Kansas Avenue, P.O. Box 88, Topeka, Kansas 66601, pursuant to the Ronald D. and Joyce M.
Lutz Irrevocable Trust for the Benefit of the Lutz Children ("the Trust"). The terms of
the Trust provide that Craig E. Lutz holds sole voting power for the shares so held.
<F3> Five thousand (5,000) of these shares are held by Bank IV Kansas, N.A., Trustee, 534
Kansas Avenue, P.O. Box 88, Topeka, Kansas 66601, pursuant to the Ronald D. and Joyce M.
Lutz Irrevocable Trust for the Benefit of the Lutz Children ("the Trust"). The terms of
the Trust provide that Laurie L. Carney holds sole voting power for the shares so held.
</TABLE>
For purposes of the above table, a person is deemed to be a
beneficial owner of shares of Peoples Bankshares 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.
- 65 -
<PAGE> 75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PEOPLES BANK
The following table sets forth as of the Record Date the number
of shares of Peoples Bank Common Stock beneficially owned and the percentage
of ownership of outstanding shares of Peoples Bank Common Stock by (a) each
director of Peoples Bank, (b) each person who is known by Peoples Bank to own
beneficially 5% or more of such stock and (c) all directors and executive
officers of Peoples Bank as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER ADDRESS OWNED CLASS
- ------------------------ ------- ------------ ----------
<S> <C> <C> <C>
Peoples State Bankshares, Inc. . 1080 S.W. Wanamaker
Topeka, Kansas 66604 19,997 89%
Dennis Hatfield. . . . . . . . . P.O. Box 434
Rossville, Kansas 66533 100 <F*>
James F. Stallbaumer . . . . . . P.O. Box 446
Rossville, Kansas 66533 100 <F*>
Wilbur E. Levering . . . . . . . 2018 S.W. Urish Road
Topeka, Kansas 66615 75 <F*>
Richard K. Fieger. . . . . . . . 7922 S.W. Huntoon
Topeka, Kansas 66615 5 <F*>
Ronald J. Francis. . . . . . . . 38 Peppertree Lane
Topeka, Kansas 66611 5 <F*>
Ronald D. Lutz . . . . . . . . . 1935 S.W. Indian Woods Lane
Topeka, Kansas 66611 -- --
Joyce M. Lutz. . . . . . . . . . 1935 S.W. Indian Woods Lane
Topeka, Kansas 66611 -- --
Michael W. Lutz. . . . . . . . . 6142 S.W. 38th Terrace
Topeka, Kansas 66610 -- --
Craig E. Lutz. . . . . . . . . . 3835 S.W. Stonybrook Drive
Topeka, Kansas 66610 -- --
Directors and Executive Officers
as a Group (nine persons) 285 1
<FN>
- ------------------------------------
<F*> Less than 1 percent.
</TABLE>
For purposes of the above table, a person is deemed to be a
beneficial owner of shares of Peoples 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.
- 66 -
<PAGE> 76
INFORMATION REGARDING MBI COMMON 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 March 31, 1996, MBI had no shares of MBI Preferred Stock issued
and outstanding and 63,124,053 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 Preferred Stock pursuant to
MBI's Preferred Share Purchase Rights Plan described below, 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.
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
- 67 -
<PAGE> 77
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
$100.00 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.
- 68 -
<PAGE> 78
RESTRICTIONS ON RESALE OF MBI COMMON 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
Acquisition and who are deemed to be "affiliates" of Peoples Bankshares or
Peoples 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
Peoples Bankshares or Peoples Bank at the time the Acquisition is submitted
to a vote of the stockholders of Peoples Bankshares or Peoples Bank. Each
affiliate of Peoples Bankshares or Peoples Bank (generally any director or
executive officer or a stockholder of Peoples Bankshares or Peoples Bank who
beneficially owns a substantial number of outstanding shares of Peoples
Bankshares or Peoples Bank Common Stock) who desires to resell the MBI Common
Stock received in the Acquisition 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 Acquisition 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 Peoples Bankshares or
Peoples Bank may freely resell the stock received in the Acquisition 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 Peoples Bankshares
or Peoples Bank in the Acquisition will be legended as to the restrictions
imposed upon resale of such stock.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND THE RIGHTS OF
STOCKHOLDERS OF PEOPLES BANKSHARES AND PEOPLES BANK
MBI is incorporated under the laws of the State of Missouri.
Peoples Bankshares and Peoples Bank are incorporated and chartered,
respectively, under the laws of the State of Kansas. 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 stockholders of Peoples Bankshares are
governed by its Articles of Incorporation, its By-Laws and the Kansas
Corporation Code. The rights of the stockholders of Peoples Bank are
governed by its Restated Articles of Incorporation, its By-Laws and the
Kansas Banking Code. The rights of Peoples Bank and Peoples Bankshares
stockholders who receive shares of MBI Common Stock in the Acquisition will
thereafter be governed by MBI's Restated Articles of Incorporation and
By-Laws and by the Missouri Act. The material rights of the MBI
shareholders, and, where applicable, the differences between the rights of
MBI shareholders and the rights of Peoples Bankshares or Peoples Bank
stockholders, 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. Neither Peoples
Bankshares nor Peoples Bank has a rights plan.
SUPERMAJORITY PROVISIONS. MBI's Restated Articles of
Incorporation and 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.
- 69 -
<PAGE> 79
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
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
Under Peoples Bankshares' Articles of Incorporation, a
supermajority vote is required to approve any settlement between Peoples
Bankshares and its stockholders in the event of receivership or dissolution.
A supermajority vote of Peoples Bankshares' stockholders is not required as
to any other item. Neither Peoples Bank's Restated Articles nor its By-Laws
require a supermajority vote as 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.
Both Peoples Bankshares' and Peoples Bank's By-Laws also provide for
cumulative voting.
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. Neither Peoples Bankshares Articles
of Incorporation or By-Laws nor Peoples Bank's Restated Articles of
Incorporation or By-Laws provide for classified Boards 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
- 70 -
<PAGE> 80
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.
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 restricts the voting power of any "Acquiring Person" who
acquires "Control Shares," shares which have the voting power to exercise or
direct the exercise of: (i) one-fifth to one-third (ii) one-third to a
majority or (iii) a majority of the outstanding stock of the corporation,
when added to all shares of the same corporation owned or controlled by the
same person. In order to acquire the same voting rights as were accorded the
Control Shares prior to the Control Share Acquisition, an Acquiring Person
must comply with certain disclosure requirements and obtain the approval of
both: (i) a majority of the outstanding voting shares and (ii) a majority of
the outstanding voting shares excluding Interested Shares. Interested Shares
are defined as shares owned by either the Acquiring Person or directors who
are also employees of the corporation or officers of the corporation.
Shareholders are given dissenters' rights with respect to any vote on a
Control Share Acquisition 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 of shares 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. Neither the Kansas Corporation Code nor the Kansas Banking Code
contain similar anti-takeover statutes.
- 71 -
<PAGE> 81
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 17-6712 of the Kansas Corporation Code,
stockholders of Peoples Bank are entitled to dissenters' rights upon the
consolidation or merger of Peoples Bank which are similar but not identical
to those under the Missouri Act. Specifically, under Section 17-6712, a
corporation must send notice of a consummation of merger or consolidation
within ten days of the consummation to all dissenters who have timely filed a
written objection. In addition, several of the time periods during which
dissenters must act to preserve their rights under Section 17-6712 are more
lengthy than under the Missouri Act. The Kansas Corporation Code does not
provide dissenters' rights to a stockholder of a corporation that sells all
or substantially all of its assets. Therefore, the stockholders of Peoples
Bankshares are not entitled to dissenters' rights in the Exchange.
SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of
the Missouri Act, any MBI 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 MBI. Under Section 9-805 of the Kansas Banking Code, any Peoples Bank
stockholder may inspect the books and records of Peoples Bank during the
business hours of Peoples Bank. Under Section 17-6510 of the Kansas
Corporation Code, any Peoples Bankshares stockholder, in person or by
attorney or other agent if accompanied by a power of attorney or similar
authorization, upon written demand under oath stating the purpose thereof,
may inspect for any proper purpose Peoples Bankshares' books and records and
make copies or extracts therefrom during the usual hours of business.
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 twelve nor more than twenty-four 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 twelve members. 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. Peoples Bankshares' Articles of
Incorporation provide that the number of directors on the Board of Directors
shall be not less than one nor more than eight. Currently, Peoples
Bankshares has five directors. Peoples Bank's By-Laws provide that the
number of directors on the Board of Directors shall be determined by the
stockholders at each annual meeting of Peoples Bank, but shall not be fewer
than five nor more than twenty-five. Currently, Peoples Bank has nine
directors.
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.
- 72 -
<PAGE> 82
As a savings and loan holding company, MBI is also subject to
regulatory oversight by the Office of Thrift Supervision (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, the Office of the Comptroller of the
Currency (the "Comptroller") and various state financial institution
regulatory agencies. 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 wholly owned
financial institutions and other subsidiaries. The principal source of
MBI's revenues is dividends from its financial institution subsidiaries.
Various federal and state statutory provisions limit the amount of dividends
the affiliate financial institutions can pay to MBI without regulatory
approval. The approval of the appropriate federal or state bank regulatory
agencies is required for any dividend if the total of all dividends declared
by the bank in any calendar year would exceed the total of the institutions
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
financial institution subsidiary may also be affected by other factors, such
as the maintenance of adequate capital.
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 financial
institutions and financial institution holding companies to maintain capital
levels based on "risk adjusted" assets, so that categories of assets with
potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, financial institutions and
financial institution holding companies are required to maintain capital to
support off-balance sheet activities such as loan commitments.
- 73 -
<PAGE> 83
FDIC INSURANCE ASSESSMENTS
The subsidiary depository institutions of MBI are subject to FDIC
deposit insurance assessments. The FDIC has adopted a risk-based premium
schedule. 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 Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), adopted in August 1989 to provide for the resolution of
insolvent savings associations, 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. FIRREA
also required the FDIC to set deposit insurance assessments at such levels as
would 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, 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 reduced the deposit insurance assessments
for all other banks.
The balance in SAIF is not expected to reach the designated
reserve ratio until about the year 2002, as FIRREA provides that a
significant portion of the costs of resolving past insolvencies of savings
associations must be paid from this source. Currently, SAIF-member
institutions pay deposit insurance premiums based on a schedule of from $.23
to $.31 per $100.00 of deposits. 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 SAIF deposit insurance
premiums on these SAIF-insured 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 $100.00 of deposits and would have the effect of
immediately reducing the capital of SAIF-member institutions by the amount of
the fee. 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 deposit premiums will continue at their present rate.
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 Financing
Corp., or 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.
- 74 -
<PAGE> 84
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
FIRREA contains a cross-guarantee provision which could result in
insured depository institutions owned by MBI 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.
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
- 75 -
<PAGE> 85
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.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution, in the liquidation or
other resolution of such an institution by any receiver. Such obligations
would be afforded priority over other general unsecured claims against such
an institution, including federal funds and letters of credit, as well as any
obligation to shareholders of such an institution in their capacity as such.
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 ("Riegle-Neal") 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 Riegle-Neal
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, Riegle-Neal is likely to have the effects of
increasing competition and promoting geographic diversification in the
banking industry.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent accountants for
the year ended December 31, 1995 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.
GRA, Thompson, White & Co., P.C. served as Peoples Bankshares'
and Peoples Bank's independent accountants for the year ended December 31,
1995 and continues to serve in such capacity. Services provided in
connection with the audit function included examination of the annual
consolidated
- 76 -
<PAGE> 86
financial statements, review and consultation regarding filings with
regulatory authorities and consultation on financial accounting and
reporting matters.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by Thompson
Coburn, St. Louis, Missouri and for Peoples Bankshares and Peoples Bank by
Stinson, Mag & Fizzell, P.C., Kansas City, Missouri.
EXPERTS
-------
The consolidated financial statements of MBI as of December 31,
1995, 1994 and 1993, and for each of the years in the three-year period ended
December 31, 1995, incorporated by reference in MBI's Annual Report on Form
10-K, and the supplemental consolidated financial statements of MBI as of
December 31, 1995, 1994 and 1993, and for each of the years in the three-year
period ended December 31, 1995, contained in MBI's Current Report on Form 8-K
dated March 11, 1996, have been incorporated by reference herein in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, which reports are also incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Peoples Bankshares and
the financial statements of Peoples Bank as of and for the year ended
December 31, 1995 included herein have been audited by GRA, Thompson, White,
& Co., P.C., 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.
OTHER MATTERS
-------------
The Boards of Directors of Peoples Bankshares and Peoples Bank,
at the date hereof, are not aware of any business to be presented at the
Special Meetings other than that referred to in the notices of the Special
Meetings and discussed herein. If any other matter should properly come
before either 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
Peoples Bankshares or Peoples Bank.
SHAREHOLDER PROPOSALS
---------------------
If the Acquisition is approved, the other conditions to the
Acquisition are satisfied and the Acquisition is consummated, Peoples
Bankshares and the other stockholders of Peoples Bank will become
shareholders of MBI at the Effective Time. 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 22, 1996.
- 77 -
<PAGE> 87
FINANCIAL STATEMENTS
INDEX
-----
Page
----
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1996 (UNAUDITED) AND
DECEMBER 31, 1995 AND DECEMBER 31, 1994 (UNAUDITED) F-2
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND 1995 (UNAUDITED) AND FOR THE YEARS
ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
AND 1993 (UNAUDITED) F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY FOR THE THREE MONTHS ENDED MARCH 31,
1996 (UNAUDITED) AND FOR THE YEARS ENDED
DECEMBER 31, 1995 AND DECEMBER 31,
1994 AND 1993 (UNAUDITED) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED) AND FOR THE YEARS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994 AND 1993
(UNAUDITED) F-5 to F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 to F-20
CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1995 F-21
CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR
ENDED DECEMBER 31, 1995 F-22
PEOPLES STATE BANK FINANCIAL STATEMENTS
- ---------------------------------------
INDEPENDENT AUDITORS' REPORT F-23
BALANCE SHEETS AS OF MARCH 31, 1996 (UNAUDITED),
DECEMBER 31, 1995 AND DECEMBER 31, 1994 (UNAUDITED) F-24
- 78 -
<PAGE> 88
STATEMENTS OF EARNINGS FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND FOR
THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994 AND 1993 (UNAUDITED) F-25
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994 AND 1993 (UNAUDITED) F-26
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND FOR
THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994 AND 1993 (UNAUDITED) F-27 to F-28
NOTES TO FINANCIAL STATEMENTS F-29 to F-41
- 79 -
<PAGE> 89
[Letterhead of GRA, Thompson, White & Co., P.C.]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peoples State Bankshares, Inc.
Topeka, Kansas
We have audited the accompanying consolidated balance sheet of Peoples State
Bankshares, Inc. and subsidiary as of December 31, 1995 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion
on these consolidated 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
consolidated 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 financial position of Peoples
State Bankshares, Inc. and subsidiary as of December 31, 1995 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information
included in Schedules 1 and 2 is presented for purposes of additional
analysis of the consolidated financial statements rather than to present the
financial position, results of operations and cash flows of the individual
entities. The consolidating information has been subjected to the auditing
procedures applied in the audit of the consolidated financial statements
and, in our opinion, is fairly presented in all material respects in
relation to the consolidated financial statements taken as a whole.
/s/ GRA, Thompson, White & Co., P.C.
Merriam, Kansas
March 27, 1996
F-1
<PAGE> 90
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MARCH 31, DECEMBER 31,
------------- ----------------------------
1996 1995 1994
------------- ------------- -------------
( unaudited ) ( unaudited )
Assets (In thousands)
<S> <C> <C> <C>
Cash and due from banks. . . . . . . . . . . . . . . $ 2,612 $ 3,710 $ 3,981
Interest bearing deposits. . . . . . . . . . . . . . 23 75 10
Federal funds sold . . . . . . . . . . . . . . . . . - 900 1,200
Available-for-sale securities. . . . . . . . . . . . 36,222 36,837 11,901
Held-to-maturity securities. . . . . . . . . . . . . - - 16,925
Restricted equity securities . . . . . . . . . . . . 535 527 519
Loans receivable, net. . . . . . . . . . . . . . . . 51,625 52,325 47,479
Premises and equipment . . . . . . . . . . . . . . . 1,938 1,970 2,081
Accrued interest receivable. . . . . . . . . . . . . 995 1,132 864
Core deposit intangible. . . . . . . . . . . . . . . 304 324 405
Deferred tax asset . . . . . . . . . . . . . . . . . - - 246
Other assets . . . . . . . . . . . . . . . . . . . . 52 60 45
------------- ------------ -------------
$ 94,306 $ 97,860 $ 85,656
============= ============ =============
Liabilities and Stockholders' Equity
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . $ 76,285 $ 74,130 $ 64,836
Other borrowings . . . . . . . . . . . . . . . . . 8,661 14,138 12,448
Accrued interest payable . . . . . . . . . . . . . 342 420 239
Deferred tax liability . . . . . . . . . . . . . . 5 129 -
Other liabilities. . . . . . . . . . . . . . . . . 110 38 464
------------- ------------ -------------
Total liabilities . . . . . . . . . . . . . . . 85,403 88,855 77,987
------------- ------------ -------------
Commitments and contingencies
Minority interest. . . . . . . . . . . . . . . . . . 904 945 779
------------- ------------ -------------
Stockholders' equity
Common stock, $1 par value; 100,000 shares
authorized, 97,455 shares issued and outstanding 100 100 100
Additional paid-in capital . . . . . . . . . . . . 107 107 107
Retained earnings. . . . . . . . . . . . . . . . . 7,763 7,659 6,976
Net unrealized gain (loss) on available-for-sale
securities . . . . . . . . . . . . . . . . . . . 204 369 (118)
------------- ------------ -------------
8,174 8,235 7,065
Less treasury stock, 2,545 shares, at cost . . . . 175 175 175
------------- ------------ -------------
Total stockholders' equity. . . . . . . . . . . 7,999 8,060 6,890
------------- ------------ -------------
$ 94,306 $ 97,860 $ 85,656
============= ============ =============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-2
<PAGE> 91
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
INTEREST INCOME (In thousands)
<S> <C> <C> <C> <C> <C>
Loans, including fees. . . . . . . . . $ 1,243 $ 1,117 $ 5,025 $ 4,857 $ 4,791
Investments. . . . . . . . . . . . . . 586 449 2,062 1,983 2,598
Federal funds sold and
interest bearing deposits . . . . . 8 2 27 20 61
------------ ------------ ------------ ------------ ------------
1,837 1,568 7,114 6,860 7,450
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . 795 558 2,780 2,346 2,773
Other borrowings . . . . . . . . . . . 124 195 732 781 726
------------ ------------ ------------ ------------ ------------
919 753 3,512 3,127 3,499
------------ ------------ ------------ ------------ ------------
Net interest income . . . . . . . . 918 815 3,602 3,733 3,951
PROVISION FOR LOAN LOSSES. . . . . . . . - 15 45 97 144
------------ ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses. . . . . 918 800 3,557 3,636 3,807
------------ ------------ ------------ ------------ ------------
OTHER INCOME
Service charges. . . . . . . . . . . . 106 104 452 532 560
Net securities losses. . . . . . . . . - (14) (14) (3) (1)
Gain on sale of subsidiary . . . . . . - - - 1,241 -
Other. . . . . . . . . . . . . . . . . 40 22 143 116 149
------------ ------------ ------------ ------------ ------------
146 112 581 1,886 708
------------ ------------ ------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits . . . . 493 617 1,626 1,592 1,643
Occupancy. . . . . . . . . . . . . . . 109 119 494 474 521
Data processing. . . . . . . . . . . . 32 32 137 118 112
Federal deposit insurance premium. . . 1 36 75 170 194
Amortization of deposit purchase
premium. . . . . . . . . . . . . . . 20 20 81 81 81
Other. . . . . . . . . . . . . . . . . 199 108 466 651 734
------------ ------------ ------------ ------------ ------------
854 932 2,879 3,086 3,285
------------ ------------ ------------ ------------ ------------
Earnings before income taxes and
minority interest . . . . . . . . 210 (20) 1,259 2,436 1,230
INCOME TAX EXPENSE . . . . . . . . . . . 75 (7) 447 891 383
------------ ------------ ------------ ------------ ------------
Earnings before minority interest. 135 (13) 812 1,545 847
MINORITY INTEREST. . . . . . . . . . . . (31) (24) (129) (106) (109)
------------ ------------ ------------ ------------ ------------
NET EARNINGS . . . . . . . . . . . . . . $ 104 $ (37) $ 683 $ 1,439 $ 738
============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-3
<PAGE> 92
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
NET
UNREALIZED
GAIN (LOSS)
ON
ADDITIONAL AVAILABLE-
COMMON PAID-IN RETAINED FOR-SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
---------- ----------- ---------- ------------ ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1992
(UNAUDITED). . . . . . . . . . . $ 100 $ 107 $ 4,799 $ - $ (51) $ 4,955
Net earnings . . . . . . . . . . . - - 738 - - 738
Purchase of 1,820
Shares, at cost. . . . . . . . . - - - - (124) (124)
Initial adoption of
SFAS No. 115 . . . . . . . . . . - - - 39 - 39
---------- ---------- ---------- ----------- --------- ----------
BALANCE AT
DECEMBER 31, 1993
(UNAUDITED). . . . . . . . . . . 100 107 5,537 39 (175) 5,608
Net earnings . . . . . . . . . . . - - 1,439 - - 1,439
Net change . . . . . . . . . . . . - - - (157) - (157)
---------- ---------- ---------- ----------- --------- ----------
BALANCE AT
DECEMBER 31, 1994
(UNAUDITED). . . . . . . . . . . 100 107 6,976 (118) (175) 6,890
Net earnings . . . . . . . . . . . - - 683 - - 683
Net change . . . . . . . . . . . . - - - 487 - 487
---------- ---------- ---------- ----------- --------- ----------
BALANCE AT
DECEMBER 31, 1995. . . . . . . . $ 100 $ 107 $ 7,659 $ 369 $ (175) $ 8,060
Net earnings . . . . . . . . . . . - - 104 - 104
Net change . . . . . . . . . . . . - - - (165) - (165)
---------- ---------- ---------- ----------- --------- ----------
BALANCE AT
MARCH 31, 1996
(UNAUDITED). . . . . . . . . . . $ 100 $ 107 $ 7,763 $ 204 $ (175) $ 7,999
========== ========== ========== =========== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-4
<PAGE> 93
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES (In thousands)
<S> <C> <C> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 104 $ (37) $ 683 $ 1,439 $ 738
Adjustments to reconcile net earnings to net cash. . .
provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . - 15 45 97 144
Gain on sale of subsidiary bank - - - (1,241) -
Net charge-offs and losses on other real estate owned - - - 23 17
Gains on sales of available-for-sale securities . . - - - (8) (8)
Losses on sales of available-for-sale securities. . - 14 14 11 11
Amortization of premiums on securities. . . . . . . 7 7 36 137 182
Accretion of discounts on securities. . . . . . . . (29) (3) (23) (25) (25)
Depreciation and amortization expense . . . . . . . 39 45 185 196 202
Amortization of deposit purchase premium. . . . . . 20 20 81 81 81
Gains on sales of loans . . . . . . . . . . . . . . (20) - (45) - -
Proceeds from loans sold. . . . . . . . . . . . . . 1,476 - 4,343 - -
Originations of loans sold. . . . . . . . . . . . . (1,456) - 4,298 - -
Change in:
Accrued interest receivable. . . . . . . . . . . . 137 (34) (268) (48) 60
Other assets . . . . . . . . . . . . . . . . . . . 8 (48) (15) 72 (119)
Accrued interest payable . . . . . . . . . . . . . (78) 23 181 (129) (110)
Other liabilities. . . . . . . . . . . . . . . . . 72 (393) (426) 318 (74)
Deferred taxes . . . . . . . . . . . . . . . . . . - 1 9 - (52)
Minority interest. . . . . . . . . . . . . . . . . (20) (1) 105 47 50
---------- ----------- ---------- ----------- -----------
Net cash provided (used) by operating activities. 260 (391) 607 970 1,097
---------- ----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated, net of principal
collections. . . . . . . . . . . . . . . . . . . . . 700 (2,092) (4,894) (7,143) (3,130)
Proceeds from maturities of held-tomaturity securities - 945 3,764 4,850 8,032
Proceeds from sales and maturities of available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . 2,278 2,983 9,977 12,953 234
Purchases of held-to-maturity securities . . . . . . . - (1,998) (6,129) (3,693) (18,622)
Purchases of available-for-sale securities . . . . . . (1,951) (999) (14,736) (6,017) (990)
Purchase of restricted equity securities . . . . . . . (8) - (8) (266) 15
Net change in securities purchased under an agreement
to resell. . . . . . . . . . . . . . . . . . . . . . - - - - 7,766
Net additions to premises and equipment. . . . . . . . (7) (27) (74) (223) (1,297)
Proceeds from sales of other real estate owned . . . . - - - 15 1
Recoveries of loans previously charged off . . . . . . - - 3 - 11
Net change in Federal funds sold . . . . . . . . . . . 900 1,100 300 (2,100) 1,300
Net change in interest bearing deposits. . . . . . . . 52 (12) (65) - (10)
Proceeds from sale of subsidiary bank,
including taxes paid . . . . . . . . . . . . . . . . - - - 3,989 -
---------- ----------- ---------- ----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES,
CARRIED FORWARD. . . . . . . . . . . . . . . . . . . . $ 1,964 $ (100) $ (11,862) $ 2,365 $ (6,690)
---------- ----------- ---------- ----------- -----------
</TABLE>
F-5
<PAGE> 94
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES,
BROUGHT FORWARD. . . . . . . . . . . . . . . . . . . . $ 1,964 $ (100) $ (11,862) $ 2,365 $ 6,690
---------- ----------- ---------- ----------- -----------
Net cash provided (used) by operating and
investing activities . . . . . . . . . . . . . . 2,224 (491) (11,255) 3,335 (5,593)
---------- ----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in non-interest bearing and interest
bearing demand and savings accounts. . . . . . . . . 2,778 (1,983) 960 (6,969) 3,024
Net change in time deposits. . . . . . . . . . . . . . (623) 1,667 8,334 12,076 3,574
Increase (decrease) in other borrowings. . . . . . . . (5,477) (343) 1,690 (5,305) 3,597
Purchase of treasury stock . . . . . . . . . . . . . . - - - - (124)
---------- ----------- ---------- ----------- -----------
Net cash provided (used) by financing activities. (3,322) (659) 10,984 (198) 2,923
---------- ----------- ---------- ----------- -----------
(Decrease) increase in cash and cash
equivalents. . . . . . . . . . . . . . . . . . (1,098) (1,150) (271) 3,137 (2,670)
Cash and equivalents sold during the period. . . . . . . - - - (2,073) -
Cash and cash equivalents, beginning of period . . . . . 3,710 3,981 3,981 2,897 5,567
---------- ----------- ---------- ----------- -----------
Cash and cash equivalents, end of period . . . . . . . . $ 2,612 $ 2,831 $ 3,710 $ 3,981 $ 2,897
========== =========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest . . . . . . . $ 997 $ 730 $ 3,331 $ 3,323 $ 3,609
========== =========== ========== =========== ===========
Cash paid during the period for income taxes . . . . . $ - $ - $ 877 $ 433 $ 628
========== =========== ========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Designation of investment securities as available-for-
sale at adoption of SFAS No. 115,
at amortized cost . . . . . . . . . . . . . . . . . $ - $ - $ - $ - $ 16,693
========== =========== ========== =========== ===========
Transfer of available-for-sale securities to held-to-
maturity at amortized cost, net . . . . . . . . . . $ - $ - $ 19,290 $ - $ -
========== =========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
F-6
<PAGE> 95
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 (AUDITED), 1994 AND 1993 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples State Bankshares,
Inc. and subsidiary are in accordance with generally accepted
accounting principles and conform to general practices within the
banking industry. The more significant of the principles used in
preparing the consolidated financial statements are briefly described
below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Peoples
State Bankshares, Inc. (Bankshares) and its subsidiary, Peoples State
Bank, Topeka, Kansas (Bank). Bankshares owns 88.88% of the
outstanding common stock of the Bank. All significant intercompany
transactions have been eliminated. During 1994 and 1993, the
consolidated financial statements also included the accounts of
Citizens State Bank, Osage City, Kansas (Citizens) which was sold by
Bankshares on July 31, 1994. The results of operations through this
date are included in the accompanying consolidated financial
statements.
NATURE OF OPERATIONS
The Bank operates under a state bank charter and provides full banking
services, excluding trust services. As a state-regulated bank, the
Bank is subject to regulation by the Kansas Banking Department and the
Federal Deposit Insurance Corporation (FDIC). The area served by
Peoples State Bank is Shawnee County, Kansas and services are provided
at three locations in Topeka and at branches in Silver Lake and
Rossville, Kansas.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INVESTMENT SECURITIES
Effective December 31, 1993, Bankshares adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
----------------------
Investments in Debt and Equity Securities, which requires that
-----------------------------------------
investments be classified in three categories and accounted for as
follows: held-to-maturity securities reported at amortized cost;
trading securities reported at fair value with unrealized gains and
losses included in earnings; and available-for-sale securities
reported at fair value with unrealized gains and losses shown as a
separate component of stockholders' equity.
Restricted equity securities are reported at cost which equals the
estimated fair value.
Gains and losses on sales of securities are determined on a specific
identification method.
F-7
<PAGE> 96
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased
loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on loans with
maturities in excess of one year.
On January 1, 1995, SFAS No. 114, Accounting by Creditors for
---------------------------
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for
-------------------- ---------------------------
Impairment of Loan-Income Recognition and Disclosure, became
----------------------------------------------------
effective. SFAS No. 114 requires that impaired loans be measured
based on the present value of expected future cash flows discounted at
the loan's effective interest rate or at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends SFAS No. 114 to allow a creditor to
use existing methods for recognizing interest income on an impaired
loan if those methods are more conservative than methods required by
SFAS No. 114.
Interest income on installment loans is recognized over the terms of
the loans by the interest method. Interest income on all other loans
is credited to operations based on the principal amount outstanding.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes the collectibility
of the principal is unlikely. The allowance is an amount management
believes will be adequate to absorb probable losses on existing loans
that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and
trends that may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line and accelerated methods based on the
estimated useful lives of the related assets.
F-8
<PAGE> 97
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable
for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable and pretax
financial income and between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax
assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which
the deferred tax assets and liabilities are expected to be realized or
settled as prescribed in SFAS No. 109, Accounting for Income Taxes.
---------------------------
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Bankshares and its subsidiary file a consolidated Federal income tax
return. The parent company is reimbursed from its subsidiary for any
current income tax benefits derived.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, Bankshares
considers cash on hand and amounts due from banks to be cash and cash
equivalents.
F-9
<PAGE> 98
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investments in debt
securities were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1995
U.S. Treasury and agency
securities. . . . . . . . . . . . . . . $ 21,912 $ 412 $ (30) $ 22,294
Obligations of states and
political subdivisions. . . . . . . . . 3,233 92 (4) 3,321
Mortgage-backed securities. . . . . . . . 11,000 222 - 11,222
--------- ---------- ---------- ---------
$ 36,145 $ 726 $ (34) $ 36,837
========= ========== ========== =========
HELD-TO-MATURITY
AT DECEMBER 31, 1994 (UNAUDITED)
U.S. Treasury and agency
securities. . . . . . . . . . . . . . . $ 8,698 $ - $ (50) $ 8,648
Obligations of states and
political subdivisions. . . . . . . . . 2,865 38 (3) 2,900
Mortgage-backed securities. . . . . . . . 5,362 52 (134) 5,280
--------- ---------- ---------- ---------
$ 16,925 $ 90 $ (187) $ 16,828
========= ========== ========== =========
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1994 (UNAUDITED)
U.S. Treasury and agency
securities. . . . . . . . . . . . . . . $ 12,003 $ - $ (220) $ 11,783
Mortgage-backed securities. . . . . . . . 119 - (1) 118
--------- ---------- ---------- ---------
$ 12,122 $ - $ (221) $ 11,901
========= ========== ========== =========
</TABLE>
During December 1995, investment securities with a carrying amount of
approximately $19,290,000 and fair value of approximately $19,724,000
were transferred from held-to-maturity to available-for-sale with the
unrealized gain of approximately $434,000 being included with the
unrealized gains on securities that continue to be classified as
available-for-sale. These transfers were made as part of a one-time
reassessment of the appropriateness of the classifications of all
securities as allowed by generally accepted accounting principles.
F-10
<PAGE> 99
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties (in thousands).
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less . . . . . . . . . $ 6,322 $ 6,390
Due after one year through five years . . 18,156 18,532
Due after five years through ten years. . 667 693
--------- ---------
25,145 25,615
Mortgage-backed securities. . . . . . . . 11,000 11,222
--------- ---------
$ 36,145 $ 36,837
========= =========
</TABLE>
At December 31, 1995, investment securities with a carrying value of
approximately $33,215,000 were pledged to secure public deposits and
for other purposes.
3. LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(unaudited)
<S> <C> <C>
Real estate . . . . . . . . . . . . . . $ 29,118 $ 26,868
Commercial. . . . . . . . . . . . . . . 11,937 9,870
Agricultural. . . . . . . . . . . . . . 6,052 6,184
Consumer. . . . . . . . . . . . . . . . 5,356 4,587
Other . . . . . . . . . . . . . . . . . 575 643
---------- ----------
53,038 48,152
Allowance for loan losses . . . . . . . (713) (673)
---------- ----------
$ 52,325 $ 47,479
========== ==========
</TABLE>
F-11
<PAGE> 100
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. LOANS RECEIVABLE (CONTINUED)
Changes in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C>
Balance, beginning of year. . . . . . . . $ 673 $ 808 $ 733
Provision for loan losses . . . . . . . . 45 97 144
Charge-offs, net of recoveries. . . . . . (5) (40) (69)
Balance of subsidiary sold. . . . . . . . - (192) -
-------- -------- --------
Balance, end of year. . . . . . . . . . . $ 713 $ 673 $ 808
======== ======== ========
</TABLE>
One impaired loan totaling approximately $118,000 and $131,000 at
December 31, 1995 and 1994, respectively, has been recognized in
conformity with SFAS No. 114 as amended by SFAS No. 118. The related
allowance for this impaired loan at December 31, 1995 totaled
approximately $18,000. There was no interest income recognized on
this impaired loan during 1995.
4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
(unaudited)
<S> <C> <C>
Land, buildings and improvements. . . . . . $ 1,882 $ 1,834
Furniture, fixtures and equipment . . . . . 899 918
Leasehold improvements. . . . . . . . . . . 461 435
-------- --------
3,242 3,187
Accumulated depreciation and amortization . (1,272) (1,106)
-------- --------
$ 1,970 $ 2,081
======== ========
</TABLE>
F-12
<PAGE> 101
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
(unaudited)
<S> <C> <C>
Demand
Noninterest-bearing . . . . . . . . . $ 9,679 $ 9,150
-------- --------
Interest-bearing
NOW . . . . . . . . . . . . . . . . . 7,315 7,628
Money market. . . . . . . . . . . . . 9,032 8,070
-------- --------
16,347 15,698
-------- --------
Savings . . . . . . . . . . . . . . . . . 5,290 5,508
Time. . . . . . . . . . . . . . . . . . . 42,814 34,480
-------- --------
$ 74,130 $ 64,836
======== ========
</TABLE>
Time deposits include certificates of deposit of $100,000 and over
totaling approximately $4,106,000 and $3,554,000 at December 31, 1995
and 1994, respectively.
At December 31, 1995, the approximate scheduled maturities of
certificates of deposit are as follows (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . $ 31,926
1997 . . . . . . . . . 7,968
1998 . . . . . . . . . 1,270
1999 . . . . . . . . . 1,319
2000 and thereafter. . 331
--------
$ 42,814
========
</TABLE>
In January 1990, the Bank acquired approximately $60,000,000 of
deposits for a purchase price of $810,000. The purchase price was
identified as a core deposit intangible asset and is being amortized
using the straight-line method over a period of ten years, which was
determined to be the average life of the acquired deposits.
F-13
<PAGE> 102
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. OTHER BORROWINGS
Other borrowings are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- --------------------------
1996 1995 1994
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Securities sold under repurchase agreements . . . . . . $ 8,261 $ 10,188 $ 10,448
Federal Home Loan Bank line of credit advances. . . . . 400 3,950 2,000
----------- ----------- -----------
$ 8,661 $ 14,138 $ 12,448
=========== =========== ===========
</TABLE>
The weighted average interest rate on repurchase agreements was 4.84%
and 5.52% at December 31, 1995 and 1994, respectively. The maturities
ranged from daily to 365 days at December 31, 1995 and 1994. At
December 31, 1995, the agreements were secured by investment
securities with carrying and estimated fair values of approximately
$21,418,000. At December 31, 1994, the agreements were secured by
available-for-sale securities with carrying and estimated fair values
of approximately $10,908,000, and held-to-maturity securities with
carrying values of approximately $9,009,000 and estimated fair values
of $8,913,000.
On May 26, 1994, the Bank entered into an annually renewable agreement
with the Federal Home Loan Bank of Topeka (FHLB) for a $5,000,000 line
of credit which replaced the term note previously in place. Advances
drawn on the line of credit bear an adjustable rate of interest which
reprices daily (6.15% at December 31, 1995). The line of credit is
secured by one to four family mortgage loans with a carrying value of
approximately $13,281,000 and matures May 24, 1996.
7. INCOME TAXES
Income tax expense (benefit) is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 CURRENT DEFERRED TOTAL
--------- ---------- -------
<S> <C> <C> <C>
Federal . . . . . . . . . . . . . . . . $ 332 $ 8 $ 340
State . . . . . . . . . . . . . . . . . 106 1 107
--------- ---------- -------
$ 438 $ 9 $ 447
========= ========== =======
1994 (UNAUDITED)
Federal . . . . . . . . . . . . . . . . $ 709 $ 10 $ 719
State . . . . . . . . . . . . . . . . . 170 2 172
--------- ---------- -------
$ 879 $ 12 $ 891
========= ========== =======
1993 (UNAUDITED)
Federal . . . . . . . . . . . . . . . . $ 298 $ (13) $ 285
State . . . . . . . . . . . . . . . . . 97 1 98
--------- ---------- -------
$ 395 $ (12) $ 383
========= ========== =======
</TABLE>
F-14
<PAGE> 103
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES (CONTINUED)
The provision for Federal income tax expense differs from that
computed by applying the Federal statutory rate of 34% as indicated in
the following analysis (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Expected Federal income tax
expense . . . . . . . . . . . . . . . . $ 428 34.0 $ 828 34.0 $ 418 34.0
Municipal and disallowed
interest. . . . . . . . . . . . . . . . (53) (4.2) (86) (3.5) (111) (9.0)
State taxes, net of Federal
income tax benefit. . . . . . . . . . . 71 5.7 114 4.7 65 5.3
Other, net. . . . . . . . . . . . . . . . 1 - 35 1.4 11 0.8
-------- ----- -------- ----- -------- -----
$ 447 35.5 $ 891 36.6 $ 383 31.1
======== ===== ======== ===== ======== =====
</TABLE>
The tax effects of each type of significant item that gave rise to
deferred taxes at December 31, 1995 and 1994 were (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(unaudited)
<S> <C> <C>
Net unrealized (gain) loss on available-for-sale securities . . . . . $ (277) $ 89
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . 239 223
Premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . (43) (35)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) (31)
----------- -----------
Net deferred tax (liability) asset. . . . . . . . . . . . . . . . . . $ (129) $ 246
=========== ===========
</TABLE>
8. PROFIT SHARING AND SAVINGS PLANS
The Bank has a profit sharing plan covering all full-time employees
who satisfy the age and length of service requirements. The Bank's
contributions to the plan are discretionary and are determined
annually by the Board of Directors. The Bank's contributions were
$30,000, $25,000 and $35,000 for the years ended December 31,
1995,1994 and 1993, respectively.
In addition, the Bank has established a pre-tax savings plan under
Section 401(k) of the Internal Revenue Code. Under the plan, eligible
employees are able to contribute up to the lesser of 15% of their
compensation or $9,500. The Bank matches 50% of all employees'
contributions up to 3% of their annual salary. The Bank's
contributions were approximately $12,000, $12,000 and $11,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
F-15
<PAGE> 104
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments which represent off-balance sheet credit risk
consist of open commitments to extend credit. Open commitments to
extend credit amounted to approximately $9,773,000 and $9,144,000 at
December 31, 1995 and 1994, respectively. Such agreements require the
Bank 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 or other termination clauses. Since many of
the commitments are expected to expire without being fully 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. The amount of collateral obtained (if deemed
necessary by the Bank upon extension of credit) is based on
management's credit evaluation of the customer. Collateral held
varies, but may include real property, accounts receivable, inventory
and property, plant and equipment.
10. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and rental real estate loans
to customers in the Shawnee County, Kansas area. Although the Bank
has a diversified loan portfolio, a substantial portion of the Bank's
debtors' ability to honor their contracts is dependent upon the real
estate economic sector. Collateral normally consists of real
property.
At December 31, 1995, the Bank's cash and due from banks included
commercial bank deposit accounts aggregating approximately $122,000 in
excess of the FDIC insured limit of $100,000 per institution.
11. RELATED PARTY MATTERS
The Bank leases one of its branch locations from Rossville Insurance
Agency, Inc., which is affiliated by common ownership interests with
Bankshares. This operating lease renews annually with terms, which
approximate the fair market rental value, of $2,700 each month or
$32,400 each year. The Bank subleases a portion of the branch
facility back to the lessor.
The Bank makes loans and loan commitments to employees, officers,
directors and stockholders in the normal course of business under
substantially the same terms as it does to others. An analysis of the
activity with respect to such loans and loan commitments is as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------------
(unaudited)
<S> <C> <C>
Balance, beginning of year. . . . . . . . . $1,440 $1,231
New loans and loan commitments. . . . . . . 1,131 1,028
Repayments and expirations. . . . . . . . . (928) (819)
-------- -------------
Balance, end of year. . . . . . . . . . . . $1,643 $1,440
======== =============
</TABLE>
F-16
<PAGE> 105
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. RELATED PARTY MATTERS (CONTINUED)
At December 31, 1995, Bankshares held a note receivable from major
shareholders, Ronald and Joyce Lutz, with a current balance of
$225,000. This note has an interest rate of 8.5% and matured January
31, 1996. The note was renewed for another year on January 25, 1996.
This note is included with "other" loans in note 3.
12. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on Bankshares' consolidated
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of its
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
As of December 31, 1995, the most recent notification from the FDIC
and the Kansas Department of Banking categorized the Bank as
adequately capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the institution's
category.
To be categorized as well capitalized under prompt corrective action
provisions, the Bank must maintain total risk-based capital ratios of
10.0%, Tier I risk based capital ratios of 6.0% and Tier I leverage
capital ratios of 5.0%. Quantitive measures established by regulation
to ensure capital adequacy also requires the Bank to maintain minimum
capital ratios of total and Tier I risk-based capital (as defined by
regulation) of 8% and 4%, respectively; and a Tier I leverage capital
(as defined) of 4%. The Bank's actual ratios at December 31, 1995 were
13.3% and 14.5%, respectively. The Bank's leverage ratio at December
31, 1995 was 8.05%.
The Bank, as a state-regulated bank, is subject to certain dividend
restrictions as set forth by the Kansas Banking Department. Under
such restrictions, the Bank may not, without prior approval, declare
dividends in excess of the sum of the current year's earnings (as
defined) plus the retained earnings (as defined) from the prior two
years.
F-17
<PAGE> 106
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No.
107, Disclosures about Fair Value of Financial Instruments. The
-----------------------------------------------------
estimated fair value amounts have been determined by Bankshares and
the Bank using available market information and valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that could
be realized in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material impact on
the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD
For cash, due from banks and Federal funds sold, the current carrying
amount is a reasonable estimate of fair value.
INTEREST BEARING DEPOSITS
The current carrying amount of interest bearing deposits is a reasonable
estimate of fair market value.
INVESTMENT SECURITIES
An estimate of the fair value for investment securities, including
mortgage-backed securities, is made utilizing quoted market data for
publicly traded securities, where available. A third-party pricing
service that specializes in "matrix pricing" and modeling techniques
provides estimated fair values for securities not actively traded.
LOANS
For certain homogenous categories of loans, such as some Small
Business Administration guaranteed loans, student loans, residential
mortgages, consumer loans, and commercial loans, fair value is
estimated using quoted market prices for similar loans or securities
backed by similar loans, adjusted for differences in loan characteristics.
The fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. For loans which mature or reprice within one year, the current
carrying amount is a reasonable estimate of fair value. As of December 31,
1995, approximately 78% of the Bank's loan portfolio matured or repriced
within one year.
DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered
for deposits of similar remaining maturities.
F-18
<PAGE> 107
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER BORROWINGS
For securities sold under agreement to repurchase, the current
carrying amount is a reasonable estimate of fair value. The FHLB line
of credit advances bear a variable rate of interest which reprices
daily, therefore, the current carrying amount approximates fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The estimated fair value of letters of credit is
based on the fees currently charged for similar agreements. These
instruments were determined to have no positive or negative market
value adjustments and are not listed in the following table.
The estimated fair value of Bankshare's financial instruments is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
CARRYING FAIR
AMOUNT VALUE
---------- -------
<S> <C> <C>
Financial assets:
Cash and cash equivalents . . . . . . . . $ 3,710 $ 3,710
Federal funds sold. . . . . . . . . . . . 900 900
Interest bearing deposits . . . . . . . . 75 75
Investment securities (note 2). . . . . . 37,364 37,364
Loans (note 3). . . . . . . . . . . . . . 52,325 51,877
Financial liabilities:
Deposits (note 5) . . . . . . . . . . . . 74,130 74,161
Other borrowings (note 6) . . . . . . . . 14,138 14,138
</TABLE>
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and 1994.
Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of the financial
statements since that date and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
F-19
<PAGE> 108
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. PENDING TRANSACTION
On December 19, 1995, Bankshares and the Bank adopted a resolution to
enter into a reorganization agreement with Ameribanc, Inc. (Ameribanc)
and Mercantile Bancorporation Inc. (Mercantile). Ameribanc is a
wholly-owned subsidiary of Mercantile. The reorganization agreement
calls for (i) Bankshares to exchange its share (88.88%) of the Bank's
$100 par value common stock for shares of Mercantile's $5 par value
common stock and (ii) the Bank to merge with a wholly-owned subsidiary
of Ameribanc, whereby the remaining shares (11.12%) of the Bank's
common stock will be converted into the right to receive shares of
Mercantile common stock. Mercantile will issue a total of 325,843
shares of its stock on the closing date. The reorganization
agreement includes various conditions which, among other things, impose
certain limitations on Bankshares and the Bank related to dividends or
distributions to stockholders, lending activities and investment
decisions. The reorganization is contingent upon approval of various
regulatory agencies and the stockholders of Bankshares and the Bank.
If approved, the reorganization is expected to be consummated in the
third quarter of 1996.
15. UNAUDITED FINANCIAL STATEMENTS
The consolidated balance sheets for December 31, 1994 and March 31,
1996, and the statements of earnings, stockholders' equity and cash
flows for the years ended December 31, 1993 and 1994 and the three
months ended March 31, 1995 and 1996 are unaudited. In the opinion of
management, all adjustments necessary for the fair presentation of the
financial position and results of operations for the unaudited periods
have been made.
F-20
<PAGE> 109
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATING BALANCE SHEET SCHEDULE 1
DECEMBER 31, 1995
<CAPTION>
PEOPLES STATE PEOPLES STATE
BANKSHARES, INC. BANK ELIMINATIONS CONSOLIDATED
---------------- ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks . . . . . . $ 12 $ 3,710 $ (12) $ 3,710
Interest bearing deposits . . . . . 227 75 (227) 75
Federal funds sold. . . . . . . . . - 900 900
Investment securities . . . . . . . - 36,837 - 36,837
Restricted equity securities. . . . - 527 - 527
Loans receivable, net . . . . . . . 225 52,100 - 52,325
Premises and equipment. . . . . . . 57 1,913 - 1,970
Accrued interest receivable . . . . 7 1,125 - 1,132
Investment in subsidiary. . . . . . 7,517 - (7,517) -
Core deposit intangible . . . . . . - 324 - 324
Other assets. . . . . . . . . . . . 5 55 - 60
---------------- ------------- ------------ ------------
$ 8,050 $ 97,566 $ (7,756) $ 97,860
================ ============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits. . . . . . . . . . . . . $ - $ 74,369 $ (239) $ 74,130
Other borrowings. . . . . . . . . - 14,138 - 14,138
Accrued interest payable. . . . . - 420 - 420
Deferred tax liability. . . . . . - 129 - 129
Other liabilities . . . . . . . . (10) 48 - 38
---------------- ------------- ------------ ------------
Total liabilities . . . . . . . (10) 89,104 (239) 88,855
---------------- ------------- ------------ ------------
Minority interest . . . . . . . . . - - 945 945
---------------- ------------- ------------ ------------
Stockholders' equity:
Common stock. . . . . . . . . . . 100 2,250 (2,250) 100
Additional paid-in capital. . . . 107 2,250 (2,250) 107
Retained earnings . . . . . . . . 7,659 3,547 (3,547) 7,659
Net unrealized gain on
available-for-sale
securities. . . . . . . . . . . 369 415 (415) 369
---------------- ------------- ------------ ------------
8,235 8,462 (8,462) 8,235
Less treasury stock . . . . . . . 175 - - 175
---------------- ------------- ------------ ------------
Total stockholders' equity. . . 8,060 8,462 (8,462) 8,060
---------------- ------------- ------------ ------------
$ 8,050 $ 97,566 $ (7,756) $ 97,860
================ ============= ============ ============
</TABLE>
See Accompanying Independent Auditors' Report.
F-21
<PAGE> 110
<TABLE>
PEOPLES STATE BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATING STATEMENT OF EARNINGS SCHEDULE 2
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
PEOPLES STATE PEOPLES STATE
BANKSHARES, INC. BANK ELIMINATIONS CONSOLIDATED
---------------- ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees. . . . . . $ 20 $ 5,005 $ - $ 5,025
Investments. . . . . . . . . . . 8 2,054 - 2,062
Federal funds sold and . . . . .
interest bearing deposits . . . 5 27 (5) 27
---------------- ------------- ------------ ------------
33 7,086 (5) 7,114
---------------- ------------- ------------ ------------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . - 2,785 (5) 2,780
Other borrowings . . . . . . . . - 732 - 732
---------------- ------------- ------------ ------------
- 3,517 (5) 3,512
---------------- ------------- ------------ ------------
Net interest income. . . . . . 33 3,569 - 3,602
PROVISION FOR LOAN LOSSES. . . . . - 45 - 45
---------------- ------------- ------------ ------------
Net interest income after
provision for loan loss. . . . 33 3,524 - 3,557
---------------- ------------- ------------ ------------
OTHER INCOME
Service charges. . . . . . . . . - 452 - 452
Net securities losses. . . . . . - (14) - (14)
Equity in earnings of subsidiary 1,034 - (1,034) -
Other. . . . . . . . . . . . . . - 143 - 143
---------------- ------------- ------------ ------------
1,034 581 (1,034) 581
---------------- ------------- ------------ ------------
OTHER EXPENSE
Salaries and employee benefits . 478 1,148 - 1,626
Occupancy. . . . . . . . . . . . 55 439 - 494
Data processing. . . . . . . . . - 137 - 137
Federal deposit insurance
premium. . . . . . . . . . . . - 75 - 75
Amortization of deposit
purchase premium . . . . . . . - 81 - 81
Other. . . . . . . . . . . . . . 32 434 - 466
---------------- ------------- ------------ ------------
565 2,314 - 2,879
---------------- ------------- ------------ ------------
Earnings before income taxes
and minority interest . . . . 502 1,791 (1,034) 1,259
INCOME TAX (BENEFIT) EXPENSE . . . (181) 628 - 447
---------------- ------------- ------------ ------------
Earnings before minority
interest . . . . . . . . . . 683 1,163 (1,034) 812
MINORITY INTEREST. . . . . . . . . - - (129) (129)
---------------- ------------- ------------ ------------
NET EARNINGS . . . . . . . . . . . $ 683 $ 1,163 $ (1,163) $ 683
================ ============= ============ ============
See Accompanying Independent Auditors' Report.
</TABLE>
F-22
<PAGE> 111
[letterhead of GRA, Thompson, White & Co., P.C.]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peoples State Bank
Topeka, Kansas
We have audited the accompanying balance sheet of Peoples State Bank as of
December 31, 1995 and the related statements of earnings, stockholders'
equity and cash flows for the year then ended. These financial statements
are the responsibility of 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Peoples State Bank as of
December 31, 1995 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Merriam, Kansas
March 27, 1996
/s/ GRA, Thompson, White & Co., P.C.
F-23
<PAGE> 112
<TABLE>
PEOPLES STATE BANK
BALANCE SHEETS
<CAPTION>
MARCH 31, DECEMBER 31,
----------- --------------------------
1996 1995 1994
----------- ----------- -----------
ASSETS (unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C>
Cash and due from banks. . . . . . . . . . . . . . . . $ 2,612 $ 3,710 $ 3,981
Interest bearing deposits. . . . . . . . . . . . . . . 23 75 10
Federal funds sold . . . . . . . . . . . . . . . . . . - 900 1,200
Available-for-sale securities. . . . . . . . . . . . . 36,222 36,837 11,901
Held-to-maturity securities. . . . . . . . . . . . . . - - 16,145
Restricted equity securities . . . . . . . . . . . . . 535 527 519
Loans receivable, net. . . . . . . . . . . . . . . . . 51,365 52,100 47,279
Premises and equipment . . . . . . . . . . . . . . . . 1,885 1,913 2,009
Accrued interest receivable. . . . . . . . . . . . . . 992 1,125 847
Core deposit intangible. . . . . . . . . . . . . . . . 304 324 405
Deferred tax asset . . . . . . . . . . . . . . . . . . - - 246
Other assets . . . . . . . . . . . . . . . . . . . . . 47 55 40
----------- ----------- -----------
$ 93,985 $ 97,566 $ 84,582
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . $ 76,684 $ 74,369 $ 64,846
Other borrowings . . . . . . . . . . . . . . . . . . 8,661 14,138 12,448
Accrued interest payable . . . . . . . . . . . . . . 342 420 239
Deferred tax liability . . . . . . . . . . . . . . . 5 129 -
Other liabilities. . . . . . . . . . . . . . . . . . 191 48 73
----------- ----------- -----------
Total liabilities . . . . . . . . . . . . . . . . 85,883 89,104 77,606
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock, $100 par value; 22,500
shares authorized, issued and outstanding. . . . . 2,250 2,250 2,250
Additional paid-in capital . . . . . . . . . . . . . 2,250 2,250 2,250
Retained earnings. . . . . . . . . . . . . . . . . . 3,373 3,547 2,609
Net unrealized gain (loss) on available-
for-sale securities . . . . . . . . . . . . . . . 229 415 (133)
----------- ----------- -----------
Total stockholders' equity. . . . . . . . . . . . 8,102 8,462 6,976
----------- ----------- -----------
$ 93,985 $ 97,566 $ 84,582
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
</TABLE>
F-24
<PAGE> 113
<TABLE>
PEOPLES STATE BANK
STATEMENTS OF EARNINGS
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------------- -----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
INTEREST INCOME (In thousands)
<S> <C> <C> <C> <C> <C>
Loans, including fees. . . . . . . . $ 1,238 $ 1,114 $ 5,005 $ 4,142 $ 3,601
Investments. . . . . . . . . . . . . 586 441 2,054 1,543 1,766
Federal funds sold and interest
bearing deposits . . . . . . . . . 8 2 27 15 44
----------- ----------- ----------- ----------- -----------
1,832 1,557 7,086 5,700 5,411
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . 799 558 2,785 1,915 2,002
Other borrowings . . . . . . . . . . 124 195 732 643 474
----------- ----------- ----------- ----------- -----------
923 753 3,517 2,558 2,476
----------- ----------- ----------- ----------- -----------
Net interest income . . . . . . . 909 804 3,569 3,142 2,935
PROVISION FOR LOAN LOSSES. . . . . . . - 15 45 68 120
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses. . . . 909 789 3,524 3,074 2,815
----------- ----------- ----------- ----------- -----------
OTHER INCOME
Service charges. . . . . . . . . . . 106 104 452 432 393
Net securities gains (losses). . . . - (14) (14) (8) 5
Other. . . . . . . . . . . . . . . . 40 22 143 78 77
----------- ----------- ----------- ----------- -----------
146 112 581 502 475
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits . . . 293 286 1,148 1,101 1,018
Occupancy. . . . . . . . . . . . . . 96 103 439 358 353
Data processing. . . . . . . . . . . 32 32 137 118 112
Federal deposit insurance
premium. . . . . . . . . . . . . . 1 36 75 137 137
Management fees. . . . . . . . . . . - - - 120 120
Amortization of deposit purchase
premium. . . . . . . . . . . . . . 20 20 81 81 81
Other. . . . . . . . . . . . . . . . 191 101 434 457 438
----------- ----------- ----------- ----------- -----------
633 578 2,314 2,372 2,259
----------- ----------- ----------- ----------- -----------
Earnings before income taxes. . . 422 323 1,791 1,204 1,031
INCOME TAX EXPENSE . . . . . . . . . . 146 110 628 404 342
----------- ----------- ----------- ----------- -----------
NET EARNINGS . . . . . . . . . . . . . $ 276 $ 213 $ 1,163 $ 800 $ 689
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
</TABLE>
F-25
<PAGE> 114
<TABLE>
PEOPLES STATE BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
NET
UNREALIZED
GAIN (LOSS)
ON
ADDITIONAL AVAILABLE-
COMMON PAID-IN RETAINED FOR-SALE
STOCK CAPITAL EARNINGS SECURITIES TOTAL
---------- ---------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1992
(UNAUDITED). . . . . . . . . . . . . $ 2,250 $ 2,250 $ 1,820 $ - $ 6,320
Net earnings . . . . . . . . . . . . . - - 689 - 689
Dividends. . . . . . . . . . . . . . . - - (350) - (350)
Initial adoption of SFAS
No. 115. . . . . . . . . . . . . . . - - - 44 44
---------- ---------- ---------- ----------- ----------
BALANCE AT
DECEMBER 31, 1993
(UNAUDITED). . . . . . . . . . . . . 2,250 2,250 2,159 44 6,703
Net earnings . . . . . . . . . . . . . - - 800 - 800
Dividends. . . . . . . . . . . . . . . - - (350) - (350)
Net change . . . . . . . . . . . . . . - - - (177) (177)
---------- ---------- ---------- ----------- ----------
BALANCE AT
DECEMBER 31, 1994
(UNAUDITED). . . . . . . . . . . . . 2,250 2,250 2,609 (133) 6,976
Net earnings . . . . . . . . . . . . . - - 1,163 - 1,163
Dividends. . . . . . . . . . . . . . . - - (225) - (225)
Net change . . . . . . . . . . . . . . - - - 548 548
---------- ---------- ---------- ----------- ----------
BALANCE AT
DECEMBER 31, 1995. . . . . . . . . . $ 2,250 $ 2,250 $ 3,547 $ 415 $ 8,462
Net earnings . . . . . . . . . . . . . - - 276 - 276
Dividends. . . . . . . . . . . . . . . - - (450) - (450)
Net change . . . . . . . . . . . . . . - - - (186) (186)
---------- ---------- ---------- ----------- ----------
BALANCE AT
MARCH 31, 1996 (UNAUDITED). . . . . . $ 2,250 $ 2,250 $ 3,373 $ 229 $ 8,102
========== ========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements
</TABLE>
F-26
<PAGE> 115
<TABLE>
PEOPLES STATE BANK
STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES (In thousands)
<S> <C> <C> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . $ 276 $ 213 $ 1,163 $ 800 $ 689
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses. . . . . . . . . . . - 15 45 68 120
Net charge-offs and losses on other
real estate owned. . . . . . . . . . . . . . - - - 23 -
Gains on sales of available-for-sale securities - - - (3) (5)
Losses on sales of available-for-sale securities - 14 14 11 -
Amortization of premiums on securities . . . . 7 7 36 114 122
Accretion of discounts on securities . . . . . (29) (3) (23) (20) (22)
Depreciation and amortization expense. . . . . 35 41 169 157 103
Amortization of deposit purchase premium . . . 20 20 81 81 81
Gains on sales of loans. . . . . . . . . . . . (20) - (45) - -
Proceeds from loans sold . . . . . . . . . . . 1,476 - 4,343 - -
Originations of loans sold . . . . . . . . . . (1,456) - (4,298) - -
Change in:
Accrued interest receivable. . . . . . . . . 133 (50) (278) 12 48
Other assets . . . . . . . . . . . . . . . . 8 (48) (15) 102 (103)
Accrued interest payable . . . . . . . . . . (78) 23 181 31 (65)
Other liabilities. . . . . . . . . . . . . . 143 114 (25) (68) (31)
Deferred taxes . . . . . . . . . . . . . . . - 1 9 (9) (43)
---------- ----------- ---------- ----------- -----------
Net cash provided by operating activities 515 347 1,357 1,299 894
---------- ----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated, net of principal
collections. . . . . . . . . . . . . . . . . . . . 735 (2,118) (4,869) (5,904) (3,480)
Proceeds from maturities of held-tomaturity securities - 165 2,984 3,881 6,668
Proceeds from sales and maturities of available-for-sale
securities . . . . . . . . . . . . . . . . . . . . 2,278 2,983 9,977 11,147 234
Purchases of held-to-maturity securities . . . . . . - (1,998) (6,129) (2,913) (14,234)
Purchases of available-for-sale securities . . . . . (1,951) (999) (14,736) (6,017) (990)
Purchases of restricted equity securities. . . . . . (8) - (8) (266) -
Net change in securities purchased under agreements
to resell. . . . . . . . . . . . . . . . . . . . . - - - - 7,766
Net additions to premises and equipment. . . . . . . (7) (27) (73) (168) (1,255)
Proceeds from sales of other real estate owned . . . - - - 15 41
Recoveries of loans previously charged-off . . . . . - - 3 - 2
Net change in Federal funds sold . . . . . . . . . . 900 1,100 300 (1,200) -
Net change in interest bearing deposits. . . . . . . 52 (12) (65) - (10)
---------- ----------- ---------- ----------- -----------
Net cash provided (used) by investing activities 1,999 (906) (12,616) (1,425) (5,258)
---------- ----------- ---------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING AND INVESTING
ACTIVITIES, CARRIED FORWARD. . . . . . . . . . . . . $ 2,514 $ (559) $ (11,259) $ (126) $ (4,364)
---------- ----------- ---------- ----------- -----------
</TABLE>
F-27
<PAGE> 116
<TABLE>
PEOPLES STATE BANK
STATEMENTS OF CASH FLOWS, CONTINUED
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING AND INVESTING
ACTIVITIES, BROUGHT FORWARD. . . . . . . . . . . . . $ 2,514 $ (559) $ (11,259) $ (126) $ (4,364)
---------- ----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in non-interest and interest bearing
demand and savings accounts. . . . . . . . . . . . 2,938 (1,690) 1,189 2,346 2,755
Net change in time deposits. . . . . . . . . . . . . (623) 1,667 8,334 977 (2,942)
Increase (decrease) in other borrowings. . . . . . . (5,477) (343) 1,690 (907) 3,008
Dividends paid . . . . . . . . . . . . . . . . . . . (450) (225) (225) (350) (350)
---------- ----------- ---------- ----------- -----------
Net cash provided (used) by financing activities (3,612) (591) 10,988 2,066 2,471
---------- ----------- ---------- ----------- -----------
(Decrease) increase in cash and
cash equivalents . . . . . . . . . . . . (1,098) (1,150) (271) 1,940 (1,893)
Cash and cash equivalents, beginning of period . . . . 3,710 3,981 3,981 2,041 3,934
---------- ----------- ---------- ----------- -----------
Cash and cash equivalents, end of period . . . . . . . $ 2,612 $ 2,831 $ 3,710 $ 3,981 $ 2,041
========== =========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest . . . . . . $ 1,001 $ 781 $ 3,336 $ 2,528 $ 2,067
========== =========== ========== =========== ===========
Cash paid during the period for income taxes . . . . $ - $ - $ 657 $ 293 $ 542
========== =========== ========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES
Designation of investment securities as available-
for-sale at adoption of SFAS No. 115,
at amortized cost . . . . . . . . . . . . . . . . $ - $ - $ - $ - $ 16,693
========== =========== ========== =========== ===========
Transfer of held-to-maturity securities to
available-for-sale at amortized cost, net . . . . $ - $ - $ 19,290 $ - $ -
========== =========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements
</TABLE>
F-28
<PAGE> 117
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 (AUDITED), 1994 AND 1993 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples State Bank are in
accordance with generally accepted accounting principles and conform
to general practices within the banking industry. The more
significant of the principles used in preparing the financial
statements are briefly described below.
NATURE OF OPERATIONS
The Bank operates under a state bank charter and provides full banking
services, excluding trust services. As a state-regulated bank, the
Bank is subject to regulation by the Kansas Banking Department and the
Federal Deposit Insurance Corporation (FDIC). The area served by
Peoples State Bank is Shawnee County, Kansas and services are provided
at three locations in Topeka and at branches in Silver Lake and
Rossville, Kansas. Peoples State Bankshares, Inc. (Bankshares) owns
88.88% of the Bank's outstanding common stock. These financial
statements represent the Bank only and are not consolidated.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INVESTMENT SECURITIES
Effective December 31, 1993, The Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
----------------------
Investments in Debt and Equity Securities, which requires that
-----------------------------------------
investments be classified in three categories and accounted for as
follows: held-to-maturity securities reported at amortized cost;
trading securities reported at fair value with unrealized gains and
losses included in earnings; and available-for-sale securities
reported at fair value with unrealized gains and losses shown as a
separate component of stockholders' equity.
Restricted equity securities are reported at cost which equals the
estimated fair value.
Gains and losses on sales of securities are determined on a specific
identification method.
LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased
loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on loans with
maturities in excess of one year.
F-29
<PAGE> 118
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 1, 1995, SFAS No. 114, Accounting by Creditors for
---------------------------
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for
-------------------- ---------------------------
Impairment of Loan-Income Recognition and Disclosure, became
----------------------------------------------------
effective. SFAS No. 114 requires that impaired loans be measured
based on the present value of expected future cash flows discounted at
the loan's effective interest rate or at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends SFAS No. 114 to allow a creditor to
use existing methods for recognizing interest income on an impaired
loan if those methods are more conservative than methods required by
SFAS No. 114.
Interest income on installment loans is recognized over the terms of
the loans by the interest method. Interest income on all other loans
is credited to operations based on the principal amount outstanding.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes the collectibility
of the principal is unlikely. The allowance is an amount management
believes will be adequate to absorb probable losses on existing loans
that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions and
trends that may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line and accelerated methods based on the
estimated useful lives of the related assets.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable
for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable and pretax
financial income and between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax
assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which
the deferred tax assets and liabilities are expected to be realized or
settled as prescribed in SFAS No. 109, Accounting for Income Taxes.
---------------------------
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
The Bank files a consolidated Federal income tax return with its
parent. The parent company is reimbursed from its subsidiary for any
current income tax benefits derived.
F-30
<PAGE> 119
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Bank considers cash
on hand and amounts due from banks to be cash and cash equivalents.
2. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investments in debt
securities were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1995
U.S. Treasury and agency securities . . . . $ 21,912 $ 412 $ (30) $ 22,294
Obligations of states and
political subdivisions. . . . . . . . . . 3,233 92 (4) 3,321
Mortgage-backed securities. . . . . . . . . 11,000 222 - 11,222
--------- ---------- ---------- ---------
$ 36,145 $ 726 $ (34) $ 36,837
========= ========== ========== =========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
AT DECEMBER 31, 1994 (UNAUDITED)
U.S. Treasury and agency securities . . . . $ 7,918 $ - $ (49) $ 7,869
Obligations of states and
political subdivisions. . . . . . . . . . 2,865 38 (3) 2,900
Mortgage-backed securities. . . . . . . . . 5,362 52 (134) 5,280
--------- ---------- ---------- ---------
$ 16,145 $ 90 $ (186) $ 16,049
========= ========== ========== =========
AVAILABLE-FOR-SALE
AT DECEMBER 31, 1994 (UNAUDITED)
U.S. Treasury and agency securities . . . . $ 12,003 $ - $ (220) $ 11,783
Mortgage-backed securities. . . . . . . . . 119 - (1) 118
--------- ---------- ---------- ---------
$ 12,122 $ - $ (221) $ 11,901
========= ========== ========== =========
</TABLE>
F-31
<PAGE> 120
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENT SECURITIES (CONTINUED)
During December 1995, investment securities with a carrying amount of
$19,290,000 and estimated fair value of approximately $19,724,000 were
transferred from held-to-maturity to available-for-sale with the
unrealized gain of approximately $434,000 being included with the
unrealized gains on securities that continue to be classified as
available-for-sale. These transfers were made as part of a one-time
reassessment of the appropriateness of the classifications of all
securities as allowed by generally accepted accounting principles.
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
-----------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ----------
<S> <C> <C>
Due in one year or less . . . . . . . . . . $ 6,322 $ 6,390
Due after one year through five years . . . 18,156 18,532
Due after five years through ten years. . . 667 693
--------- ----------
25,145 25,615
Mortgage-backed securities. . . . . . . . . 11,000 11,222
--------- ----------
$ 36,145 $ 36,837
========= ==========
</TABLE>
At December 31, 1995, investment securities with a carrying value of
for other purposes.
F-32
<PAGE> 121
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- -----------
(unaudited)
<S> <C> <C>
Real estate . . . . . . . . . . . . . . . $ 29,118 $ 26,868
Commercial. . . . . . . . . . . . . . . . 11,937 9,870
Agricultural. . . . . . . . . . . . . . . 6,052 6,184
Consumer. . . . . . . . . . . . . . . . . 5,356 4,587
Other . . . . . . . . . . . . . . . . . . 350 443
---------- -----------
52,813 47,952
Allowance for loan losses . . . . . . . . (713) (673)
---------- -----------
$ 52,100 $ 47,279
========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
(unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year. . . . . . . $ 673 $ 621 $ 518
Provision for loan losses . . . . . . . 45 68 120
Charge-offs, net of recoveries. . . . . (5) (16) (17)
----------- ----------- -----------
Balance, end of year. . . . . . . . . . $ 713 $ 673 $ 621
=========== =========== ===========
</TABLE>
One impaired loan totaling approximately $118,000 and $131,000 at December
31, 1995 and 1994, respectively, has been recognized in conformity with
SFAS No. 114 as amended by SFAS No. 118. The related allowance for this
impaired loan at December 31, 1995 totaled approximately $18,000. There
was no interest income recognized on this impaired loan during 1995.
4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------ -------------
( unaudited )
<S> <C> <C>
Land, buildings and improvements. . . . . $ 1,752 $ 1,705
Furniture, fixtures and equipment . . . . 899 918
Leasehold improvements. . . . . . . . . . 461 435
------------ -------------
3,112 3,058
Accumulated depreciation and amortization (1,199) (1,049)
------------ -------------
$ 1,913 $ 2,009
============ =============
</TABLE>
F-33
<PAGE> 122
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(unaudited)
<S> <C> <C>
Demand
Noninterest-bearing . . . . . . . . . $ 9,691 $ 9,160
----------- -----------
Interest-bearing
NOW . . . . . . . . . . . . . . . . . 7,315 7,628
Money market. . . . . . . . . . . . . 9,259 8,070
----------- -----------
16,574 15,698
----------- -----------
Savings . . . . . . . . . . . . . . . . . 5,290 5,508
Time. . . . . . . . . . . . . . . . . . . 42,814 34,480
----------- -----------
$ 74,369 $ 64,846
=========== ===========
</TABLE>
Time deposits include certificates of deposit of $100,000 and over
totaling approximately $4,106,000 and $3,554,000 at December 31, 1995
and 1994, respectively.
At December 31, 1995, the approximate scheduled maturities of
certificates of deposit were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 . . . . . . . . . . $ 31,926
1997 . . . . . . . . . . 7,968
1998 . . . . . . . . . . 1,270
1999 . . . . . . . . . . 1,319
2000 and thereafter. . . 331
----------
$ 42,814
==========
</TABLE>
In January 1990, the Bank acquired approximately $60,000,000 of
deposits for a purchase price of $810,000. This purchase price was
identified as a core deposit intangible asset and is being amortized
using the straight-line method over a period of ten years, which was
determined to be the average life of the acquired deposits.
F-34
<PAGE> 123
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. OTHER BORROWINGS
Other borrowings are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- --------------------------
1996 1995 1994
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Securities sold under repurchase agreements . . . . . . $ 8,261 $ 10,188 $ 10,448
Federal Home Loan Bank line of credit advances. . . . . 400 3,950 2,000
----------- ----------- -----------
$ 8,661 $ 14,138 $ 12,448
=========== =========== ===========
</TABLE>
The weighted average interest rate on repurchase agreements was 4.84%
and 5.52% at December 31, 1995 and 1994, respectively. The maturities
ranged from daily to 365 days at December 31, 1995 and 1994. At
December 31, 1995, the agreements were secured by investment
securities with carrying and estimated fair values of approximately
$21,418,000. At December 31, 1994, the agreements were secured by
available-for-sale securities with carrying and estimated fair values
of approximately $10,908,000, and held-to-maturity securities with
carrying values of approximately $9,009,000 and estimated fair values
of $8,913,000.
On May 26, 1994, the Bank entered into an annually renewable agreement
with the Federal Home Loan Bank of Topeka (FHLB) for a $5,000,000 line
of credit which replaced the term note previously in place. Advances
drawn on this line of credit bear an adjustable rate of interest which
reprices daily (6.15% at December 31, 1995). The line of credit is
secured by one to four family mortgage loans with a carrying value of
approximately $13,281,000 and matures May 24, 1996.
7. INCOME TAXES
Income tax expense (benefit) is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 CURRENT DEFERRED TOTAL
------- -------- ---------
<S> <C> <C> <C>
Federal . . . . . . . . . . . . . . . . . $ 513 $ 8 $ 521
State . . . . . . . . . . . . . . . . . . 106 1 107
------- -------- ---------
$ 619 $ 9 $ 628
======= ======== =========
1994 (UNAUDITED)
Federal . . . . . . . . . . . . . . . . . $ 317 $ 10 $ 327
State . . . . . . . . . . . . . . . . . . 75 2 77
------- -------- ---------
$ 392 $ 12 $ 404
======= ======== =========
1993 (UNAUDITED)
Federal . . . . . . . . . . . . . . . . . $ 289 $ (12) $ 277
State . . . . . . . . . . . . . . . . . . 65 - 65
------- -------- ---------
$ 354 $ (12) $ 342
======= ======== =========
</TABLE>
F-35
<PAGE> 124
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES (CONTINUED)
The provision for Federal income tax expense differs from that computed by
applying the Federal statutory rate of 34% as indicated in the following
analysis (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
------ ------- ------ ------- ------ -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Expected Federal income
tax expense . . . . . . . . . $ 609 34.0 $ 409 34.0 $ 351 $ 34.0
Municipal interest. . . . . . . (53) (3.0) (59) (4.9) (61) (5.9)
State taxes, net of
Federal income tax
benefit . . . . . . . . . . . 71 4.0 51 4.2 43 4.2
Other, net. . . . . . . . . . . 1 0.1 3 0.3 9 0.9
------ ------- ------ ------- ------ -------
$ 628 35.1 $ 404 33.6 $ 342 33.2
====== ======= ====== ======= ====== =======
</TABLE>
The tax effects of each type of significant item that gave rise to
deferred taxes at December 31, 1995 and 1994, were (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(unaudited)
<S> <C> <C>
Net unrealized (gain) loss on available-for-sale securities . $ (277) $ 89
Allowance for loan losses . . . . . . . . . . . . . . . . . . 239 223
Premises and equipment. . . . . . . . . . . . . . . . . . . . (43) (35)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) (31)
----------- -----------
Net deferred tax (liability) asset. . . . . . . . . . . . . . $ (129) $ 246
=========== ===========
</TABLE>
F-36
<PAGE> 125
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. PROFIT SHARING AND SAVINGS PLANS
The Bank has a profit sharing plan covering all full-time employees
who satisfy the age and length of service requirements. The Bank's
contributions to the plan are discretionary and are determined
annually by the Board of Directors. The Bank's contributions were
$30,000, $25,000 and $35,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
In addition, the Bank has established a pre-tax savings plan under
Section 401(k) of the Internal Revenue Code. Under the plan, eligible
employees are able to contribute up to the lesser of 15% of their
compensation or $9,500. The Bank matches 50% of employees'
contributions up to 3% of their annual salary. The Bank's
contributions were approximately $12,000, $12,000 and $11,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments which represent off-balance sheet credit risk
consist of open commitments to extend credit. Open commitments to
extend credit amounted to approximately $9,773,000 and $9,144,000 at
December 31, 1995 and 1994, respectively. Such agreements require the
Bank 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 or other termination clauses. Since many of
the commitments are expected to expire without being fully 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. The amount of collateral obtained (if deemed
necessary by the Bank upon extension of credit) is based on
management's credit evaluation of the customer. Collateral held
varies, but may include real property, accounts receivable, inventory
and property, plant and equipment.
10. CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and rental real estate loans
to customers in the Shawnee County, Kansas area. Although the Bank
has a diversified loan portfolio, a substantial portion of the Bank's
debtors' ability to honor their contracts is dependent upon the real
estate economic sector. Collateral normally consists of real
property.
At December 31, 1995, the Bank's cash and due from banks included
commercial bank deposit accounts aggregating approximately $122,000 in
excess of the FDIC insured limit of $100,000 per institution.
F-37
<PAGE> 126
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. RELATED PARTY MATTERS
The Bank leases one of its branch locations from Rossville Insurance
Agency, Inc., which is affiliated by common ownership interests with
Bankshares. This operating lease renews annually with terms, which
approximate the fair market rental value, of $2,700 each month or
$32,400 each year. The Bank subleases a portion of the branch
facility back to the lessor.
During 1994 and 1993, the Bank paid $120,000 each year to Bankshares
for management fees related to the operations of the Bank.
The Bank makes loans and loan commitments to employee, officers,
directors and stockholders in the normal course of business under
substantially the same terms as it does to others. An analysis of the
activity with respect to such loans and loan commitments is as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(unaudited)
<S> <C> <C>
Balance, beginning of year. . . . . . . . $ 1,440 $ 1,231
New loans and loan commitments. . . . . . 1,131 1,028
Repayments and expirations. . . . . . . . (928) (819)
----------- -----------
Balance, end of year. . . . . . . . . . . $ 1,643 $ 1,440
=========== ===========
</TABLE>
12. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of its assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
As of December 31, 1995, the most recent notification from the FDIC
and the Kansas Department of Banking categorized the Bank as
adequately capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the institution's
category.
To be categorized as well capitalized under prompt corrective action
provisions, the Bank must maintain total risk-based capital ratios of
10.0%, Tier I risk based capital ratios of 6.0% and Tier I leverage
capital ratios of 5.0%. Quantitive measures established by regulation
to ensure capital adequacy also require the Bank to maintain minimum
capital ratios of total and Tier I risk-based capital (as defined by
regulation) of 8% and 4%, respectively; and a Tier I leverage capital
(as defined) of 4%. The Bank's actual risk-based ratios at December
31, 1995 were 13.3% and 14.5%, respectively. The Bank's leverage ratio
at December 31, 1995 was 8.05%.
F-38
<PAGE> 127
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. REGULATORY MATTERS (CONTINUED)
The Bank, as a state-regulated bank, is subject to certain dividend
restrictions as set forth by the Kansas Banking Department. Under
such restrictions, the Bank may not, without prior approval, declare
dividends in excess of the sum of the current year's earnings (as
defined) plus the retained earnings (as defined) from the prior two
years.
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No.
107, Disclosures about Fair Value of Financial Instruments. The
-----------------------------------------------------
estimated fair value amounts have been determined by the Bank using
available market information and valuation methodologies. However,
considerable judgment is necessarily required to interpret market data
to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that
could be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
impact on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD
For cash, due from banks and Federal funds sold, the current carrying
amount is a reasonable estimate of fair value.
INTEREST BEARING DEPOSITS
The current carrying amount of interest bearing deposits is a
reasonable estimate of fair value.
INVESTMENT SECURITIES
An estimate of the fair value for investment securities, including
mortgage-backed securities, is made utilizing quoted market data for
publicly traded securities, where available. A third-party pricing
service that specializes in "matrix pricing" and modeling techniques
provides estimated fair values for securities not actively traded.
LOANS
For certain homogenous categories of loans, such as some Small
Business Administration guaranteed loans, student loans, residential
mortgages, consumer loans, and commercial loans, fair value is
estimated using quoted market prices for similar loans or securities
backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated
by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. For loans which mature or reprice
within one year, the current carrying amount is a reasonable estimate
of fair value. As of December 31, 1995, approximately 78% of the
Bank's loan portfolio matured or repriced within one year.
F-39
<PAGE> 128
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered
for deposits of similar remaining maturities.
OTHER BORROWINGS
For securities sold under agreement to repurchase, the current
carrying amount is a reasonable estimate of fair value. The FHLB line
of credit advances bear a variable rate of interest which reprices
daily, therefore, the current carrying amount approximates fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The estimated fair value of letters of credit is
based on the fees currently charged for similar agreements. These
instruments were determined to have no positive or negative market
value adjustments and are not listed in the following table.
The estimated fair value of the Bank's financial instruments is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Financial assets:
Cash and cash equivalents . . . . . . . . $ 3,710 $ 3,710
Federal funds sold. . . . . . . . . . . . 900 900
Interest bearing deposits . . . . . . . . 75 75
Investment securities (note 2). . . . . . 37,364 37,364
Loans (note 3). . . . . . . . . . . . . . 52,100 51,652
Financial liabilities:
Deposits (note 5) . . . . . . . . . . . . 74,369 74,400
Other borrowings (note 6) . . . . . . . . 14,138 14,138
</TABLE>
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995. Although
management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of the financial statements
since that date and, therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
F-40
<PAGE> 129
PEOPLES STATE BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
14. PENDING TRANSACTION
On December 19, 1995, Bankshares and the Bank adopted a resolution to
enter into a reorganization agreement with Ameribanc, Inc. (Ameribanc)
and Mercantile Bancorporation Inc. (Mercantile). Ameribanc is a
wholly-owned subsidiary of Mercantile. The reorganization agreement
calls for (i) Bankshares to exchange its share (88.88%) of the Bank's
$100 par value common stock for shares of Mercantile's $5 par value
common stock and (ii) the Bank to merge with a wholly-owned subsidiary
of Ameribanc, whereby the remaining shares (11.12%) of the Bank's
common stock will be converted into the right to receive shares of
Mercantile common stock. Mercantile will issue a total of 325,843
shares of its stock on the closing date. The reorganization
agreement includes various conditions which, among other things, impose
certain limitations on Bankshares and the Bank related to dividends or
distributions to stockholders, lending activities and investment
decisions. The reorganization is contingent upon approval of various
regulatory agencies and the stockholders of Bankshares and the Bank.
If approved, the reorganization is expected to be consummated in the
third quarter of 1996.
15. UNAUDITED FINANCIAL STATEMENTS
The balance sheets for December 31, 1994 and March 31, 1996 and the
statements of earnings, stockholders' equity and cash flows for the
years ended December 31, 1993 and 1994 and the three months ended
March 31, 1995 and 1996 are unaudited. In the opinion of management,
all adjustments necessary for the fair presentation of the financial
position and results of operations for the unaudited periods have been
made.
F-41
<PAGE> 130
ANNEX A
-------
The following is the text of the statutory dissenters' rights as
set forth in Section 17-6712 of the Kansas Corporation Code:
SEC. 17-6712 PAYMENT FOR "STOCK" OF "STOCKHOLDER" OBJECTING TO MERGER OR
CONSOLIDATION; "STOCKHOLDER," "STOCK" AND "SHARE" DEFINED; NOTICE TO
OBJECTING STOCKHOLDERS; DEMAND FOR PAYMENT; APPRAISAL AND DETERMINATION OF
VALUE BY DISTRICT COURT, WHEN; TAXATION OF COSTS; RIGHTS OF OBJECTING
STOCKHOLDERS; STATUS OF STOCK; SECTION INAPPLICABLE TO CERTAIN SHARES OF
STOCK.
(a) When used in this section, the word "stockholder" means a holder
of record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of
a member of a nonstock corporation.
(b) The corporation surviving or resulting from any merger or
consolidation, within 10 days after the effective date of the merger or
consolidation, shall notify each stockholder of any corporation of this state
so merging or consolidating who objected thereto in writing and whose shares
either were not entitled to vote or were not voted in favor of the merger or
consolidation, and filed such written objection with the corporation before
the taking of the vote on the merger or consolidation, that the merger or
consolidation has become effective. If any such stockholder, within 20 days
after the date of mailing of the notice, shall demand in writing, from the
corporation surviving or resulting from the merger or consolidation, payment
of the value of the stockholder's stock, the surviving or resulting
corporation shall pay to the stockholder, within 30 days after the expiration
of the period of 20 days, the value of the stockholder's stock on the
effective date of the merger or consolidation exclusive of any element of
value arising from the expectation or accomplishment of the merger or
consolidation.
(c) If during a period of 30 days following the period of 20 days
provided for in subsection (b), the corporation and any such stockholder fail
to agree upon the value of such stock, any such stockholder, or the
corporation surviving or resulting from the merger or consolidation, may
demand a determination of the value of the stock of all such stockholders by
an appraiser or appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration of the
thirty-day period.
(d) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the corporation, which shall file with the
clerk of such court, within 10 days after such service, a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation. If the petition shall be
filed by the corporation, the petition shall be accompanied by such duly
verified list. The clerk of the court shall give notice of the time and
place fixed for the hearing of such petition by registered or certified mail
to the corporation and to the stockholders shown upon the list at the
addresses therein stated and notice shall also be given by publishing a
notice at least once, at least one week before the day of the hearing, a
newspaper of general circulation in the county in which the court is located.
The court may direct such additional publication of notice as it deems
advisable. The forms of the notices by mail and by publication shall be
approved by the court.
(e) After the hearing of such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their
A-1
<PAGE> 131
shares, and shall appoint an appraiser or appraiser to determine such value.
Any such appraiser may examine any of the books and records of the corporation
or corporations the stock of which such appraiser is charged with the duty of
valuing, and such appraiser shall make a determination of the value of the
shares upon such investigation as seems proper to the appraiser. The
appraiser or appraisers shall also afford a reasonable opportunity to the
parties interested to submit to the appraiser pertinent evidence on the value
of the shares. The appraiser or appraisers, also, shall have the powers and
authority conferred upon masters by K.S.A. 60-253, and amendments thereto.
(f) The appraiser or appraisers shall determine the value of the
stock of the stockholders adjudged by the court to be entitled to payment
therefor and shall file a report respecting such value in the office of the
clerk of the court, and notice of the filing of such report shall be given by
the clerk of the court to the parties in interest. Such report shall be
subject to exceptions to be heard before the court both upon the law and
facts. The court by its decree shall determine the value of the stock of the
stockholders entitled to payment therefor and shall direct the payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto by the surviving or resulting corporation.
Upon payment of the judgment of the surviving or resulting corporation, the
clerk of the district court shall surrender to the corporation the
certificates of shares of stock held by the clerk pursuant to subsection (g).
The decree may be enforced as other judgments of the district court may be
enforced, whether such surviving or resulting corporation be a corporation of
this state or of any other state.
(g) At the time of appointing the appraiser or appraisers, the court
shall require the stockholders, who hold certificated shares and who demanded
payment for their shares to submit their certificates of stock to the clerk
of the court, to be held by the clerk pending the appraisal proceedings. If
any stockholder fails to comply with such direction, the court shall dismiss
the proceedings as to such stockholder.
(h) The cost of any such appraisal, including a reasonable fee to and
the reasonable expenses of the appraiser, but exclusive of fees of counsel or
of experts retained by any party, shall be determined by the court and taxed
upon the parties to such appraisal or any of them as appears to be equitable,
except that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation.
The court, on application of any party in interest, shall determine the
amount of interest, if any, to be paid upon the value of the stock of the
stockholders entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's
stock as herein provided shall not thereafter be entitled to vote such for
any purpose or be entitled to the payment of dividends or other distribution
on the stock, except dividends or other distributions payable to stockholders
of record at a date which is prior to the effective date of the merger or
consolidation, unless the appointment of an appraiser or appraisers shall not
be applied for within the time herein provided, or the proceeding be
dismissed as to such stockholder, or unless such stockholder with the written
approval of the corporation shall deliver to the corporation a written
withdrawal of the stockholder's objections to and an acceptance of the merger
or consolidation, in any of which cases the right to such stockholder to
payment for the stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation into which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
(k) This section shall not apply to the shares of any class or series
of a class of Stock, which, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, were either
A-2
<PAGE> 132
(1) registered on a national securities exchange, or (2) held of record by not
less than 2,000 stockholders, unless the articles of incorporation of the
corporation issuing such stock shall otherwise provide; nor shall this section
apply to any of the shares of stock of the constituent corporation surviving a
merger, if the merger did not require for its approval the vote of the
stockholders of the surviving corporation, as provided in subsection (f) of
K.S.A. 17-6701 and amendments thereto. This subsection shall not be
applicable to the holders of a class or series of a class of stock of a
constituent corporation if under the terms of a merger of consolidation
pursuant to K.S.A. 17-6701 or 17-6702, and amendments thereto, such holders
are required to accept for such stock anything except (i) stock or stock and
cash in lieu of fractional shares of the corporation surviving or resulting
from such merger or consolidation, or (ii) stock or stock and cash in lieu of
fractional shares of any other corporation, which at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders at which the agreement of merger or consolidation is
to be acted on, were either registered on a national securities exchange or
held of record by not less than 2,000 stockholders, or (iii) a combination of
stock or stock and cash in lieu of fractional shares as set forth in (i) and
(ii) of this subsection.
A-3
<PAGE> 133
PROXY PEOPLES STATE BANKSHARES, INC.
1080 S.W. WANAMAKER ROAD, SUITE A
TOPEKA, KANSAS 66604-3888
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 15, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of PEOPLES STATE BANKSHARES, INC.
("Peoples Bankshares"), does hereby nominate, constitute and appoint
Joyce M. Lutz and Michael W. Lutz, 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, $1.00 par value, of Peoples Bankshares standing in
the name of the undersigned on its books at the close of business on June 12,
1996 at the Special Meeting of Stockholders to be held at Peoples Bankshares,
1080 S.W. Wanamaker Road, Suite A, Topeka, Kansas, on Monday, July 15, 1996,
at 10:00 a.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 Agreement and Plan of
Reorganization dated as of December 19, 1995 (the "Reorganization
Agreement"), which provides for (i) the exchange (the "Exchange") of all of
the shares of common stock of Peoples State Bank ("Peoples Bank") owned by
Peoples Bankshares for shares of common stock of Mercantile Bancorporation
Inc. ("MBI"), (ii) the merger (the "Merger") of Mercantile Bank of Shawnee
County, a wholly owned subsidiary of Ameribanc, Inc. ("Ameribanc") in
organization, with and into Peoples Bank, whereby, (x) upon consummation of
the Exchange, each share of Peoples Bank common stock that is beneficially
owned by Peoples Bankshares will be transferred to Ameribanc in exchange for
14.4819 shares of MBI common stock and, as soon as practicable but no later
than six months following the Exchange, Peoples Bankshares shall liquidate and
dissolve and effect a liquidation to the stockholders of Peoples Bankshares of
all of the shares of MBI common stock received by Peoples Bankshares in the
Exchange and (y) upon consummation of the Merger, each outstanding share of
Peoples Bank common stock (other than the shares that have been transferred to
Ameribanc pursuant to the Exchange) will be converted into 14.4819 shares of
MBI common stock.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and vote upon a proposal to permit the Special Meeting
to be adjourned or postponed, in the discretion of the proxies, which
adjournment or postponement would be used for the purpose, among others, of
allowing time for the solicitation of additional votes to approve the
Reorganization Agreement.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO
DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" EACH OF
THE PROPOSALS LISTED ABOVE.
Dated: ---------------
------------------------------
Signature of Stockholder
------------------------------
Signature of Stockholder
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> 134
PROXY PEOPLES STATE BANK
1064 S.W. WANAMAKER ROAD
TOPEKA, KANSAS 66604-3888
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 15, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of PEOPLES STATE BANK ("Peoples
Bank"), does hereby nominate, constitute and appoint Richard K. Fieger and
Ronald J. Francis, 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 Peoples Bank standing in the name of the
undersigned on its books at the close of business on June 12, 1996 at the
Special Meeting of Shareholders to be held at Peoples Bank, 1064 S.W. Wanamaker
Road, Topeka, Kansas on Monday, July 15, 1996, at 9:00 a.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 Agreement and Plan of
Reorganization dated as of December 19, 1995 (the "Reorganization
Agreement"), and the related Plan of Merger dated as of May 2, 1996 (the
"Plan of Merger," and, together with the Reorganization Agreement, the
"Acquisition Agreements"), which provide for (i) the exchange (the
"Exchange") of all of the shares of common stock of Peoples State Bank
("Peoples Bank") owned by Peoples Bank for shares of common stock of
Mercantile Bancorporation Inc. ("MBI"), (ii) the merger (the "Merger") of
Mercantile Bank of Shawnee County, a wholly owned subsidiary of Ameribanc,
Inc. ("Ameribanc") in organization, with and into Peoples Bank, whereby, (x)
upon consummation of the Exchange, each share of Peoples Bank common stock
that is beneficially owned by Peoples Bankshares will be transferred to
Ameribanc in exchange for 14.4819 shares of MBI common stock and (y) upon
consummation of the Merger, each outstanding share of Peoples Bank common
stock (other than the shares that have been transferred to Ameribanc pursuant
to the Exchange) will be converted into 14.4819 shares of MBI common stock.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and vote upon a proposal to permit the Special Meeting
to be adjourned or postponed, in the discretion of the proxies, which
adjournment or postponement would be used for the purpose, among others, of
allowing time for the solicitation of additional votes to approve the
Acquisition Agreements.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO
DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" EACH OF
THE PROPOSALS LISTED ABOVE.
Dated: ---------------
------------------------------
Signature of Stockholder
------------------------------
Signature of Stockholder
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> 135
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 of she 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 or her in connection with such action, suit or proceeding if
he or she acted in good faith and in a manner he or she 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
or 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> 136
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> 137
(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> 138
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, MBI
has duly caused this Amendment No. 1 to the Registration Statement relating
to the acquisition of Peoples State Bank to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Louis, State of
Missouri, on June 12, 1996.
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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas H. Jacobsen Chairman of the Board, June 12, 1996
- ------------------------------------ President, Chief Executive
Thomas H. Jacobsen Officer and Director
Principal Executive Officer
/s/ John Q. Arnold Senior Executive Vice President and June 12, 1996
- ------------------------------------ Chief Financial Officer
John Q. Arnold
Principal Financial Officer
/s/ Michael T. Normile Senior Vice President - Finance June 12, 1996
- ------------------------------------ and Control
Michael T. Normile
Principal Accounting Officer
<F*> Director June 12, 1996
- ------------------------------------
Harry M. Cornell, Jr.
<F*> Director June 12, 1996
- ------------------------------------
William A. Hall
<F*> Director June 12, 1996
- ------------------------------------
Thomas A. Hays
II-4
<PAGE> 139
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
<F*> Director June 12, 1996
- ------------------------------------
Frank Lyon, Jr.
Director
- ------------------------------------
Edward A. Mueller
Director
- ------------------------------------
Robert W. Murray
<F*> Director June 12, 1996
- ------------------------------------
Harvey Saligman
<F*> Director June 12, 1996
- ------------------------------------
Craig D. Schnuck
<F*> Director June 12, 1996
- ------------------------------------
Robert L. Stark
<F*> Director June 12, 1996
- ------------------------------------
Patrick T. Stokes
<F*> Director June 12, 1996
- ------------------------------------
John A. Wright
<FN>
<F*>By: /s/ Thomas H. Jacobsen
-----------------------------
Thomas H. Jacobsen
Thomas H. Jacobsen, 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 and previously filed.
</TABLE>
II-5
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ------------ ----
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of
December 19, 1995, by and between MBI and Ameribanc, as
Buyers, and Peoples Bank and Peoples Bankshares, as Sellers.<F*>
2.2 Plan of Merger dated as of May 2, 1996, by and between
Mercantile Bank of Shawnee County (in organization) and
Peoples Bank.<F*>
2.3 Form of Voting Agreement dated as of December 19, 1995, by
and between MBI and certain stockholders of Peoples
Bankshares.<F*>
3.1 MBI's Restated Articles of Incorporation, as amended and
currently in effect, filed as Exhibit 3(i) to MBI's Report
on Form 10-Q for the quarter ended June 30, 1994, are
incorporated herein by reference.
3.2 MBI's By-Laws, as amended and currently in effect, filed as
Exhibit 3.2 to MBI's Report on Form 10-K for the year ended
December 31, 1995, are incorporated herein by reference.
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.
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.
5.1 Opinion of Thompson Coburn as to the legality of the
securities being registered.<F*>
8.1 Opinion of Thompson Coburn regarding certain tax matters in
the Acquisition.<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.
10.2 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.
10.3 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.
<PAGE> 141
<CAPTION>
Exhibit
Number Description Page
- ------ ------------ ----
<S> <C> <C>
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
23.1 Consent of KPMG Peat Marwick LLP with regard to the use of
its reports on MBI's financial statements.<F**>
<PAGE> 142
<CAPTION>
Exhibit
Number Description Page
- ------ ------------ ----
<S> <C> <C>
23.2 Consent of GRA, Thompson, White & Co., P.C. with regard to the use
of its reports on Peoples Bankshares' and Peoples Bank's financial
statements.<F**>
23.3 Consent of Thompson Coburn (included in Exhibit 5.1).<F*>
24.1 Power of Attorney.<F*>
<FN>
<F*> Previously filed.
<F**> Filed herewith.
</TABLE>
<PAGE> 1
Exhibit 8.1
[Letterhead of Thompson Coburn]
May 10, 1996
Board of Directors
Peoples State Bankshares, Inc.
1080 S.W. Wanamaker Road, Suite A
Topeka, Kansas 66604
Board of Directors
Peoples State Bank
1064 S.W. Wanamaker Road
Topeka, Kansas 66604
Ladies and Gentlemen:
You have requested our opinion with regard to certain federal
income tax consequences of the proposed acquisition of all of the issued and
outstanding stock of Peoples State Bank, a Kansas state bank ("Bank"), by
Ameribanc, Inc., a Missouri corporation ("Ameribanc"). Ameribanc is a wholly
owned subsidiary of Mercantile Bancorporation Inc., a Missouri corporation
("MBI"). The proposed acquisition will be accomplished in two simultaneous
steps consisting of (i) an exchange by Ameribanc of solely MBI common stock,
par value $5.00 per share ("MBI Common Stock"), in return for all Bank common
stock, par value $100.00 per share ("Bank Common Stock") owned by Peoples
State Bankshares, Inc., a Kansas corporation ("Bankshares") (the "Exchange"),
and (ii) the merger of a to-be-formed, wholly owned subsidiary of Ameribanc
with and into Bank (the "Merger") pursuant to which the stockholders of Bank
(other than Ameribanc) who do not dissent from the Merger will receive solely
MBI Common Stock in exchange for their Bank Common Stock. In connection with
the Exchange, Bankshares will distribute the MBI Common Stock received and
all of its remaining properties in complete liquidation (the "Liquidation")
and will dissolve in connection with the Liquidation. As soon as practicable
after the Merger, Mercantile Bank of Topeka will be merged with and into
Bank.
In connection with the preparation of our opinion, we have
examined and have relied upon the following:
(i) The Agreement and Plan of Reorganization among MBI,
Ameribanc, Bank and Bankshares dated as of December 19, 1995,
including the schedules and exhibits thereto (the "Agreement");
(ii) MBI's Registration Statement on Form S-4, including the
Joint Proxy Statement/Prospectus contained therein, filed with
the Securities and Exchange Commission on May 10, 1996 (the
"Registration Statement");
(iii) the "Voting Agreements" (as defined in the Registration
Statement) and that agreement described under the caption
"Interests of Certain Persons in the Acquisition" in the
Registration Statement;
(iv) The representations and undertaking of MBI substantially in
the form of Exhibit A hereto;
<PAGE> 2
Peoples State Bankshares, Inc.
Peoples State Bank
May 10, 1996
Page 2
(v) The representations and undertakings of Bankshares and Bank
substantially in the forms of Exhibit B and Exhibit C hereto,
respectively;
(vi) The representations and undertakings of certain holders of
Bankshares common stock, par value $1.00 per share ("Bankshares
Common Stock"), and certain holders of Bank Common Stock,
generally in the forms of Exhibit D and Exhibit E hereto,
respectively; and
(vii) The Rights Plan between MBI and Mercantile Bank of St.
Louis National Association as rights agent dated May 23, 1988.
Our opinion is based solely upon applicable law and the factual
information and undertakings contained in the above-mentioned documents. In
rendering our opinion, we have assumed the accuracy of all information and
the performance of all undertakings contained in each of such documents. We
also have assumed the authenticity of all original documents, the conformity
of all copies to the original documents, and the genuineness of all
signatures. We have not attempted to verify independently the accuracy of
any information in any such document, and we have assumed that such documents
accurately and completely set forth all material facts relevant to this
opinion. All of our assumptions were made with your consent. If any fact or
assumption described herein or below is incorrect, any or all of the federal
income tax consequences described herein may be inapplicable.
OPINION
Subject to the foregoing, to the conditions and limitations
expressed elsewhere herein, and assuming that the Merger is consummated in
accordance with the Agreement, we are of the opinion that for federal income
tax purposes, each of the Exchange and the Merger will constitute a
reorganization within the meaning of section 368(a)(1) of the Internal
Revenue Code of 1986, as amended to the date hereof (the "Code"), with the
following federal income tax consequences:
1. No gain or loss will be recognized by Bankshares on its
transfer of Bank Common Stock solely in exchange for MBI Common Stock in the
Exchange.
2. No gain or loss will be recognized by Bankshares on its
distribution of MBI Common Stock in the Liquidation.
3. Each stockholder of Bankshares who exchanges, in the
Liquidation, his or its shares of Bankshares Common Stock solely for shares
of MBI Common Stock:
a) will recognize no gain or loss as a result of the
exchange, except with regard to cash received in lieu of a
fractional share, as discussed below (Code section 354(a)(1));
b) will have an aggregate basis for the shares of MBI
Common Stock received equal to the aggregate adjusted tax basis
of the shares of Bank Common Stock surrendered (Code section
358(a)(1)); and
<PAGE> 3
Peoples State Bankshares, Inc.
Peoples State Bank
May 10, 1996
Page 3
c) will have a holding period for the shares of MBI
Common Stock received which includes the period during which the
shares of Bank Common Stock surrendered were held, provided that
the shares of Bank Common Stock surrendered were capital assets
in the hands of such holder at the time of the Liquidation (Code
section 1223(1)).
4. Each stockholder of Bank who exchanges, in the Merger, his
or its shares of Bank Common Stock solely for shares of MBI Common Stock:
a) will recognize no gain or loss as a result of the
exchange, except with regard to cash received in lieu of a
fractional share, as discussed below (Code section 354(a)(1));
b) will have an aggregate basis for the shares of MBI
Common Stock received (including any fractional share of MBI
Common Stock deemed to be received, as described in paragraph 5,
below) equal to the aggregate adjusted tax basis of the shares of
Bank Common Stock surrendered (Code section 358(a)(1)); and
c) will have a holding period for the shares of MBI
Common Stock received (including any fractional share of MBI
Common Stock deemed to be received, as described in paragraph 5,
below) which includes the period during which the shares of Bank
Common Stock surrendered were held, provided that the shares of
Bank Common Stock surrendered were capital assets in the hands
of such holder at the time of the Merger (Code section 1223(1)).
5. Each stockholder of Bank who receives, in the Merger, cash
in lieu of a fractional share of MBI Common Stock will be treated as if the
fractional share had been received in the Merger and then redeemed by MBI.
Provided that the shares of Bank Common Stock surrendered were capital assets
in the hands of such holder at the time of the Merger, 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 basis in the shares of MBI Common Stock allocable to the fractional
share (Code sections 1001 and 1222; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev.
Proc. 77-41, 1977-2 C.B. 574).
* * * * * * * * * * * *
We express no opinion with regard to (1) the federal income tax
consequences of the Merger not addressed expressly by this opinion, including
without limitation, (i) the tax consequences, if any, to those stockholders
of Bank who acquired shares of Bank Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation, and (ii) the tax
consequences to special classes of stockholders, if any, including without
limitation, foreign persons, insurance companies, tax-exempt entities,
retirement plans, and dealers in securities; and (2) federal, state, local,
or foreign taxes (or any other federal, state, local, or foreign laws) not
specifically referred to and discussed herein. Further, our opinion is based
upon the Code, Treasury Regulations proposed or promulgated thereunder, and
administrative interpretations and judicial precedents relating thereto, all of
which are subject to change at any time, possibly with retroactive effect, and
<PAGE> 4
Peoples State Bankshares, Inc.
Peoples State Bank
May 10, 1996
Page 4
we assume no obligation to advise you of any subsequent change thereto. If
there is any change in the applicable law or regulations, or if there is any
new administrative or judicial interpretation of the applicable law or
regulations, any or all of the federal income tax consequences described
herein may become inapplicable.
The foregoing opinion reflects our legal judgment solely on the
issues presented and discussed herein. This opinion has no official status
or binding effect of any kind. Accordingly, we cannot assure you that the
Internal Revenue Service or any court of competent jurisdiction will agree
with this opinion.
We hereby consent to the filing of this letter as an exhibit to
the Registration Statement and to all references made to this letter and to
this firm in the Registration Statement.
Very truly yours,
/s/ Thompson Coburn
<PAGE> 5
Exhibit A
CERTIFICATE
-----------
The undersigned, * , [Undersigned's Title] of
----------------
Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), HEREBY
CERTIFIES that (a) I am familiar with the terms and conditions of the
Agreement and Plan of Reorganization among MBI, Ameribanc, Inc., a Missouri
corporation ("Ameribanc"), Peoples State Bank, a Kansas state bank ("Bank"),
and Peoples State Bankshares, Inc., a Kansas corporation ("Bankshares") dated
as of December 19, 1995, including the schedules and exhibits thereto (the
"Agreement"), and (b) I am aware that, pursuant to the Agreement, Ameribanc
will acquire all outstanding Bank common stock, par value $100.00 per share
("Bank Common Stock"), solely in exchange for MBI common stock, par value
$5.00 per share ("MBI Common Stock"), in two simultaneous transactions
consisting of (i) an exchange by Bankshares of its Bank Common Stock solely
in return for MBI Common Stock to be issued on behalf of Ameribanc (the
"Exchange"), and (ii) the merger of a to-be-formed, wholly owned subsidiary
of Ameribanc ("Acquisition Bank") with and into Bank (the "Merger" and,
collectively with the Exchange, the "Acquisition") pursuant to which the
stockholders of Bank (other than Ameribanc) who do not dissent from the
Merger will receive solely MBI Common Stock; and (c) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for MBI and
Ameribanc, in rendering its opinion to Bankshares and Bank that the Exchange
and the Merger will each constitute a reorganization within the meaning of
section 368 of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) the representations and undertaking recited herein will survive the
Exchange and the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF MBI, that:
(1) Neither MBI nor any other member of MBI's "affiliated
group" (as the quoted term is defined in Code section 1504, the "MBI
Affiliated Group") has owned, directly or indirectly, any stock of Bank
within the last five years.
(2) Before the Merger, Ameribanc will be in control of
Acquisition Bank within the meaning of section 368(c) of the Code.
(3) Before the Merger, Acquisition Bank will have no assets or
liabilities other than assets, if any, received from Ameribanc to satisfy
Acquisition Bank's capitalization requirements
<PAGE> 6
(the "Minimum Assets"). MBI will cause the Minimum Assets to be returned to
Ameribanc within thirty (30) days after the Merger by means of a dividend
distribution or other payment.
(4) No indebtedness between Bankshares, Bank, or any other
member of Bankshares's "affiliated group" (as the quoted term is defined in
Code section 1504, the "Bankshares Affiliated Group"), on the one hand, and
MBI or any other member of the MBI Affiliated Group, on the other hand,
exists or will exist prior to the Acquisition that (a) was issued or acquired
at a discount, (b) will be settled, as a result of the Acquisition, at a
discount, or (c) will result in the recognition of gain under Treasury
Regulation Sec. 1.1502-13. No "installment obligation" (as the quoted term
is defined for purposes of Code section 453B) between Bank, on the one hand,
and MBI or Acquisition Bank, on the other hand, exists or will exist prior to
the Merger that will be extinguished as a result of the Merger.
(5) The fair market value of the MBI Common Stock to be
received by each Bank stockholder in the Acquisition (including cash to be
received in lieu of fractional shares of MBI Common Stock, if any) will be
approximately equal to the fair market value of the Bank Common Stock
surrendered in the Acquisition by each such stockholder.
(6) Except as otherwise set forth by the undersigned on an
attachment hereto, MBI is aware of no plan, intention or arrangement
(including any option or pledge) on the part of any holder of Bankshares
Common Stock or Bank Common Stock to sell, exchange or otherwise dispose of
any of the MBI Common Stock to be received in connection with the Acquisition
or the subsequent liquidation of Bankshares, with the exception of fractional
shares of MBI Common Stock to be exchanged for cash pursuant to the
Acquisition.
(7) The payment of cash in lieu of fractional shares of MBI
Common Stock in the Acquisition will be solely for the purpose of avoiding
the expense and inconvenience to MBI of issuing fractional shares and will
not represent separately bargained-for consideration. The total cash
consideration that will be paid in the Acquisition to the stockholders of
Bankshares and Bank in lieu of fractional shares of MBI Common Stock will not
exceed one percent of the total consideration that will be issued in the
Acquisition. The fractional share interests of each Bank stockholder will be
aggregated, and no Bank stockholder will receive cash in lieu of fractional
share interests in an amount equal to or greater than the value of one full
share of MBI Common Stock.
<PAGE> 7
(8) MBI, Acquisition Bank, Bankshares, the stockholders of
Bankshares, Bank, and the stockholders of Bank will each pay their respective
expenses, if any, incurred in connection with the Acquisition; provided,
however, that Ameribanc (and not MBI) will pay or assume those expenses set
forth in Section 5.08 of the Agreement.
(9) Except with regard to Transaction Costs (as defined below),
neither MBI nor any other member of the MBI Affiliated Group will pay (or
lend) any amount or incur (or guarantee) any liability to or for the benefit
of, or assume or cancel any liability of, Bankshares, Bank, any stockholder
of Bankshares, any stockholder of Bank or any other member of the Bankshares
Affiliated Group in connection with the Exchange or the Merger, and no
liability to which Bank Common Stock or Bankshares Common Stock is subject
will be extinguished as a result of the Merger.
For purposes of this representation, any payment (or loan) to or
for the benefit of Bankshares or any stockholder of Bankshares or Bank
(including without limitation, any payment from Bankshares or Bank in the
form of a dividend, distribution, or redemption, or any payment to a
dissenter) with cash or other property furnished (or reimbursed), directly or
indirectly, by MBI or any other member of the MBI Affiliated Group will be
treated as a payment by MBI to or for the benefit of a stockholder of
Bankshares or Bank.
For purposes of this representation, the term "liability" shall
include any undertaking to pay or to cause the reduction, release, or
extinguishment of any obligation, without regard to whether any such
undertaking or obligation is contingent or legally enforceable (for example
and without limitation, the term "liability" includes an unenforceable
agreement to cause the repayment of an obligation guaranteed by a stockholder
of Bankshares or Bank or to cause by other means the release of such
guaranty).
For purposes of this representation, the term "Transaction Costs"
shall mean amounts paid or liabilities incurred in connection with the Merger
(i) to Bank stockholders with respect to the MBI Common Stock (including cash
in lieu of fractional shares thereof) to be delivered in the Merger, (ii) by
MBI or any other member of the MBI Affiliated Group for legal, accounting,
and investment banking and/or advisor services rendered to MBI or any other
member of the MBI Affiliated Group, (iii) for those expenses payable or
assumable by Ameribanc in accordance with representation 8 above, (iv) as
compensation to any employee of MBI or of any member of the MBI Affiliated
Group for services rendered in the ordinary course of his or her employment,
and (v) compensation to any employee of Bank that qualifies under
representation (15) below.
<PAGE> 8
(10) All payments made to dissenters, if any, and all expenses
incurred by Bank in connection with the Acquisition and not paid by Bank
before the Effective Date will be funded with Bank assets from an escrow to
be established and funded before the Acquisition by Bank for that purpose, as
described in Section 5.16 of the Agreement (the "Escrow").
(11) Neither MBI nor any other member of the MBI Affiliated
Group has any plan or intention to redeem or otherwise reacquire any of the
MBI Common Stock issued to the stockholders of Bank in the Merger.
(12) After the Merger, (a) Ameribanc will not issue additional
shares of its stock that would result in MBI losing control of Ameribanc
within the meaning of section 368(c) of the Code, and (b) neither Ameribanc
nor any other member of the MBI Affiliated Group will have outstanding any
warrants, options, convertible securities, or any other type of right
(including any preemptive right) pursuant to which any person could acquire
stock in Ameribanc that, if exercised or converted, would affect MBI's
retention of control of Ameribanc (as defined above).
(13) Neither MBI nor any other member of the MBI Affiliated
Group has any plan or intention (a) to liquidate Bank or Ameribanc, (b) to
merge Bank or Ameribanc with and into another corporation, (c) except for
transfers of Bank stock to controlled corporations (as described in section
368(a)(2)(C) of the Code), to sell or otherwise dispose of (whether by
dividend distribution or otherwise) the stock of Bank or Ameribanc, or (d)
except for dispositions made in the ordinary course of business or
dispositions approved in writing by Thompson Coburn, to cause, suffer, or
permit Bank to sell or otherwise dispose of (whether by dividend distribution
or otherwise) (i) any assets of Bank (excluding any assets of Acquisition
Bank acquired by Bank as a result of the Merger and excluding any funds
deposited in the Escrow that are paid out by the Escrow in accordance with
the terms of the Escrow) or (ii) any assets of any other member of the
Bankshares Affiliated Group.
The proposed merger of Mercantile Bank of Topeka, a Kansas state
bank, with and into Bank (the "Topeka Merger") after the Acquisition is not a
plan or intention described in this representation 13. There will be no
dissenters to the Topeka Merger, Bank will not dispose of any of its assets
(or any assets of any other member of the Bankshares Affiliated Group) in
connection with the Topeka Merger, and Bank (and its Kansas banking charter,
as may be amended in connection with the Topeka Merger) will survive the
Topeka Merger.
<PAGE> 9
(14) After the Merger, Ameribanc and Bank will continue the
historic businesses of Bank and the other members of the Bankshares
Affiliated Group, or will use a significant portion of the historic business
assets of the members of the Bankshares Affiliated Group in a business (no
stock of any member of the Bankshares Affiliated Group shall be treated as a
business asset for purposes of this representation).
(15) None of the compensation to be paid or accrued after the
Merger to or for the benefit of any stockholder-employee of Bank will be
separate consideration for, or allocable to, any of his or her shares of Bank
Common Stock; none of the shares of MBI Common Stock received in the Merger
by any Bank stockholder-employee will be separate consideration for, or
allocable to, any employment agreement; and all compensation to be paid or
accrued after the Merger to or for the benefit of any Bank stockholder-
employee will be for services actually rendered in the ordinary course of
his or her employment and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(16) With regard to the Rights Plan between MBI and Mercantile
Bank of St. Louis National Association as rights agent, dated May 23, 1988
(the "Rights Agreement"), no "Distribution Date" (as the quoted term is
defined in the Rights Agreement) has occurred, and the Acquisition will not
cause the occurrence of a Distribution Date.
(17) The Agreement, the "Voting Agreements" (as defined in the
Registration Statement) and that agreement described under the caption
"Interests of Certain Persons in the Acquisition" in the Registration
Statement (including, in each case, the schedules and exhibits thereto,
collectively, the "Acquisition Documents") represent all of the agreements and
understandings between or among MBI, Bankshares, Bank or the stockholders and
employees of each of Bankshares and Bank in connection with the Exchange and
the Merger. No terms of the Acquisition Documents have been waived or
modified.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Merger.
<PAGE> 10
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of MBI this ----- day of ------------, 1996.
--------------------------------
<PAGE> 11
Exhibit B
CERTIFICATE
-----------
The undersigned, , [Undersigned's Title] of
-------------------
Peoples State Bankshares, Inc., a Kansas corporation ("Bankshares"), HEREBY
CERTIFIES that (a) I am familiar with the terms and conditions of the
Agreement and Plan of Reorganization among Mercantile Bancorporation Inc., a
Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation
("Ameribanc"), Peoples State Bank, a Kansas state bank ("Bank"), and
Bankshares dated as of December 19, 1995, including the schedules and
exhibits thereto (the "Agreement"), and (b) I am aware that, pursuant to the
Agreement, Ameribanc will acquire all outstanding Bank common stock, par
value $100.00 per share ("Bank Common Stock"), solely in exchange for MBI
common stock, par value $5.00 per share ("MBI Common Stock"), in two
simultaneous transactions consisting of (i) an exchange by Bankshares of its
Bank Common Stock solely in return for MBI Common Stock to be issued on
behalf of Ameribanc (the "Exchange"), and (ii) the merger of a to-be-formed,
wholly owned subsidiary of Ameribanc with and into Bank (the "Merger")
pursuant to which the stockholders of Bank (other than Ameribanc) who do not
dissent from the Merger will receive solely MBI Common Stock; and (c) I am
aware that (i) this Certificate will be relied on by Thompson Coburn, counsel
for MBI and Ameribanc, in rendering its opinion to Bankshares and Bank that
the Exchange and the Merger will each constitute a reorganization within the
meaning of section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) the representations and undertaking recited herein will
survive the Exchange and the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Bankshares,
that:
(1) To the best knowledge of the undersigned, neither MBI nor
any other member of MBI's "affiliated group" (as the quoted term is defined
in Code section 1504, the "MBI Affiliated Group") has owned, directly or
indirectly, any stock of Bankshares or Bank within the last five years.
(2) No indebtedness between Bankshares or any other member of
Bankshares's "affiliated group" (as the quoted term is defined in Code
section 1504, the "Bankshares Affiliated Group"), on the one hand, and MBI or
any other member of the MBI Affiliated Group, on the other hand, exists or
will exist prior to the effective time of the Exchange (the "Effective Time")
that (a) was issued or acquired at a discount, (b) will be settled, as a
result of the Exchange, at a discount, or (c) will result in the recognition
of gain under Treasury Regulation Sec. 1.1502-13. No "installment
<PAGE> 12
obligation" (as the quoted term is defined for purposes of Code section
453B), between Bankshares, on the one hand, and MBI or Ameribanc, on the
other hand, exists or will exist prior to the Exchange that will be
extinguished as a result of the Exchange.
(3) At the Effective Time and except with regard to Transaction
Costs (as defined below), each liability of Bankshares and each liability to
which an asset of Bankshares is subject will have been incurred by Bankshares
in the ordinary course of business and no such liability will have been
incurred in anticipation of the Exchange. In addition, at the time of the
Exchange and except with regard to Transaction Costs, Bankshares will not,
directly or indirectly, have paid (or loaned) any amount or incurred any
liability to or for the benefit of, or assumed or cancelled any liability of,
any stockholder of Bankshares or Bank in connection with the Exchange or the
Merger.
No liabilities of Bankshares will be assumed (or guaranteed) by
MBI or any other member of the MBI Affiliated Group, and the Bank Common
Stock to be acquired by Ameribanc will not be subject to any liabilities at
the Effective Time. No liabilities of Bankshares will be assumed by Bank in
connection with the Exchange or the Merger, and all shared liabilities of
Bankshares and Bank (including joint and several liabilities for such items
as federal income taxes and certain pension liabilities) will be allocated
between Bankshares and Bank pursuant to agreements containing terms similar
to those contained in arm's length agreements between unrelated parties.
For purposes of this representation, (a) the term "Bankshares"
shall be deemed also to refer to each other member of the Bankshares
Affiliated Group, (b) the term "liability" shall include any undertaking to
pay or to cause the reduction, release, or extinguishment of, any obligation,
without regard to whether any such undertaking or obligation is contingent or
legally enforceable (for example and without limitation, the term "liability"
includes an unenforceable agreement to cause the repayment of an obligation
guaranteed by a Bankshares stockholder or to cause by other means the release
of such guaranty), and (c) the term "Transaction Costs" shall mean amounts
paid or liabilities incurred in connection with the Exchange or the Merger
(i) to dissenters, if any, (ii) for legal, accounting, and investment banking
and/or advisor services rendered to Bankshares or any other member of the
Bankshares Affiliated Group, if any, and (iii) as compensation to any
employee of Bankshares or any other member of the Bankshares Affiliated Group
for services rendered in the ordinary course of his or her employment.
(4) At the Effective Time, neither Bankshares nor any other
member of the Bankshares Affiliated Group will have outstanding any warrants,
options, convertible securities, or
<PAGE> 13
any other type of right (including any preemptive right) pursuant to which
any person could acquire stock in Bank.
(5) In the Exchange, Bankshares will transfer to Ameribanc
assets representing at least 90 percent of the fair market value of the net
assets and at least 70 percent of the fair market value of the gross assets,
in each case, that were held by Bankshares immediately prior to the Exchange.
For purposes of this representation, Bankshares assets used to pay
stockholders who receive cash, and Bankshares assets used to pay expenses of
the Exchange or the Merger or to fund any redemption or distribution within
24 months before the Effective Time (except for regular, normal dividends)
shall be included as assets of Bankshares held immediately prior to the
Exchange. For purposes of this representation, any asset of Bankshares or
any other member of the Bankshares Affiliated Group that is disposed of
within 24 months before the Effective Time other than in the ordinary course
of business also shall be included as an asset of Bankshares held immediately
prior to the Exchange (including, for example and without limitation, funds
to be deposited by Bank in the escrow described in Section 5.16 of the
Agreement for the purpose of paying dissenters and expenses of the Merger
(the "Escrow"), but excluding the August 1994 disposition of Citizens State
Bank, a Kansas state bank ("Citizens")).
(6) At the time of the disposition of Citizens in August 1994,
there was no plan, intention or arrangement to dispose of Bank. In excess of
90 percent of the proceeds from such disposition (i) were used by Bankshares
to fund operating expenses, to repay loans incurred to purchase the stock of
Citizens and/or Bank, or (ii) have been retained by Bankshares. A portion of
the proceeds were used to pay bonuses to employee stockholders of Bankshares
in January of 1995, none of which bonuses constituted unreasonable
compensation. Other than these bonuses, none of such proceeds were used to
fund any distribution to stockholders of Bankshares.
(7) The fair market value of the MBI Common Stock to be
received by each Bankshares stockholder in connection with the Exchange
(pursuant to the subsequent liquidation of Bankshares) will be approximately
equal to the fair market value of the Bankshares common stock, par value
$1.00 per share ("Bankshares Common Stock"), surrendered in connection with
the Exchange by each such stockholder.
(8) None of the compensation paid or accrued to or for the
benefit of any Bankshares stockholder-employee will be separate consideration
for, or allocable to, any of his or her
<PAGE> 14
shares of Bankshares Common Stock; none of the shares of MBI Common Stock
received in the Exchange by any Bankshares stockholder-employee will be
separate consideration for, or allocable to, any employment agreement; and
all compensation paid or accrued to or for the benefit of any Bankshares
stockholder-employee will be for services actually rendered in the ordinary
course of his or her employment and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services and
Bankshares's past practices.
(9) There is no plan, intention or other arrangement (including
any option or pledge) on the part of the holders of 1% or more of the
Bankshares Common Stock and, to the best knowledge of the undersigned, there
is no plan, intention or other arrangement (including any option or pledge)
on the part of the other holders of Bankshares Common Stock to sell, exchange
or otherwise dispose of a number of shares of MBI Common Stock received by
such holders in connection with the Exchange (pursuant to the subsequent
liquidation of Bankshares) that would reduce such holders' aggregate
ownership of MBI Common Stock to a number of shares having a value, as of the
Effective Time, of less than 50 percent of the value of all of the formerly
outstanding Bankshares Common Stock as of the Effective Time. For purposes
of this representation, shares of Bankshares Common Stock exchanged for cash
or other property, surrendered by dissenters, or exchanged for cash in lieu
of fractional shares of MBI Common Stock will be treated as outstanding as of
the Effective Time. Moreover, all shares of Bankshares Common Stock and
shares of MBI Common Stock held by Bankshares stockholders and otherwise
sold, redeemed, or disposed of before or after the Effective Time will be
taken into account in making this representation. All of the MBI Common
Stock received by Bankshares in the Exchange will be distributed by
Bankshares in the liquidation of Bankshares described in representation (13)
below.
(10) The total cash consideration that will be paid in the
Exchange to Bankshares in lieu of a fractional share of MBI Common Stock will
not exceed the value of one share of MBI Common Stock.
(11) Expenses, if any, that are incurred in connection with the
Exchange and are properly attributable to Bankshares's stockholders will be
paid by those stockholders and not by Bankshares. Bankshares will pay its
own expenses that are incurred in connection with the Exchange.
(12) Bankshares is not an investment company as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
<PAGE> 15
(13) No stock of Bankshares will be issued after the execution
date of the Agreement. Bankshares will distribute all of its properties
(including the MBI Common Stock received in the Exchange) and liabilities to
its stockholders no later than six months after the Effective Time and will
at that time be dissolved. Bankshares will make all liquidating and other
distributions after the Effective Time on a pro rata basis in accordance with
the fair market value of the Bankshares Common Stock held by each stockholder
of Bankshares at the Effective Time.
(14) The Agreement, the "Voting Agreements" (as defined in the
Registration Statement) and that agreement described under the caption
"Interests of Certain Persons in the Acquisition" in the Registration Statement
(including, in each case, the schedules and exhibits thereto, collectively, the
"Acquisition Documents") represent all of the agreements and understandings
between or among MBI, Bankshares, Bank or the stockholders and employees of
each of Bankshares and Bank in connection with the Exchange and the Merger. No
terms of the Acquisition Documents have been waived or modified.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Exchange.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of Bankshares this ----- day of ---------------, 1996.
--------------------------------
<PAGE> 16
Exhibit C
CERTIFICATE
-----------
The undersigned, , [Undersigned's Title] of
-------------------
Peoples State Bank, a Kansas state bank ("Bank"), HEREBY CERTIFIES that (a) I
am familiar with the terms and conditions of the Agreement and Plan of
Reorganization among Mercantile Bancorporation Inc., a Missouri corporation
("MBI"), Ameribanc, Inc., a Missouri corporation ("Ameribanc"), Bank, and
Peoples State Bankshares, Inc., a Kansas corporation ("Bankshares"), dated as
of December 19, 1995, including the schedules and exhibits thereto (the
"Agreement"), and (b) I am aware that, pursuant to the Agreement, Ameribanc
will acquire all outstanding Bank common stock, par value $100.00 per share
("Bank Common Stock"), solely in exchange for MBI common stock, par value
$5.00 per share ("MBI Common Stock"), in two simultaneous transactions
consisting of (i) an exchange by Bankshares of its Bank Common Stock solely
in return for MBI Common Stock to be issued on behalf of Ameribanc (the
"Exchange"), and (ii) the merger of a to-be-formed, wholly owned subsidiary
of Ameribanc with and into Bank (the "Merger") pursuant to which the
stockholders of Bank (other than Ameribanc) who do not dissent from the
Merger will receive solely MBI Common Stock; and (c) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for MBI and
Ameribanc, in rendering its opinion to Bankshares and Bank that the Exchange
and the Merger will each constitute a reorganization within the meaning of
section 368 of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) the representations and undertaking recited herein will survive the
Exchange and the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Bank,
that:
(1) To the best knowledge of the undersigned, neither MBI nor
any other member of MBI's "affiliated group" (as the quoted term is defined
in Code section 1504, the "MBI Affiliated Group") has owned, directly or
indirectly, any stock of Bankshares or Bank within the last five years.
(2) No indebtedness between Bank or any other member of
Bankshares's "affiliated group" (as the quoted term is defined in Code
section 1504, the "Bankshares Affiliated Group"), on the one hand, and MBI or
any other member of the MBI Affiliated Group, on the other hand, exists or
will exist prior to the effective time of the Merger (the "Effective Time")
that (a) was issued or acquired at a discount, (b) will be settled, as a
result of the Merger, at a discount, or (c) will result in the recognition of
gain under Treasury Regulation Sec. 1.1502-13. No "installment
<PAGE> 17
obligation" (as the quoted term is defined for purposes of Code section
453B), between Bank, on the one hand, and Ameribanc or Mercantile Bank of
Topeka, a Kansas state bank, on the other hand, exists or will exist prior to
the Merger that will be extinguished as a result of the Merger.
(3) At the Effective Time, the fair market value of the assets
of Bank will exceed the sum of the amount of liabilities of Bank, plus the
amount of liabilities, if any, to which Bank's assets are then subject.
(4) At the Effective Time and except with regard to Transaction
Costs (as defined below), each liability of Bank and each liability to which
an asset of Bank is subject will have been incurred by Bank in the ordinary
course of business and no such liability will have been incurred in
anticipation of the Merger. In addition, at the time of the Merger and
except with regard to Transaction Costs, Bank will not, directly or
indirectly, have paid (or loaned) any amount or incurred any liability to or
for the benefit of, or assumed or cancelled any liability of, any stockholder
of Bank or Bankshares in connection with the Merger.
No liabilities of Bank will be assumed (or guaranteed) by MBI or
any other member of the MBI Affiliated Group. No liabilities of Bankshares
will be assumed by Bank in connection with the Exchange or the Merger, and
all shared liabilities of Bankshares and Bank (including joint and several
liabilities for such items as federal income taxes and certain pension
liabilities) will be allocated between Bankshares and Bank pursuant to
agreements containing terms similar to those contained in arm's length
agreements between unrelated parties.
For purposes of this representation, (a) the term "Bank" shall be
deemed also to refer to each other member of the Bankshares Affiliated Group,
(b) the term "liability" shall include any undertaking to pay or to cause the
reduction, release, or extinguishment of, any obligation, without regard to
whether any such undertaking or obligation is contingent or legally
enforceable (for example and without limitation, the term "liability"
includes an unenforceable agreement to cause the repayment of an obligation
guaranteed by a Bank stockholder or to cause by other means the release of
such guaranty), and (c) the term "Transaction Costs" shall mean amounts paid
or liabilities incurred in connection with the Merger (i) to dissenters, if
any, (ii) for legal, accounting, and investment banking and/or advisor
services rendered to Bank or any subsidiary of Bank, if any, and (iii) as
compensation to any employee of Bank or any subsidiary of Bank for services
rendered in the ordinary course of his or her employment.
<PAGE> 18
(5) At the Effective Time, neither Bank nor any other member of
the Bankshares Affiliated Group will have outstanding any warrants, options,
convertible securities, or any other type of right (including any preemptive
right) pursuant to which any person could acquire stock in Bank.
(6) The fair market value of the MBI Common Stock to be
received by each Bank stockholder in the Merger (including cash to be
received in lieu of fractional shares of MBI Common Stock, if any) will be
approximately equal to the fair market value of the Bank Common Stock
surrendered in the Merger by each such stockholder.
(7) None of the compensation paid or accrued before the Merger
to or for the benefit of any Bank stockholder-employee will be separate
consideration for, or allocable to, any of his or her shares of Bank Common
Stock; none of the shares of MBI Common Stock received in the Merger by any
Bank stockholder-employee will be separate consideration for, or allocable
to, any employment agreement; and all compensation paid or accrued before the
Merger to or for the benefit of any Bank stockholder-employee will be for
services actually rendered in the ordinary course of his or her employment
and will be commensurate with amounts paid to third parties bargaining at
arm's length for similar services.
(8) There is no plan, intention or other arrangement (including
any option or pledge) on the part of the holders of 1% or more of the Bank
Common Stock and, to the best knowledge of the undersigned, there is no plan,
intention or other arrangement (including any option or pledge) on the part
of the other holders of Bank Common Stock to sell, exchange or otherwise
dispose of a number of shares of MBI Common Stock received by such holders in
the Merger that would reduce such holders' aggregate ownership of MBI Common
Stock to a number of shares having a value, as of the Effective Time, of less
than 50 percent of the value of all of the formerly outstanding Bank Common
Stock as of the Effective Time. For purposes of this representation, shares
of Bank Common Stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of MBI Common
Stock will be treated as outstanding as of the Effective Time. Moreover, all
shares of Bank Common Stock and shares of MBI Common Stock held by Bank
stockholders and otherwise sold, redeemed, or disposed of before or after the
Effective Time will be taken into account in making this representation.
(9) The payment of cash in lieu of fractional shares of MBI
Common Stock will be solely for the purpose of avoiding the expense and
inconvenience to MBI of issuing fractional
<PAGE> 19
shares and will not represent separately bargained-for consideration. The
total cash consideration that will be paid in the Merger to the Bank
stockholders in lieu of fractional shares of MBI Common Stock will not exceed
one percent of the total consideration that will be issued in the transaction
to the Bank stockholders in exchange for their shares of Bank Common Stock.
The fractional share interests of each Bank stockholder will be aggregated,
and no Bank stockholder will receive cash in lieu of fractional share
interests in an amount equal to or greater than the value of one full share
of MBI Common Stock.
(10) Expenses, if any, that are incurred in connection with the
Merger and are properly attributable to Bank's stockholders (including
Bankshares) will be paid by those stockholders and not by Bank. Bank will
pay its own expenses that are incurred in connection with the Merger.
(11) All payments made to dissenters and all expenses of Bank
incurred in connection with the Merger that remain unpaid at the Effective
Time, if any, will be paid from the escrow described in Section 5.16 of the
Agreement (the "Escrow"). The Escrow will be established and funded with
Bank assets for that purpose before the Merger.
(12) The assets held by Bank immediately after the Effective
Time would be sufficient to enable Bank to continue all its operations at
current levels of activity and in accordance with past practice, without
resort to additional capital or borrowed funds. For purposes of this
representation, Bank assets used to pay dissenters or to pay stockholders who
receive cash, and Bank assets used to pay expenses of the Merger or to fund
the Escrow shall not be treated as assets held by Bank immediately prior to
the Merger.
(13) Immediately after the Effective Time, Bank will hold assets
representing at least 90 percent of the fair market value of the net assets
and at least 70 percent of the fair market value of the gross assets, in each
case, that were held by Bank immediately prior to the Merger. For purposes
of this representation, Bank assets used to pay dissenters or to pay
stockholders who receive cash, and Bank assets used to pay expenses of the
Merger, to fund the Escrow or to fund any redemption or distribution within
24 months before the Merger (except for regular, normal dividends) shall be
included as assets of Bank held immediately prior to the Merger. For
purposes of this representation, any asset of Bank or any subsidiary of Bank
that is disposed of within 24 months before the Merger other than in the
ordinary course of business also shall be included as an asset of Bank held
immediately prior to the Merger.
<PAGE> 20
(14) The Agreement, the "Voting Agreements" (as defined in the
Registration Statement) and that agreement described under the caption
"Interests of Certain Persons in the Acquisition" in the Registration Statement
(including, in each case, the schedules and exhibits thereto, collectively,
the "Acquisition Documents") represent all of the agreements and understandings
between or among MBI, Bankshares, Bank or the stockholders and employees of
each of Bankshares and Bank in connection with the Exchange and the Merger. No
terms of the Acquisition Documents have been waived or modified.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Merger.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of Bank this ----- day of ---------------, 1996.
--------------------------------
<PAGE> 21
Exhibit D
CERTIFICATE
-----------
The undersigned stockholder of Peoples State Bankshares, Inc., a
Kansas corporation ("Bankshares"), [stockholder's name], a holder of *
-------------------- -----
shares of Bankshares common stock, par value $1.00 per share ("Bankshares
Common Stock"), HEREBY CERTIFIES that (a) I am familiar with the terms and
conditions of the Agreement and Plan of Reorganization among Mercantile
Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc, Inc., a
Missouri corporation ("Ameribanc"), Peoples State Bank, a Kansas state bank
("Bank"), and Bankshares dated as of December 19, 1995 (the "Agreement"),
and (b) I am aware that, pursuant to the Agreement, Ameribanc will acquire all
outstanding Bank common stock, par value $100.00 per share ("Bank Common
Stock"), solely in exchange for MBI common stock, par value $5.00 per share
("MBI Common Stock"), in two simultaneous transactions consisting of (i) an
exchange by Bankshares of its Bank Common Stock solely in return for MBI Common
Stock to be issued on behalf of Ameribanc (the "Exchange"), and (ii) the merger
of a to-be-formed, wholly owned subsidiary of Ameribanc with and into Bank
pursuant to which the stockholders of Bank (other than Ameribanc) who do not
dissent from the Merger will receive solely MBI Common Stock; and (c) I am
aware that (i) this Certificate will be relied on by Thompson Coburn, counsel
for MBI and Ameribanc, in rendering its opinion to Bankshares and Bank that
the Exchange and the Merger will each constitute a reorganization within the
meaning of section 368 of the Internal Revenue Code of 1986, as amended, and
(ii) the representations and undertaking recited herein will survive the
Exchange and the Merger.
The undersigned HEREBY FURTHER CERTIFIES that the undersigned has
no plan, intention or arrangement to sell, exchange or otherwise dispose of
(including any option, pledge or transfer in trust) any of the MBI Common
Stock to be received in connection with the Exchange and subsequent
liquidation of Bankshares.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Merger.
<PAGE> 22
IN WITNESS WHEREOF, the undersigned has executed this
certificate, or caused this certificate to be executed by its duly authorized
representative, this ----- day of ---------------, 1996.
--------------------------------
<PAGE> 23
Exhibit E
CERTIFICATE
-----------
The undersigned stockholder of Peoples State Bank, a Kansas state
bank ("Bank"), [stockholder's name], a holder of * shares of Bank
-------------------- -----
common stock, par value $100.00 per share ("Bank Common Stock"), HEREBY
CERTIFIES that (a) I have been advised that an Agreement and Plan of
Reorganization has been entered into among Mercantile Bancorporation Inc., a
Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation
("Ameribanc"), Bank and Peoples State Bankshares, a Kansas corporation
("Bankshares") dated as of December 19, 1995, and (b) I am aware that,
pursuant to the Agreement, Ameribanc will acquire all outstanding Bank common
stock, par value $100.00 per share ("Bank Common Stock"), solely in exchange
for MBI common stock, par value $5.00 per share ("MBI Common Stock"), in two
simultaneous transactions consisting of (i) an exchange by Bankshares of its
Bank Common Stock solely in return for MBI Common Stock to be issued on
behalf of Ameribanc, and (ii) the merger of a to-be-formed, wholly owned
subsidiary of Ameribanc with and into Bank (the "Merger") pursuant to which
the stockholders of Bank (other than Ameribanc) who do not dissent from the
Merger will receive solely MBI Common Stock; and (c) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for MBI and
Ameribanc, in rendering its opinion to Bankshares and Bank that the Exchange
and the Merger will each constitute a reorganization within the meaning of
section 368 of the Internal Revenue Code of 1986, as amended, and (ii) the
representations and undertaking recited herein will survive the Exchange and
the Merger.
The undersigned HEREBY FURTHER CERTIFIES that the undersigned has
no plan, intention or arrangement to sell, exchange or otherwise dispose of
(including any option, pledge or transfer in trust) any of the MBI Common
Stock to be received in the Merger, with the exception of any fractional
share of MBI Common Stock to be exchanged for cash pursuant to the Merger.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Merger.
<PAGE> 24
IN WITNESS WHEREOF, the undersigned has executed this
certificate, or caused this certificate to be executed by its duly authorized
representative, this ----- day of ---------------, 1996.
--------------------------------
<PAGE> 1
Exhibit 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors and Stockholders
Mercantile Bancorporation Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
June 11, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4) of Mercantile
Bancorporation Inc. We also consent to the inclusion of our reports dated
March 27, 1996, with respect to (i) the consolidated balance sheet of Peoples
State Bankshares, Inc. and Subsidiary as of December 31, 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
the year then ended, and (ii) the balance sheet of Peoples State Bank, Topeka,
Kansas as of December 31, 1995, and the related statements of earnings,
stockholders' equity and cash flows for the year then ended.
/s/ GRA, Thompson, White & Co., P.C.
GRA, THOMPSON, WHITE & CO., P.C.
Merriam, Kansas
June 7, 1996
