<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 11, 1996
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
MISSOURI 1-11792 43-0951744
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
P.O. BOX 524
ST. LOUIS, MISSOURI 63166-0524
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 425-2525
===============================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
Effective January 2, 1996, Mercantile Bancorporation Inc.
("Corporation") acquired Hawkeye Bancorporation ("Hawkeye") in
a transaction accounted for as a pooling-of-interests. Audited
Supplemental Consolidated Financial Statements restating the
Corporation's historical consolidated financial statements as of
and for the years ended December 31, 1995, 1994 and 1993 to reflect
the Hawkeye transaction are included herein.
<PAGE> 3
MERCANTILE BANCORPORATION INC.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
Effective January 2, 1996, Mercantile Bancorporation Inc. (``Corporation'')
acquired Hawkeye Bancorporation in a transaction accounted for as a
pooling-of-interests. The following Supplemental Consolidated Financial
Statements restate the Corporation's historical consolidated financial
statements as of and for the years ended December 31, 1995, 1994 and 1993 to
reflect this transaction.
1
<PAGE> 4
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
(Thousands except per common
share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $1,021,052 $ 850,525 $ 803,793
Investments in debt and equity securities
Trading 431 527 678
Taxable 226,905 225,051 248,601
Tax-exempt 24,829 25,824 25,235
---------- ---------- ----------
Total 252,165 251,402 274,514
Due from banks--interest bearing 2,487 2,859 3,491
Federal funds sold and repurchase agreements 18,240 13,283 12,813
---------- ---------- ----------
Total Interest Income 1,293,944 1,118,069 1,094,611
INTEREST EXPENSE
Interest bearing deposits 482,775 368,633 392,479
Foreign deposits 13,088 5,398 1,363
Short-term borrowings 86,043 51,293 26,501
Bank notes 13,674 780 --
Long-term debt 24,954 24,846 24,230
---------- ---------- ----------
Total Interest Expense 620,534 450,950 444,573
---------- ---------- ----------
NET INTEREST INCOME 673,410 667,119 650,038
PROVISION FOR POSSIBLE LOAN LOSSES 36,530 43,265 64,302
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 636,880 623,854 585,736
OTHER INCOME
Trust 70,751 65,888 66,782
Service charges 75,408 72,659 71,045
Credit card fees 19,690 26,588 25,689
Securitization revenue 23,005 -- --
Mortgage banking 10,822 10,917 13,691
Investment banking and brokerage 11,366 14,400 14,936
Securities gains 4,042 2,579 5,301
Other 58,569 43,530 48,145
---------- ---------- ----------
Total Other Income 273,653 236,561 245,589
OTHER EXPENSE
Salaries 241,422 233,430 222,139
Employee benefits 57,203 55,345 53,410
Net occupancy 38,044 36,475 37,429
Equipment 44,630 41,410 41,245
Other 172,449 188,516 215,959
---------- ---------- ----------
Total Other Expense 553,748 555,176 570,182
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 356,785 305,239 261,143
INCOME TAXES 124,109 113,165 96,074
---------- ---------- ----------
NET INCOME $ 232,676 $ 192,074 $ 165,069
========== ========== ==========
PER COMMON SHARE DATA
Average shares outstanding 61,883,723 59,757,392 58,750,868
Net income<F*> $3.74 $3.19 $2.79
Dividends declared 1.32 1.12 .99
<FN>
<F*> Earnings per common share is calculated by dividing net income, less
dividends on preferred stock, by weighted average common shares
outstanding.
</TABLE>
2
<PAGE> 5
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31
1995 1994 1993
---- ---- ----
(Thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,112,088 $ 863,986 $ 860,645
Due from banks--interest bearing 51,056 29,366 165,957
Federal funds sold and repurchase agreements 271,098 213,581 335,046
Investments in debt and equity securities
Trading 3,677 14,299 15,735
Available-for-sale 4,207,079 700,741 426,898
Held-to-maturity (Estimated fair value of $3,451,258
in 1994 and $4,303,744 in 1993) -- 3,565,219 4,227,749
----------- ----------- -----------
Total Investments in Debt and Equity Securities 4,210,756 4,280,259 4,670,382
Loans held-for-sale 94,877 21,383 141,468
Loans and leases, net of unearned income 11,636,010 10,882,723 9,667,318
----------- ----------- -----------
Total Loans and Leases 11,730,887 10,904,106 9,808,786
Reserve for possible loan losses (201,780) (215,849) (205,946)
----------- ----------- -----------
Net Loans and Leases 11,529,107 10,688,257 9,602,840
Bank premises and equipment 309,070 284,565 276,840
Due from customers on acceptances 2,622 6,609 11,923
Other assets 442,244 357,264 369,554
----------- ----------- -----------
Total Assets $17,928,041 $16,723,887 $16,293,187
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 2,075,579 $ 1,980,168 $ 2,125,052
Interest bearing 11,429,511 10,665,587 11,092,004
Foreign 209,170 219,135 26,085
----------- ----------- -----------
Total Deposits 13,714,260 12,864,890 13,243,141
Federal funds purchased and repurchase agreements 1,552,945 1,519,156 675,922
Other short-term borrowings 210,791 318,925 548,750
Bank notes 250,000 100,000 --
Long-term debt 325,607 330,200 315,561
Bank acceptances outstanding 2,622 6,609 11,923
Other liabilities 232,229 175,417 202,669
----------- ----------- -----------
Total Liabilities 16,288,454 15,315,197 14,997,966
Commitments and contingent liabilities -- -- --
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Preferred stock--
no par value
Shares authorized 5,000 5,000 5,000
Shares issued 15 15 15 12,153 12,153 12,153
Common stock--
$5.00 par value
Shares authorized 100,000 100,000 70,000
Shares issued 63,887 59,977 59,432 319,434 299,885 297,162
Capital surplus 283,288 230,940 224,634
Retained earnings 1,085,269 868,666 761,272
Treasury stock, at cost 1,380 94 -- (60,557) (2,954) --
----------- ----------- -----------
Total Shareholders' Equity 1,639,587 1,408,690 1,295,221
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $17,928,041 $16,723,887 $16,293,187
=========== =========== ===========
The accompanying notes to supplemental consolidated financial statements are an
integral part of these statements.
</TABLE>
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<PAGE> 6
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
COMMON STOCK
--------------------- TOTAL
OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS'
SHARES DOLLARS STOCK SURPLUS EARNINGS STOCK EQUITY
----------- ------- --------- ------- -------- -------- -------------
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 58,156,949 $290,785 $12,153 $201,451 $ 638,502 $ -- $1,142,891
Net income 165,069 165,069
Common dividends declared:
Mercantile Bancorporation Inc.--$.99 per
share (34,840) (34,840)
Pooled companies prior to acquisition (13,551) (13,551)
Preferred dividends declared (1,190) (1,190)
Issuance of common stock for:
Acquisition of First National Bank of Flora 232,503 1,162 6,879 8,041
Acquisition of Mt. Vernon Bancorp, Inc. 216,936 1,085 6,056 7,141
Employee incentive plans 161,912 809 1,929 2,738
Convertible notes 73,360 367 1,536 1,903
Public offering of Central Mortgage
Bancshares, Inc. 549,240 2,746 7,203 9,949
Change in valuation allowance for marketable
equity securities prior to the adoption of
FAS 115 3,554 3,554
Net fair value adjustment for
available-for-sale
securities 3,636 3,636
Pre-merger transactions of pooled companies
and other 41,338 208 (420) 92 (120)
---------- -------- ------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1993 59,432,238 297,162 12,153 224,634 761,272 -- 1,295,221
Net income 192,074 192,074
Common dividends declared:
Mercantile Bancorporation Inc.--$1.12 per
share (48,329) (48,329)
Pooled companies prior to acquisition (10,947) (10,947)
Preferred dividends declared (1,219) (1,219)
Issuance of common stock for:
Employee incentive plans 308,112 1,541 1,683 3,224
Convertible notes 181,092 905 3,793 4,698
Net fair value adjustment for
available-for-sale
securities (24,291) (24,291)
Purchase of treasury stock (93,500) (2,954) (2,954)
Pre-merger transactions of pooled companies
and other 55,307 277 830 106 1,213
---------- -------- ------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1994 59,883,249 299,885 12,153 230,940 868,666 (2,954) 1,408,690
NET INCOME 232,676 232,676
COMMON DIVIDENDS DECLARED:
MERCANTILE BANCORPORATION INC.--$1.32 PER
SHARE (68,542) (68,542)
POOLED COMPANIES PRIOR TO ACQUISITION (14,897) (14,897)
PREFERRED DIVIDENDS DECLARED (1,020) (1,020)
ISSUANCE OF COMMON STOCK IN ACQUISITIONS OF:
SOUTHWEST BANCSHARES, INC. 674,975 3,375 625 9,797 13,797
AMERIFIRST BANCORPORATION, INC. 661,356 3,307 5,367 3,781 12,455
PLAINS SPIRIT FINANCIAL CORPORATION 1,301,180 2,639 22,930 27,701 53,270
WEDGE BANK 969,954 4,850 1,649 7,314 13,813
ISSUANCE OF COMMON STOCK FOR:
EMPLOYEE INCENTIVE PLANS 664,748 3,300 10,932 170 14,402
CONVERTIBLE NOTES 331,075 1,655 6,935 8,590
NET FAIR VALUE ADJUSTMENT FOR
AVAILABLE-FOR-SALE
SECURITIES 47,494 47,494
PURCHASE OF TREASURY STOCK (2,064,600) (85,474) (85,474)
PRE-MERGER TRANSACTIONS OF POOLED COMPANIES
AND OTHER 84,599 423 3,910 4,333
---------- -------- ------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1995 62,506,536 $319,434 $12,153 $283,288 $1,085,269 $(60,557) $1,639,587
========== ======== ======= ======== ========== ======== ==========
</TABLE>
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<PAGE> 7
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 232,676 $ 192,074 $ 165,069
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for possible loan losses 36,530 43,265 64,302
Depreciation and amortization 39,255 35,388 33,106
Provision for deferred income taxes (credits) (13,159) (8,026) 5,157
Net change in loans held-for-sale (73,494) 120,085 (104,081)
Net change in accrued interest receivable (9,429) (15,380) 11,315
Net change in accrued interest payable 28,502 6,343 (8,629)
Other, net 11,887 (3,163) 6,103
----------- ----------- -----------
Net Cash Provided by Operating Activities 252,768 370,586 172,342
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading
securities
Purchases (1,123,682) (1,486,183) (1,959,571)
Proceeds from maturities 1,302,913 1,398,857 1,953,950
Proceeds from sales of:
Held-to-maturity securities -- 1,985 32,749
Available-for-sale securities 207,901 427,204 71,086
Net change in loans and leases (895,993) (1,511,428) (378,929)
Purchases of loans and leases (128,361) (78,730) (196,152)
Proceeds from sales of loans and leases 759,626 302,580 538,051
Purchases of premises and equipment (59,849) (47,956) (41,510)
Proceeds from sales of premises and equipment 5,146 5,908 867
Proceeds from sales of foreclosed property 20,792 45,978 52,355
Cash and cash equivalents from acquisitions, net of cash paid 47,126 48,196 14,077
Other, net 4,648 32,026 25,279
----------- ----------- -----------
Net Cash Provided (Used) by Investing Activities 140,267 (861,563) 112,252
FINANCING ACTIVITIES
Net change in time certificates of deposit under $100,000 147,550 (112,901) (537,514)
Net change in time certificates of deposit $100,000 and over 156,683 27,699 (27,027)
Net change in other time deposits 446 (10,745) (88,231)
Net change in foreign deposits (9,965) 193,050 6,435
Net change in other deposits (157,160) (529,742) 316,772
Net change in short-term borrowings (171,697) 613,409 170,593
Issuance of bank notes 150,000 100,000 --
Issuance of long-term debt 14,676 82,151 10,675
Principal payments on long-term debt (31,288) (61,910) (32,612)
Cash dividends paid (84,459) (59,952) (49,581)
Proceeds from issuance of common stock
Public offering of Central Mortgage Bancshares, Inc. -- -- 9,949
Employee incentive plans and warrants 2,778 2,729 2,203
Purchase of treasury stock (85,474) (2,954) --
Other, net 2,184 (4,572) (14,746)
----------- ----------- -----------
Net Cash Provided (Used) by Financing Activities (65,726) 236,262 (233,084)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 327,309 (254,715) 51,510
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,106,933 1,361,648 1,310,138
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,434,242 $ 1,106,933 $ 1,361,648
=========== =========== ===========
The accompanying notes to supplemental consolidated financial statements are an
integral part of these statements.
</TABLE>
5
<PAGE> 8
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
Mercantile Bancorporation Inc. (``Corporation'' or ``Mercantile'') and its
subsidiaries follow generally accepted accounting principles and reporting
practices applicable to the banking industry. The significant accounting
policies are summarized below.
Basis of Presentation:
Consolidation: The Supplemental Consolidated Financial Statements include the
accounts of Mercantile Bancorporation Inc. and its subsidiaries. Material
intercompany transactions are eliminated.
Restatements: Effective January 2, 1996, Mercantile Bancorporation Inc.
acquired Hawkeye Bancorporation (``Hawkeye''), in a transaction accounted for as
a pooling-of-interests.
The Supplemental Consolidated Financial Statements give retroactive effect to
the transaction and, as a result, the Supplemental Consolidated Statement of
Income, Balance Sheet and Statement of Cash Flows are presented as if the
combining companies had been consolidated for all periods presented. (As
required by generally accepted accounting principles, the Supplemental
Consolidated Financial Statements will become the historical consolidated
financial statements upon issuance of the financial statements for the period
that includes the date of the transaction.) The Supplemental Consolidated
Statement of Changes in Shareholders' Equity reflects the accounts of Mercantile
Bancorporation Inc. as if the common stock issued in the Hawkeye acquisition had
been outstanding during all periods presented. The Supplemental Consolidated
Financial Statements, including the notes thereto, should be read in conjunction
with the historical consolidated financial statements of the Corporation
included in its 1995 Annual Report on Form 10-K.
Reclassification: Certain reclassifications have been made to the 1994 and
1993 historical financial statements to conform with the 1995 presentation.
Use of Estimates:
Management of the Corporation has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the Supplemental Consolidated
Financial Statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Earnings per Common Share:
Earnings per common share data is calculated by dividing net income, after
deducting dividends on preferred stock, by the weighted average number of common
shares outstanding during the period.
Investments in Debt and Equity Securities:
Trading securities, which include any security held primarily for near-term
sale, are valued at fair value. Gains and losses on trading securities, both
realized and unrealized, are recorded in investment banking and brokerage
income.
Available-for-sale securities, which include any security for which the
Corporation has no immediate plan to sell but which may be sold in the future,
are valued at fair value. Realized gains and losses, based on the amortized cost
of the specific security, are included in other income as securities gains.
Unrealized gains and losses are recorded, net of related income tax effects, in
retained earnings.
Held-to-maturity securities, which include any security for which the
Corporation has the positive intent and ability to hold until maturity, are
valued at historical cost adjusted for amortization of premiums and accretion of
discounts computed by the level-yield method. Realized gains and losses, based
on the amortized cost of the specific security, are included in other income as
securities gains. During the fourth quarter of 1995, the Corporation transferred
its entire held-to-maturity portfolio to available-for-sale.
Prior to December 31, 1993, marketable equity securities were stated at the
lower of cost or fair value. Changes in the valuation of marketable equity
securities which were considered to be temporary were recorded as adjustments to
retained earnings. Since December 31, 1993, these securities have been
classified as available-for-sale and accounted for as stated above.
Loans Held-for-Sale:
In its lending activities, the Corporation originates residential and student
loans with the intent to be sold in the secondary market. Loans held-for-sale
are carried at the lower of cost or fair value which is determined on an
aggregate basis. Gains or losses on the sale of loans held-for-sale are
determined on a specific identification method.
Loans and Leases:
Interest income on loans is generally accrued on a simple interest basis. Loan
fees and direct costs of loan originations are deferred and amortized over the
life of the loans under methods approximating the interest method.
The finance method is used to account for direct and leveraged equipment lease
contracts. Income is recorded over the lease periods in proportion to the
unrecovered investment in the leases after consideration of investment tax
credits and other related income tax effects.
When, in management's opinion, the collection of interest on a loan is
unlikely, or when either principal or interest is past due over 90 days, that
loan is generally placed on non-accrual status. When a loan is placed on
6
<PAGE> 9
non-accrual status, accrued interest for the current year is reversed and
charged against current earnings, and accrued interest from prior years is
charged against the reserve for possible loan losses. Interest payments received
on non-accrual loans are applied to principal if there is doubt as to the
collectibility of such principal; otherwise, these receipts are recorded as
interest income. A loan remains on non-accrual status until the loan is current
as to payment of both principal and interest, and/or the borrower demonstrates
the ability to pay and remain current.
All non-accrual and renegotiated commercial-related loans are considered
impaired. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate.
Mortgage servicing rights associated with loans originated and sold, where
servicing is retained, are capitalized and amortized using the level-yield
method over the estimated lives of the loans. The carrying value of such rights
is subject to periodic adjustment based upon changing market conditions.
Reserve for Possible Loan Losses:
The reserve for possible loan losses is increased by provisions charged to
expense and reduced by loans charged off, net of recoveries. The reserve is
maintained at a level considered adequate to provide for potential loan losses
based on management's evaluation of current economic conditions, changes in the
character and size of the portfolio, past experience, expected future losses and
other pertinent factors.
Foreclosed Assets:
Foreclosed assets include real estate and other assets acquired through
foreclosure or other proceedings, and are included in other assets in the
Supplemental Consolidated Balance Sheet.
Foreclosed assets are valued at the lower of cost or fair value less estimated
costs to sell. Losses arising at the time of transfer from loans are charged to
the reserve for possible loan losses. Subsequent reductions in valuation based
upon periodic appraisals are charged against current earnings.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed principally by the straight-line method
and are based on estimated useful lives of the assets. The carrying values of
assets sold or retired and the related accumulated depreciation are eliminated
from the accounts, and the resulting gains or losses are reflected in income.
Expenditures for maintenance and repairs are charged to expense, while
expenditures for major renewals are capitalized.
Intangible Assets:
Intangible assets, consisting primarily of goodwill and core deposit premium,
are included in other assets in the Supplemental Consolidated Balance Sheet.
Goodwill, the excess of cost over the net assets acquired in business
combinations accounted for as purchases, is amortized using the straight-line
method over the estimated period to be benefited, most recently 15 years, but
not exceeding 40 years.
Core deposit premium represents the premiums paid, net of any rebate on assets
acquired, plus the insurance funds' entrance and exit fees, for deposits
acquired from failed thrift institutions in Resolution Trust
Corporation-assisted transactions. This intangible asset is amortized, on an
accelerated basis, over the estimated life of the core deposit base acquired,
but not exceeding 10 years.
Income Taxes:
Deferred income taxes, computed using the liability method, are provided on
temporary differences between the financial reporting basis and the tax basis of
the assets and liabilities of the Corporation.
Treasury Stock:
The purchase of the Corporation's common stock is recorded at cost. Upon
subsequent reissue, the treasury stock account is reduced by the average cost
basis of such stock.
Cash Equivalents:
Cash and due from banks, due from banks--interest bearing, and federal funds
sold and repurchase agreements are considered cash equivalents for purposes of
the Supplemental Consolidated Statement of Cash Flows.
Financial Instruments:
Financial instruments include cash, evidence of an ownership interest in an
entity or a contract that both (a) imposes on the Corporation a contractual
obligation, (1) to deliver a financial instrument to another party, or (2) to
exchange other financial instruments on potentially unfavorable terms with
another party; and (b) conveys to another party a contractual right, (1) to
receive a financial instrument from the Corporation, or (2) to exchange other
financial instruments on potentially favorable terms with the Corporation.
NOTE B
SUBSIDIARIES
Acquisitions:
As described in Note A, effective January 2, 1996, the Corporation acquired
Hawkeye, a 23-bank holding company with assets totaling $2
7
<PAGE> 10
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
billion, headquartered in Des Moines, Iowa. The consideration for this
acquisition was 7,892,196 shares of Mercantile common stock. The Hawkeye
acquisition was accounted for as a pooling-of-interests. Net income and income
per common share for the Corporation and Hawkeye prior to restatement was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
($ in Thousands except per
common share data)
<S> <C> <C> <C>
Corporation
Net income $216,835 $168,329 $143,251
Net income per common share 4.00 3.22 2.79
Hawkeye
Net income $15,841 $23,745 $21,818
Net income per common share 1.18 1.78 1.64
</TABLE>
Also effective January 2, 1996, the Corporation acquired First Sterling
Bancorp, Inc. (``Sterling'') of Sterling, Illinois, bank holding company for
First National Bank of Sterling-Rock Falls, with assets totaling $168 million. A
total of 521,417 shares of Mercantile common stock was issued in the Sterling
transaction. The Sterling transaction meets the requirements for treatment as a
pooling-of-interests; however, due to the immateriality of Sterling's financial
condition and results of operations to that of Mercantile's, the historical
financial statements of the Corporation will not be restated for the Sterling
pooling-of-interests transaction.
The Corporation entered an agreement on September 15, 1995 to acquire the
capital stock of Metro Savings F.S.B., an Illinois-based savings bank in Wood
River with assets of $82 million. This acquisition will be a purchase
transaction and is expected to be consummated in the first quarter of 1996.
Additionally, Mercantile entered into an agreement dated July 7, 1995 to
acquire the capital stock of Security Bank of Conway, F.S.B., an Arkansas-based
savings bank with assets totaling $102 million. This acquisition will be
accounted for as a purchase transaction and was consummated on February 9, 1996.
During the first quarter of 1996, the Corporation plans to record certain
adjustments to conform accounting and credit policies regarding loan, other real
estate and other asset valuations of recently acquired companies to those of the
Corporation. These adjustments are expected to approximate $.60 to $.65 per
common share on an after-tax basis.
Effective August 1, 1995, Mercantile completed a merger with AmeriFirst
Bancorporation, Inc. (``AmeriFirst''), a Sikeston, Missouri-based holding
company for AmeriFirst Bank, with assets totaling $156 million. A total of
661,356 shares of Mercantile common stock was issued in the AmeriFirst
transaction. Also on August 1, 1995, Mercantile completed a merger with
Southwest Bancshares, Inc. (``Southwest''), the holding company for Southwest
Bank of Bolivar, Missouri, with assets totaling $188 million. A total of 674,975
shares of Mercantile common stock was issued in the Southwest transaction. Both
of these transactions met the requirements for treatment as
poolings-of-interests; however, due to the immateriality of AmeriFirst's and
Southwest's financial condition and results of operations to those of
Mercantile's, the historical financial statements of the Corporation were not
restated for the AmeriFirst and Southwest poolings-of-interests transactions.
On July 7, 1995, Mercantile acquired Plains Spirit Financial Corporation, an
Iowa-based holding company for First Federal Savings Bank, located in Davenport,
with assets totaling $401 million. The total cost of the acquisition was
$59,968,000. The excess of purchase price over fair value of net assets acquired
was $17,820,000. The transaction was accounted for as a purchase; accordingly,
the results of operations, which were not material, were included in the
Supplemental Consolidated Financial Statements from the acquisition date.
Effective May 1, 1995, the Corporation acquired Central Mortgage Bancshares,
Inc. (``Central''), a three-bank holding company with assets totaling $655
million, headquartered in Kansas City, Missouri. Also effective May 1, 1995,
Mercantile acquired North Little Rock, Arkansas-based TCBankshares, Inc.
(``TCB''), a six-bank holding company with assets totaling $1.4 billion.
Effective January 3, 1995, the Corporation acquired UNSL Financial Corp
(``UNSL''), holding company for Lebanon, Missouri-based United Savings Bank,
with assets totaling $508 million. A total of 2,537,723, 4,749,999 and 1,578,107
shares of Mercantile common stock were issued in the Central, TCB and UNSL
transactions, respectively, which were accounted for as poolings-of-interests.
<TABLE>
Net income and net income per common share for the Corporation and the pooled
companies prior to restatement were as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
($ in Thousands except per
common share data)
<S> <C> <C>
Corporation
Net income $ 161,029 $118,864
Net income per common share 3.74 2.80
Central
Net income $2,851 $5,130
Net income per common share .69 1.54
TCB
Net income $ 8,729 $ 15,189
Net income per common share 3,616.30 6,646.69
UNSL
Net income (loss) $(4,280) $4,068
Net income (loss) per common
share (2.71) 2.72
</TABLE>
During the fourth quarter of 1994, certain adjustments were recorded by UNSL,
Central and TCB to conform their accounting and credit policies regarding loan,
other real estate and other asset valuations to those of the Corporation. These
adjustments consisted of an increase in the provision of $7,775,000, an increase
in other expense of $12,664,000
8
<PAGE> 11
and a related tax benefit of $3,739,000, for a total of $16,700,000 on an
after-tax basis.
On January 30, 1995, Hawkeye acquired Taintor Savings Bank, a savings bank
located in New Sharon, Iowa with assets totaling $22,000,000. This acquisition
was accounted for as a purchase, and accordingly, the results of operations were
included in the Supplemental Consolidated Financial Statements from the
acquisition date. The total cost of the acquisition was $1,500,000 in cash and
the equivalent of 65,008 shares of Mercantile common stock. Taintor Savings Bank
was merged into Hawkeye Bank of Pella, N.A.
Effective January 3, 1995, Mercantile completed a merger with Wedge Bank
(``Wedge''), an Alton, Illinois-based bank with assets totaling $196 million. A
total of 969,954 shares of Mercantile common stock was issued in the Wedge
transaction. The Wedge transaction met the requirements for treatment as a
pooling-of-interests; however, due to the immateriality of Wedge's financial
condition and results of operations to that of Mercantile's, the historical
financial statements of the Corporation were not restated for the Wedge
pooling-of-interests transaction.
On December 16, 1994, Hawkeye acquired $13,600,000 of deposits from the Boone,
Iowa office of Midland Savings Bank FSB for $610,000 in cash. These deposits
were merged into The Citizen's National Bank of Boone-Stratford, a Hawkeye
subsidiary bank.
Effective February 1, 1994, the Corporation acquired United Postal Bancorp,
Inc. (``United Postal''), holding company for St. Louis, Missouri-based United
Postal Savings Association, with assets totaling $1.3 billion. Effective January
3, 1994, Mercantile completed a merger with Metro Bancorporation, a Waterloo,
Iowa-based holding company for The Waterloo Savings Bank, with assets totaling
$370 million. A total of 5,631,953 and 1,638,278 shares of Mercantile common
stock were issued in the United Postal and Metro Bancorporation transactions,
respectively, which were accounted for as poolings-of-interests.
<TABLE>
Net income and net income per share for the Corporation and the pooled
companies prior to restatement were as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1993
($ in Thousands except
per common share data)
<S> <C>
Corporation
Net income $116,972
Net income per common share 3.32
United Postal
Net loss $ (58)
Net loss per common share (.01)
Metro Bancorporation
Net income $1,950
Net income per common share 3.76
</TABLE>
During the fourth quarter of 1993, certain adjustments were recorded by United
Postal and Metro Bancorporation to conform their accounting and credit policies
regarding loan, other real estate and other asset valuations to those of the
Corporation. These adjustments consisted of an increase in the provision of
$8,700,000, an increase in other expense of $12,728,000 and a related tax
benefit of $4,928,000, for a total of $16,500,000 on an after-tax basis.
On September 1, 1993, Mercantile completed a merger with Mt. Vernon Bancorp,
Inc., a $113,128,000-asset holding company for First Bank and Trust Co. in Mt.
Vernon, Illinois. The total cost of the acquisition was $1,805,000 in cash and
216,936 shares of Mercantile common stock. The excess of the purchase price over
the fair value of net assets acquired was $4,700,000. On April 1, 1993,
Mercantile completed the merger with the $70,725,000-asset First National Bank
of Flora in Clay County, Illinois. The total cost of the acquisition was
$3,004,000 in cash and 232,503 shares of Mercantile common stock. The excess of
the purchase price over the fair value of net assets acquired was $2,549,000.
Both transactions were accounted for as purchases, and accordingly, the results
of operations were included in the Supplemental Consolidated Financial
Statements from the respective acquisition dates.
On May 3, 1993, Hawkeye acquired First Dubuque Corp., the holding company for
The First National Bank of Dubuque. The equivalent of 1,467,278 shares of
Mercantile common stock was issued in the transaction, which was accounted for
as a pooling-of-interests.
On January 4, 1993, the Corporation acquired MidAmerican Corporation and
Johnson County Bankshares, Inc., two northeast Kansas-based holding companies
with assets totaling $1.1 billion. A total of 4,736,424 shares of Mercantile
common stock was issued in the transaction, which was accounted for as a
pooling-of-interests.
For all acquisitions accounted for as purchases, the unamortized excess of
cost over the fair value of assets acquired was $90,037,000, $77,093,000 and
$81,002,000 at December 31, 1995, 1994 and 1993, respectively.
RTC Transactions:
On June 24, 1994, Hawkeye paid a premium of $3,000,000 to acquire $28,000,000
in deposits and two locations from the Resolution Trust Corporation. The
$12,000,000 in deposits at Centerville were merged into Hawkeye Bank of
Centerville, N.A. and $16,000,000 in deposits were merged into Hawkeye Bank,
located in Des Moines, Iowa.
Subsidiary Mergers:
During 1995, the Corporation effected a number of subsidiary mergers, many as
a result of branch realignments associated with acquisitions. On October 26,
1995, AmeriFirst Bank was merged with Mercantile Bank of Sikeston, and an
AmeriFirst branch in Cape Girardeau was merged with
9
<PAGE> 12
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Mercantile Bank of Cape Girardeau. On August 24, 1995, Southwest Bank was merged
into Mercantile Bank of Springfield. On July 20, 1995, branches of Mercantile
Bank of Warrensburg were merged into Mercantile Bank of Kansas City, and the
Mercantile Bank of West Central Missouri branch located in Warrensburg was
merged into Mercantile Bank of Warrensburg. On May 18, 1995, the Lebanon,
Missouri area branches of United Savings Bank were merged into Mercantile Bank
of Lebanon, a de novo bank. Other United Savings Bank branches were merged into
the Mercantile Banks of Springfield, Lake of the Ozarks, Phelps County, Monett,
Boone County and Missouri Valley.
Additionally, on May 1, 1995, based on geographical area, the assets and
liabilities of the Mortgage Banking Division of Central were merged into
Mercantile Bank of St. Louis N.A., Mercantile Bank of Springfield and Mercantile
Bank of Joplin.
Other Pending Acquisition:
The Corporation entered an agreement dated December 20, 1995 to acquire the
capital stock of Peoples State Bank of Topeka, Kansas with assets of $97
million. The acquisition, to be accounted for as a purchase transaction, is
expected to be consummated in the second quarter or early in the third quarter
of 1996.
NOTE C
CASH FLOWS
The Corporation paid interest on deposits, short-term borrowings, bank notes
and long-term debt of $588,398,000, $444,607,000 and $452,623,000 in 1995, 1994
and 1993, respectively. The Corporation paid Federal income taxes of
$104,977,000, $113,203,000 and $79,399,000 in 1995, 1994 and 1993, respectively.
<TABLE>
The following details cash and cash equivalents from acquisitions accounted
for as purchases, net of cash paid:
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Fair value of assets purchased $(952,585) $(52,979) $(373,379)
Liabilities assumed 851,875 58,561 334,038
Issuance of common stock 95,490 835 15,182
--------- -------- ---------
Net Cash Received (Paid)
for Acquisitions (5,220) 6,417 (24,159)
Cash and cash equivalents
acquired 52,346 41,779 38,236
--------- -------- ---------
Cash and Cash Equivalents from
Acquisitions, Net of Cash
Paid $ 47,126 $ 48,196 $ 14,077
========= ======== =========
</TABLE>
NOTE D
CASH AND DUE FROM BANKS RESTRICTIONS
The Corporation's subsidiary banks are required to maintain average reserve
balances which place withdrawal and/or usage restrictions on cash and due from
banks balances. The average amount of these restricted balances for the year
ended December 31, 1995 was $207,695,000.
10
<PAGE> 13
NOTE E
INVESTMENTS IN DEBT AND EQUITY SECURITIES
<TABLE>
Available-for-Sale:
The amortized cost, estimated fair values, and unrealized gains and losses of
available-for-sale securities were as follows:
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. government $3,483,593 $44,864 $14,839 $3,513,618
State and political subdivisions
Tax-exempt 415,021 11,472 1,032 425,461
Taxable 134,400 1,034 714 134,720
---------- --------- --------- ----------
Total State and Political Subdivisions 549,421 12,506 1,746 560,181
Other 134,546 211 1,477 133,280
---------- --------- --------- ----------
Total $4,167,560 $57,581 $18,062 $4,207,079
========== ========= ========= ==========
DECEMBER 31, 1994
U.S. government $641,587 $ 345 $19,867 $622,065
State and political subdivisions--tax-exempt 12,582 156 24 12,714
Other 66,674 1,468 2,180 65,962
---------- --------- --------- ----------
Total $720,843 $1,969 $22,071 $700,741
========== ========= ========= ==========
DECEMBER 31, 1993
U.S. government $366,504 $2,292 $ 607 $368,189
State and political subdivisions--tax-exempt 14,259 925 11 15,173
Other 40,540 4,240 1,244 43,536
---------- --------- --------- ----------
Total $421,303 $7,457 $1,862 $426,898
========== ========= ========= ==========
Held-to-Maturity:
The amortized cost, estimated fair values, and unrealized gains and losses of
held-to-maturity securities were as follows:
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. government $2,896,654 $ 8,027 $105,496 $2,799,185
State and political subdivisions
Tax-exempt 436,413 4,391 10,617 430,187
Taxable 165,551 164 9,102 156,613
---------- ------- -------- ----------
Total State and Political Subdivisions 601,964 4,555 19,719 586,800
Other 66,601 13 1,341 65,273
---------- ------- -------- ----------
Total $3,565,219 $12,595 $126,556 $3,451,258
========== ======= ======== ==========
DECEMBER 31, 1993
U.S. government $3,477,732 $60,133 $6,236 $3,531,629
State and political subdivisions
Tax-exempt 445,738 20,459 692 465,505
Taxable 113,477 824 671 113,630
---------- ------- -------- ----------
559,215 21,283 1,363 579,135
Total State and Political Subdivisions
Other 190,802 2,521 343 192,980
---------- ------- -------- ----------
Total $4,227,749 $83,937 $7,942 $4,303,744
========== ======= ======== ==========
</TABLE>
11
<PAGE> 14
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
In December 1995, the Corporation reclassified approximately $3.1 billion in
held-to-maturity securities to the available-for-sale category. The unrealized
gain on the securities transferred was approximately $31 million. The Financial
Accounting Standards Board issued a Special Report titled ``A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, Questions and Answers,'' which stated that
reclassifications made no later than December 31, 1995 from the held-to-maturity
category will not call into question the intent to hold other securities to
maturity in the future.
Securities with a carrying value of $2,233,972,000 at December 31, 1995,
$2,405,905,000 at December 31, 1994 and $2,417,196,000 at December 31, 1993 were
pledged to secure public and trust deposits, securities sold under agreements to
repurchase, and for other purposes required by law.
The following table presents proceeds from sales of securities and the
components of net securities gains. There were no securities classified as
held-to-maturity during 1994 that were transferred to available-for-sale
securities or sold; the only transfer of securities from held-to-maturity to
available-for-sale during 1995 was the December 1995 reclassification discussed
above. Held-to-maturity securities gains and losses in 1995 and 1994 resulted
from portfolio restructurings in connection with subsidiary bank acquisitions or
calls by the security issuer prior to maturity.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Proceeds from sales of:
Held-to-maturity securities $ -- $ 1,985 $32,749
Available-for-sale securities 207,901 427,204 71,086
Securities gains on:
Held-to-maturity securities $ 111 $ 471 $ 2,396
Available-for-sale securities 4,217 5,558 5,410
-------- -------- -------
Total Securities Gains 4,328 6,029 7,806
Securities losses on:
Held-to-maturity securities 1 262 867
Available-for-sale securities 285 3,188 1,638
-------- -------- -------
Total Securities Losses 286 3,450 2,505
-------- -------- -------
Net Securities Gains
Before Income Taxes 4,042 2,579 5,301
Applicable income taxes (1,415) (903) (1,855)
-------- -------- -------
Net Securities Gains $ 2,627 $ 1,676 $ 3,446
======== ======== =======
</TABLE>
NOTE F
LOANS AND LEASES
<TABLE>
Loans and leases consisted of the following:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Commercial $ 2,979,437 $ 2,789,062 $ 2,535,557
Real estate--commercial 2,119,714 1,778,884 1,669,756
Real estate--construction 282,215 323,603 302,242
Real estate--residential 3,823,327 3,530,596 3,251,566
Consumer 1,667,348 1,616,786 1,272,591
Credit card 858,846 865,175 777,074
------------ ------------ -----------
Loans and Leases $ 11,730,887 $ 10,904,106 $ 9,808,786
============ ============ ===========
</TABLE>
<TABLE>
Changes in the reserve for possible loan losses were as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Beginning Balance $215,849 $205,946 $198,742
Provision 36,530 43,265 64,302
Charge-offs (69,099) (68,083) (89,094)
Recoveries 16,670 34,274 26,525
-------- -------- --------
Net Charge-offs (52,429) (33,809) (62,569)
Acquired Reserves 13,830 447 5,471
Transfer to Mercantile Credit Card
Master Trust (12,000) -- --
-------- -------- --------
Ending Balance $201,780 $215,849 $205,946
======== ======== ========
</TABLE>
<TABLE>
Non-performing loans consisted of the following:
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Non-accrual $ 79,205 $ 30,650 $ 56,847
Renegotiated 3,094 6,363 14,163
-------- -------- --------
Non-performing Loans $ 82,299 $ 37,013 $ 71,010
======== ======== ========
</TABLE>
Certain directors and executive officers of the Corporation and Mercantile
Bank of St. Louis N.A. were loan customers of the Corporation's banks during
1995, 1994 and 1993. Such loans were made in the ordinary course of business at
normal terms, including interest rate and collateralization, and did not
represent more than a normal risk. Loans to those persons, their immediate
families and companies in which they were principal owners were $5,181,000,
$5,362,000 and $21,345,000, at December 31, 1993, 1994 and 1995, respectively.
During 1995, $48,305,000 of new loans were made to these persons, repayments
totaled $32,322,000.
12
<PAGE> 15
NOTE G
BANK PREMISES AND EQUIPMENT
<TABLE>
Bank premises and equipment were as follows:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Land $ 54,297 $ 49,968 $ 49,204
Bank premises 285,402 272,560 268,743
Leasehold improvements 29,062 25,421 23,711
Furniture and equipment 258,497 224,475 208,432
-------- -------- --------
Total Cost 627,258 572,424 550,090
Accumulated depreciation (318,188) (287,859) (273,250)
-------- -------- --------
Net Carrying Value $309,070 $284,565 $276,840
======== ======== ========
</TABLE>
<TABLE>
At December 31, 1995, the Corporation had certain long-term leases, none of
which were considered to be capital leases, which were principally related to
the use of land, buildings and equipment. The following table summarizes the
future minimum rental commitments for all noncancelable operating leases which
had initial or remaining noncancelable lease terms in excess of one year:
<CAPTION>
PERIOD MINIMUM RENTAL
(Thousands)
<S> <C>
1996 $ 6,995
1997 6,134
1998 4,710
1999 3,500
2000 2,638
2001 and later 12,977
-------
Total $36,954
=======
</TABLE>
Net rental expense for all operating leases was $8,752,000 in 1995, $8,435,000
in 1994 and $8,751,000 in 1993.
NOTE H
SHORT-TERM BORROWINGS
<TABLE>
Short-term borrowings were as follows:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Federal funds purchased and
repurchase agreements $ 1,552,945 $ 1,519,156 $ 675,922
Treasury tax and loan notes 116,416 170,045 509,360
Commercial paper 16,950 26,800 18,390
Other short-term borrowings 77,425 122,080 21,000
----------- ----------- -----------
Total $ 1,763,736 $ 1,838,081 $ 1,224,672
=========== =========== ===========
</TABLE>
The Corporation had unused lines of credit arrangements with unaffiliated
banks in support of commercial paper outstanding of $40,000,000 at December 31,
1995.
NOTE I
BANK NOTES AND LONG-TERM DEBT
Bank Notes:
Beginning in 1994, certain subsidiary banks could offer unsecured bank notes
in aggregate principal amounts of up to $1 billion. Note maturities can range
from 30 days to 15 years from the date of issue and may be issued with fixed or
floating interest rates. Each bank note issued will be an obligation solely of
that issuing bank and will not be an obligation of, or otherwise guaranteed by,
the other issuing banks or the Corporation. The bank notes are being offered and
sold only to institutional investors, and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
<TABLE>
Bank notes are presented below with December 31, 1995 coupon rates:
<CAPTION>
DECEMBER 31
1995 1994
(Thousands)
<S> <C> <C>
MERCANTILE BANK OF ST. LOUIS, N.A.
6.0000% floating-rate bank notes, due 1996 $100,000 $100,000
5.9625% floating-rate bank notes, due 1998 150,000 --
-------- --------
Total Bank Notes $250,000 $100,000
======== ========
</TABLE>
Long-term Debt:
<TABLE>
Long-term debt consisted of the following:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
(PARENT COMPANY ONLY)
7.625% subordinated notes, due 2002 $150,000 $150,000 $150,000
8.500% debentures, due 2004 -- -- 30,550
8.000% convertible subordinated
capital notes, due 1995 -- 8,822 13,522
-------- -------- --------
Total 150,000 158,822 194,072
SECOND-TIER HOLDING COMPANIES -- 27,354 35,039
BANKS AND OTHER SUBSIDIARIES
6.375% subordinated debt, due 2004 75,000 75,000 --
9.000% mortgage-backed notes,
due 1999 53,450 53,450 53,041
Federal Home Loan
Bank advances 47,021 15,501 9,042
Mortgage payable -- -- 23,653
Other 136 73 714
-------- -------- --------
Total 175,607 144,024 86,450
-------- -------- --------
Total Long-term Debt $325,607 $330,200 $315,561
======== ======== ========
</TABLE>
On October 15, 1992, the Corporation issued $150,000,000 of non-callable
subordinated notes with a 10-year maturity and a coupon rate of 7.625% to yield
7.741%. These notes qualify as Tier II capital under
13
<PAGE> 16
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
current regulatory guidelines. As of December 31, 1994, $16,035,000 of the debt
issued by second-tier holding companies was a term loan of Hawkeye, which was
paid in full on December 26, 1995.
On January 25, 1994, Mercantile Bank of St. Louis N.A. issued $75,000,000 of
6.375% 10-year, non-callable subordinated debt, due January 15, 2004. This debt
qualifies as Tier II capital. The Corporation used the proceeds of this
subordinated debt issue to: (1) prepay in full on February 23, 1994 the
$30,550,000 8.500% unsecured debentures of the Corporation; and (2) prepay in
full on February 1, 1994 the $23,653,000 8.250% mortgage secured by the
Corporation's headquarters building.
The 9.000% mortgage-backed notes were collateralized by U.S. government
securities at December 31, 1995, and mature in July 1999.
Federal Home Loan Bank advances at December 31, 1995 consisted of various debt
instruments with rates varying from 4.760% to 8.460%. This debt was
collateralized by certain loans and securities, with maturities through
September 2010.
<TABLE>
A summary of annual principal reductions of long-term debt is presented below:
<CAPTION>
ANNUAL
PRINCIPAL
REDUCTIONS
PERIOD (Thousands)
<S> <C>
1996 $ 7,506
1997 22,906
1998 7,602
1999 54,179
2000 1,356
2001 and later 232,058
--------
Total $325,607
========
</TABLE>
NOTE J
INCOME TAXES
<TABLE>
The Corporation's results include income tax expense as follows:
<CAPTION>
CURRENT DEFERRED TOTAL
(Thousands)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
U.S. FEDERAL $122,262 $(12,420) $109,842
STATE AND LOCAL 15,006 (739) 14,267
-------- -------- --------
TOTAL $137,268 $(13,159) $124,109
======== ======== ========
Year ended December 31, 1994
U.S. Federal $108,112 $ (7,701) $100,411
State and local 13,079 (325) 12,754
-------- -------- --------
Total $121,191 $ (8,026) $113,165
======== ======== ========
Year ended December 31, 1993
U.S. Federal $ 77,728 $ 4,587 $ 82,315
State and local 13,189 570 13,759
-------- -------- --------
Total $ 90,917 $ 5,157 $ 96,074
======== ======== ========
</TABLE>
<TABLE>
The tax effects of temporary differences that gave rise to the deferred tax
assets and deferred tax liabilities are presented below.
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Reserve for possible loan losses $ 66,342 $70,210 $ 66,266
Foreclosed property 720 2,560 2,842
Deferred compensation 5,451 3,240 3,918
Net operating losses from pooled
subsidiary -- 1,494 4,527
Expenses not currently allowable
for tax purposes 12,732 11,079 7,598
State tax liabilities 2,554 2,239 1,266
Investments in debt and equity
securities--FAS 115 -- 11,417 --
Retirement expenses in excess of
tax deduction 6,737 5,274 2,404
Other 2,512 5,978 2,435
-------- -------- --------
Total Gross Deferred Tax Assets 97,048 113,491 91,256
Deferred tax liabilities
Leasing (37,616) (56,776) (55,050)
Pension settlement gain (6,079) (6,005) (6,005)
Intangible assets (6,466) (9,865) (11,581)
Depreciation (4,167) (3,935) (5,397)
Investments in debt and equity
securities--FAS 115 (13,946) -- (1,959)
Other (12,330) (8,262) (4,018)
-------- -------- --------
Total Gross Deferred Tax
Liabilities (80,604) (84,843) (84,010)
-------- -------- --------
Net Deferred Tax Assets $ 16,444 $ 28,648 $ 7,246
======== ======== ========
</TABLE>
<TABLE>
Income tax expense as reported differs from the amounts computed by applying
the statutory U.S. Federal income tax rate to pretax income as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Computed ``expected'' tax expense $124,874 $106,834 $ 91,400
Increase (reduction) in income
taxes resulting from
Tax-exempt income (9,958) (10,006) (10,242)
State and local income taxes,
net of federal income tax
benefit 9,274 8,290 8,943
Thrift bad debt recapture -- 3,615 6,070
Other, net (81) 4,432 (97)
-------- -------- --------
Total Tax Expense $124,109 $113,165 $ 96,074
======== ======== ========
</TABLE>
14
<PAGE> 17
NOTE K
RETIREMENT PLANS
Pension Plans:
The Corporation maintains both qualified and nonqualified noncontributory
pension plans that cover all employees meeting certain age and service
requirements.
The qualified plan provides pension benefits based on the employee's length of
service and compensation earned during the five years prior to retirement. The
Corporation's funding policy is to contribute annually at least the minimum
amount required by government funding standards but not more than is tax
deductible. No contribution was required during 1995, 1994 or 1993.
<TABLE>
The net periodic pension expense related to the qualified plan included in the
Supplemental Consolidated Statement of Income is summarized as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during
the period $ 6,025 $ 6,665 $ 5,088
Interest cost on projected benefit
obligation 9,220 8,382 7,744
Actual (return) loss on plan assets (26,535) 1,863 (10,117)
Net amortization and deferral 13,585 (14,254) (1,132)
-------- -------- --------
Net Periodic Pension Expense $ 2,295 $ 2,656 $ 1,583
======== ======== ========
</TABLE>
<TABLE>
The table below sets forth the funded status and amounts recognized in the
Supplemental Consolidated Balance Sheet for the qualified plan:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Actuarial present value of
Vested benefit obligation $ 98,597 $ 78,380 $ 81,790
======== ======== ========
Accumulated benefit obligation $109,819 $ 87,122 $ 89,131
======== ======== ========
Projected benefit obligation $134,987 $104,949 $109,718
Plan assets at fair value 144,825 121,799 123,299
-------- -------- --------
Plan assets in excess of projected
benefit obligation (9,838) (16,850) (13,581)
Unrecognized net loss (13,226) (8,964) (12,213)
Unrecognized prior service cost 2,603 2,922 1,895
Unrecognized net asset at
December 31 4,357 5,664 7,229
-------- -------- --------
Prepaid Pension $(16,104) $(17,228) $(16,670)
======== ======== ========
Assumptions used were as follows:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate in determining benefit
obligations 7.50% 8.50% 7.50%
Rate of increase in compensation
levels 5.00 5.00 5.00
Expected long-term rate on assets 9.50 9.00 9.00
</TABLE>
At December 31, 1995, approximately 62% of the plan's assets was invested in
listed common stocks, 35% was invested in government and corporate bonds rated A
or better, and the remaining 3% was invested in short-term cash equivalents. A
nominal amount of common stock of the Corporation was held by the plan.
The nonqualified plans provide pension benefits which would have been provided
under the qualified plan in the absence of limits placed on qualified plan
benefits by the Internal Revenue Service. The Corporation's funding policy is to
fund benefits as they are paid. Contributions under the nonqualified plans were
not material for the years ended December 31, 1995, 1994 and 1993. The expense
related to these plans was $1,685,000 in 1995, $1,612,000 in 1994 and
$1,641,000 in 1993.
Other Postretirement Benefits:
In addition to the pension plans described above, the Corporation provides
other postretirement benefits, largely medical benefits and life insurance, to
its retirees.
<TABLE>
The Corporation adopted Financial Accounting Standard (``FAS'') 106,
``Employers' Accounting for Postretirement Benefits Other Than Pensions,'' in
the first quarter of 1993, which required the recording of the unrecognized
transition obligation for postretirement benefits other than pensions. That
liability is being amortized over a 20-year period. The net periodic
postretirement benefit expense included in the Supplemental Consolidated
Statement of Income is summarized as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during
the period $ 610 $ 734 $ 591
Interest cost on accumulated
postretirement benefit obligation 2,716 2,539 2,661
Net amortization and deferral 1,475 1,633 1,679
------ ------ ------
Net Periodic Postretirement Benefit Cost $4,801 $4,906 $4,931
====== ====== ======
</TABLE>
15
<PAGE> 18
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
<TABLE>
The table below sets forth the funded status and the amount recognized in the
Supplemental Consolidated Balance Sheet regarding other postretirement benefits:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation (``APBO'')
Retirees $ 27,041 $ 24,493 $ 25,956
Active employees fully eligible for
benefits 1,301 1,085 1,437
Other active employees 7,862 6,609 7,856
-------- -------- --------
Total 36,204 32,187 35,249
Assets at fair value -- -- --
-------- -------- --------
APBO in excess of assets 36,204 32,187 35,249
Unrecognized net gain (loss) (1,241) 2,436 (1,268)
Unrecognized prior service cost (147) (155) --
Unrecognized transition obligation at
December 31 (26,889) (28,470) (30,393)
-------- -------- --------
Accrued Postretirement Benefit
Obligation $ 7,927 $ 5,998 $ 3,588
======== ======== ========
</TABLE>
<TABLE>
Assumptions used were as follows:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate in determining benefit
obligations 7.50% 8.50% 7.50%
Health care cost trend
First year 9.50 11.00 12.00
Ultimate (2001 and after) 5.50 6.00 6.00
</TABLE>
An increase in the health care cost trend of one percent would increase the
aggregate of service and interest cost components of net periodic postretirement
benefit costs by $120,000 in 1995, the same level as in 1994. The APBO would
increase by $1,448,000 as of December 31, 1995 compared with $1,443,000 as of
December 31, 1994.
NOTE L
SHAREHOLDERS' EQUITY
Common Stock:
The authorized common stock of the Corporation consists of 100,000,000 shares
as of December 31, 1995 and 1994, and 70,000,000 shares as of December 31, 1993,
$5.00 par value, of which 62,506,536, 59,883,249 and 59,432,238 shares were
outstanding at December 31, 1995, 1994 and 1993, respectively.
The Corporation's Dividend Reinvestment Plan (``Plan'') allows shareholders of
record to reinvest dividends and/or make voluntary cash contributions to
purchase additional shares of the Corporation's common stock. Under the Plan,
stock is purchased in the open market by the Plan Trustee with no service charge
to the shareholder.
Preferred Stock:
The authorized preferred stock of the Corporation consists of 5,000,000
shares, no par value, of which 14,806 shares were issued and outstanding at
December 31, 1995, 1994 and 1993. In addition, 1,000,000 shares were reserved at
December 31, 1995 for issuance pursuant to the Preferred Share Purchase Rights
Plan.
As of December 31, 1995, 1994 and 1993, there were two series of non-voting
preferred stock issued. Series B-1 consists of 5,306 shares which are redeemable
by the Corporation and which have non-cumulative dividends as declared by
Mercantile's Board of Directors. Series B-2 represents 9,500 shares with a
cumulative annual dividend at the rate of $85 per share. The Series B-2
preferred shares are also redeemable by the Corporation.
Preferred Share Purchase Rights Plan:
One Preferred Share Purchase Right (``Right'') is attached to each share of
common stock and trades automatically with such shares. The Rights, which can be
redeemed by the Board of Directors in certain circumstances and expire by their
terms on June 3, 1998, have no voting rights.
The Rights become exercisable and will trade separately from the common stock
10 days after a person or a group either becomes the beneficial owner or
announces an intention to commence a tender offer for 20% or more of the
Corporation's outstanding common stock. When exercisable, each Right entitles
the registered holder to purchase from the Corporation 1/100 of a share of
Series A Junior Participating Preferred Stock for $100 per 1/100 of a preferred
share.
In the event a person acquires beneficial ownership of 20% or more of the
Corporation's common stock, holders of Rights (other than the acquiring person
or group) may purchase, at the Rights' then current exercise price, common stock
of the Corporation having a value at that time equal to twice the exercise
price. In the event the Corporation merges into or otherwise transfers 50% or
more of its assets or earnings power to any person after the Rights become
exercisable, holders of Rights may purchase, at the then current exercise price,
common stock of the acquiring entity having a value at that time equal to twice
the exercise price.
Stock Options:
The Corporation had stock options outstanding under various plans at December
31, 1995, including plans assumed in acquisitions. The original Mercantile plans
provide for the granting to employees of the Corporation and its subsidiaries of
options to purchase shares of common stock of the Corporation over periods of up
to 10 years at a price not less than the market value of the shares at the date
the options are granted. The plans provide for the granting of options which
either qualify or do not qualify
16
<PAGE> 19
as Incentive Stock Options as defined by Section 422 of the Internal Revenue
Code of 1986, as amended. A summary of the plans follows:
<TABLE>
<CAPTION>
SHARES PRICE
------ -----
<S> <C> <C>
AT DECEMBER 31, 1995
Available for grant 1,240,724
Outstanding 2,855,619 $5.41-45.25
Exercisable 1,575,729 5.41-38.88
</TABLE>
<TABLE>
Changes in options outstanding were as follows:
<CAPTION>
SHARES PRICE
------ -----
<S> <C> <C>
BALANCE AT DECEMBER 31, 1992 2,119,796 $ 5.41-29.00
Granted 750,467 14.62-34.33
Exercised (269,920) 5.41-26.33
Canceled (40,225) 17.17-32.67
---------
BALANCE AT DECEMBER 31, 1993 2,560,118 5.41-34.33
Granted 746,045 18.44-38.88
Exercised (319,080) 5.41-32.50
Canceled (55,227) 12.50-32.67
---------
BALANCE AT DECEMBER 31, 1994 2,931,856 5.41-38.88
GRANTED 415,555 36.00-45.25
EXERCISED (518,155) 5.41-32.50
CANCELED (71,995) 5.41-38.00
ASSUMED 98,358 15.06-19.81
---------
BALANCE AT DECEMBER 31, 1995 2,855,619 5.41-45.25
=========
</TABLE>
No amounts have been charged to expense in connection with any plan.
Debt and Dividend Restrictions:
Consolidated retained earnings at December 31, 1995 were not restricted under
any debenture agreement as to payment of dividends or reacquisition of common
stock.
The primary source of funds for dividends paid by the Corporation to its
shareholders is dividends received from bank subsidiaries. At December 31, 1995,
approximately $396,526,000 of the equity of bank subsidiaries was available for
distribution as dividends to the Parent Company without prior regulatory
approval or without reducing the capital of the respective subsidiary banks
below present minimum standards. An additional $141,887,000 would be available
for loans to the Parent Company under Federal Reserve regulations. The remaining
equity of bank subsidiaries approximating $1,075,200,000 was restricted as to
transfers to the Parent Company.
NOTE M
CONCENTRATIONS OF CREDIT
The Corporation's primary market area is the state of Missouri and the lower
Midwest. At December 31, 1995, approximately 93% of the total loan
portfolio, and 90% of the commercial and commercial real estate loan
portfolio, were to borrowers within this region. The diversity of the
region's economic base tends to provide a stable lending environment.
Real estate and credit card lending constituted the two other areas of
significant concentration of credit risk. Real estate-related financial
instruments (loans, commitments and standby letters of credit) comprised
37% of all such instruments of the Corporation. However, of this total,
approximately 59% was consumer-related in the form of residential real
estate mortgages and home equity lines of credit. Credit card-related
financial instruments comprised approximately 28% of all such instruments
of the Corporation.
The Corporation is, in general, a secured lender. At December 31, 1995,
approximately 86% of the loan portfolio was secured. Collateral is required in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction.
NOTE N
FINANCIAL INSTRUMENTS
Fair Values:
Fair values for financial instruments are management's estimates of the values
at which the instruments could be exchanged in a transaction between willing
parties. These estimates are subjective and may vary significantly from amounts
that would be realized in actual transactions. In addition, certain financial
instruments and all non-financial instruments are excluded from the fair value
disclosure requirements of FAS 107, ``Disclosures about Fair Value of Financial
Instruments.'' Therefore, the fair values presented below should not be
construed as the underlying value of the Corporation.
The following methods and assumptions were used in estimating fair values for
financial instruments.
Cash and Due from Banks, Short-term Investments and Short-term Borrowings: The
carrying values reported in the Supplemental Consolidated Balance Sheet
approximated fair values.
Investments in Debt and Equity Securities: Fair values for held-to-maturity and
available-for-sale securities were based upon quoted market prices where
available. Fair values for trading securities, which also were the amounts
reported in the Supplemental Consolidated Balance Sheet, were based on quoted
market prices where available. If quoted market prices were not available, fair
values were based upon quoted market prices of comparable instruments.
Loans and Leases: The fair values for most fixed-rate loans were estimated by
utilizing discounted cash flow analysis, applying interest rates currently
being offered for similar loans to borrowers with similar risk profiles. The
discount rates used therefore include a credit risk
17
<PAGE> 20
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
premium. The fair values of variable-rate loans and residential mortgages were
estimated by utilizing the same type of discounted cash flows, but over a range
of interest rate scenarios, in order to incorporate the value of the options
imbedded in these assets. Loans with similar characteristics were aggregated
for purposes of these calculations. The fair value of credit card loans was
assumed to be the same as the par value.
Deposits: The fair values disclosed for deposits generally payable on demand
(i.e., interest bearing and non-interest bearing demand, savings, and money
market accounts) were considered equal to their respective carrying amounts as
reported in the Supplemental Consolidated Balance Sheet. Fair values for
certificates of deposit and foreign deposits were estimated using a discounted
cash flow calculation that applied interest rates generally offered on similar
certificates to a schedule of aggregated expected monthly maturities of time
deposits. The fair value estimate of the deposit portfolio has not been
adjusted for any value derived from the retention of those deposits for an
expected future period of time. That component, commonly referred to as core
deposit premium, was estimated to be approximately $250,000,000 to $375,000,000
at December 31, 1995, and was neither considered in the fair value amounts
below nor recorded as an intangible asset on the Supplemental Consolidated
Balance Sheet.
Bank Notes and Long-term Debt: The fair value of publicly traded debt was based
upon quoted market prices, where available, or upon quoted market prices of
comparable instruments. The fair values of bank notes and long-term debt were
estimated using discounted cash flow analysis, based on the Corporation's
current incremental borrowing rates for similar types of borrowing
arrangements.
Off-Balance-Sheet Instruments: Fair values of foreign exchange contracts and
interest rate contracts were determined from quoted market prices. Fair values
of commitments to extend credit, standby letters of credit and commercial
letters of credit were based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standings.
<TABLE>
The estimated fair values of the Corporation's financial instruments were as
follows:
<CAPTION>
DECEMBER 31
1995 1994 1993
------------------------- ------------------------- -------------------------
(Thousands)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks and short-term
investments $ 1,434,242 $ 1,434,242 $ 1,106,933 $ 1,106,933 $ 1,361,648 $ 1,361,648
Trading securities 3,677 3,677 14,299 14,299 15,735 15,735
Held-to-maturity securities -- -- 3,565,219 3,451,258 4,227,749 4,303,744
Available-for-sale securities 4,207,079 4,207,079 700,741 700,741 426,898 426,898
Net loans and leases 11,529,107 11,995,484 10,688,257 10,738,843 9,602,840 9,870,494
FINANCIAL LIABILITIES
Deposits 13,714,260 13,932,902 12,864,890 12,847,481 13,243,141 13,314,042
Short-term borrowings 1,763,736 1,763,736 1,838,081 1,838,081 1,224,672 1,224,672
Bank notes and long-term debt 575,607 594,405 430,200 409,096 315,561 345,256
OFF-BALANCE-SHEET
Foreign exchange contracts purchased $ 3,071 $ 6,641 $ 5,375
Foreign exchange contracts sold (2,597) (6,199) (6,890)
Interest rate contracts 75 (184) (4,125)
Commitments to extend credit (12,035) (10,833) (12,965)
Standby letters of credit (2,551) (2,179) (2,410)
Commercial letters of credit (4,265) (4,104) (4,377)
</TABLE>
18
<PAGE> 21
Off-Balance-Sheet Risk:
The Corporation is, in the normal course of business, a party to certain
off-balance-sheet financial instruments with inherent credit and/or market risk.
These instruments, which include commitments to extend credit, standby letters
of credit, interest options written, interest futures contracts and foreign
exchange contracts, are used by the Corporation to meet the financing needs of
its customers and, to a lesser degree, to reduce its own exposure to interest
rate fluctuations. These instruments involve, to varying degrees, credit and
market risk in excess of the amount recognized in the Supplemental Consolidated
Balance Sheet.
<TABLE>
Financial instruments with off-balance-sheet credit risk for which the
contract amounts represent potential credit risk were as follows:
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
Commitments to extend credit
Commercial $1,998,786 $1,835,082 $1,628,996
Consumer 5,504,932 4,431,671 3,476,846
---------- ---------- ----------
Total $7,503,718 $6,266,753 $5,105,842
========== ========== ==========
Standby letters of credit $ 327,027 $ 230,250 $ 254,547
=========== =========== ===========
Interest rate contracts $ 27,000 $ 21,000 $ 37,500
=========== =========== ===========
</TABLE>
The Corporation's maximum exposure to credit loss under commitments to extend
credit and standby letters of credit is the equivalent of the contractual amount
of those instruments. The same credit policies are used by the Corporation in
granting commitments and conditional obligations as are used in the extension of
credit.
Commitments to extend credit are legally binding agreements to lend to a
borrower as long as the borrower performs in accordance with the terms of the
contract. Commitments generally have fixed expiration dates or other termination
clauses, and may require payment of a fee. As many of the commitments are
expected to expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements. Included in consumer
commitments are the unused portions of lines of credit for credit card and home
equity credit line loans.
Standby letters of credit are commitments issued by the Corporation to
guarantee specific performance of a customer to a third party.
Collateral is required for both commitments and standby letters of credit in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction. Collateral held varies, but may include commercial real
estate, accounts receivable, inventory or equipment.
Included in interest rate contracts are interest rate exchange agreements with
major investment banking firms to convert short-term, variable-rate liabilities
into long-term, fixed-rate liabilities, to secure interest margins and to hedge
against interest rate movements.
Derivative Financial Instruments:
Held or Issued for Trading Purposes:
In the normal course of business, the Corporation maintains minimal trading
positions in a variety of derivative financial instruments. Most of the
Corporation's trading activities are customer oriented, with trading positions
established to meet the financing and foreign exchange transaction needs of
customers. This activity complements the Corporation's traditional money and
capital markets trading business, which also exists to meet customers' demands.
Net revenue recognized on interest rate contracts and foreign exchange
contracts totaled $2,839,000 and $2,558,000 in 1995 and 1994, respectively. For
interest options written, foreign exchange contracts purchased and foreign
exchange contracts sold, the notional amounts were $25,225,000, $125,725,000 and
$130,394,000, respectively, at December 31, 1995. At December 31, 1994, the
notional amounts for interest options written, foreign exchange contracts
purchased and foreign exchange contracts sold were $62,725,000, $184,079,000 and
$173,378,000, respectively. These commitments do not represent exposure to
credit loss and are generally entered into on behalf of customers and result in
the Corporation being in a matched position. Credit risk in the transactions is
minimal. The Corporation manages the potential credit exposure through
established credit approvals, risk control limits and other monitoring
procedures. Market risk to the Corporation could result from non-performance by
a counterparty to a contract.
Held or Issued for Purposes Other Than Trading:
Of the commitments to extend credit discussed in the preceding paragraphs,
$108,267,000 and $74,966,000 were entered into with fixed rates for commercial
loan customers at December 31, 1995 and 1994, respectively. Fixed-rate
commitments for consumer (residential mortgage) loan customers totaled
$57,883,000 at December 31, 1995 and $35,289,000 at December 31, 1994.
Fixed-rate commitments to extend credit are defined as fixed-rate commercial
loan commitments with remaining maturities greater than one year, fixed-rate
residential mortgage loan commitments, and adjustable-rate residential mortgage
loan commitments for loans with adjustment periods greater than one year.
Fixed-rate mortgage loans held for resale are partially hedged with contracts
for forward delivery in the secondary mortgage market. This hedging activity is
designed to protect the Corporation from changes in interest rates. Gains and
losses from the hedging transactions on mortgage loans held for resale are
deferred and included in the cost of the
19
<PAGE> 22
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
loans for determining the gain or loss when the loans are sold. As of December
31, 1995, the Company had $68,000,000 of forward delivery contracts outstanding.
NOTE O
CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against the Corporation and its subsidiaries. Management, after
consultation with legal counsel, is of the opinion that the ultimate resolution
of these proceedings will have no material adverse
effect on the consolidated financial condition or results of operations of the
Corporation.
NOTE P
PARENT COMPANY FINANCIAL INFORMATION
Following are the condensed financial statements of Mercantile Bancorporation
Inc. (Parent Company Only) for the periods indicated.
For the Statement of Cash Flows (Parent Company Only), cash and short-term
investments were considered cash equivalents. Interest paid on commercial paper
and long-term debt was $13,071,000, $15,099,000 and $15,881,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
<TABLE>
STATEMENT OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $215,580 $104,950 $ 77,548
Other interest and dividends 4,355 4,644 5,538
Management fees 13,637 13,879 13,392
Other 11,702 3,546 2,687
-------- -------- --------
Total Income 245,274 127,019 99,165
EXPENSE
Interest on commercial paper 1,249 1,199 733
Interest on long-term debt 11,697 12,607 15,157
Personnel expense 16,869 14,463 11,544
Other operating expenses 12,410 16,019 14,301
-------- -------- --------
Total Expense 42,225 44,288 41,735
INCOME BEFORE INCOME TAX BENEFIT
AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 203,049 82,731 57,430
Income tax benefit 2,926 6,482 6,708
-------- -------- --------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES 205,975 89,213 64,138
Equity in undistributed income of
subsidiaries 26,701 102,861 100,931
-------- -------- --------
NET INCOME $232,676 $192,074 $165,069
======== ======== ========
</TABLE>
<TABLE>
BALANCE SHEET
<CAPTION>
DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
ASSETS
Cash $ 21 $ -- $ 609
Short-term investments 40,358 82,405 47,776
Available-for-sale securities 22,669 12,539 16,569
Investment in subsidiaries 1,679,526 1,444,810 1,353,078
Goodwill 64,812 48,557 45,912
Loans and advances to
subsidiaries 16,950 26,849 53,390
Other assets 14,871 3,849 7,865
---------- ---------- ----------
Total Assets $1,839,207 $1,619,009 $1,525,199
========== ========== ==========
LIABILITIES
Commercial paper $ 16,950 $ 26,800 $ 18,390
Long-term debt 150,000 158,822 194,072
Other liabilities 32,670 24,697 17,516
---------- ---------- ----------
Total Liabilities 199,620 210,319 229,978
SHAREHOLDERS' EQUITY 1,639,587 1,408,690 1,295,221
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $1,839,207 $1,619,009 $1,525,199
========== ========== ==========
</TABLE>
20
<PAGE> 23
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 232,676 $ 192,074 $ 165,069
Adjustments to reconcile net income
to net cash provided by operating
activities
Net income of subsidiaries (242,281) (207,811) (178,479)
Dividends from subsidiaries 211,485 98,666 62,430
Other, net 363 14,263 2,038
--------- --------- ---------
Net Cash Provided by
Operating Activities 202,243 97,192 51,058
INVESTING ACTIVITIES
Investments in debt and equity
securities
Purchases (9,914) (948) (2,054)
Proceeds from maturities 4,501 5,417 5,878
Contributions of capital to subsidiaries (70,352) (21,505) (31,705)
Other, net (3,601) 25,143 (9,280)
--------- --------- ---------
Net Cash Provided (Used) by
Investing Activities (79,366) 8,107 (37,161)
FINANCING ACTIVITIES
Cash dividends paid by Mercantile
Bancorporation Inc. (69,562) (48,329) (34,840)
Issuance of common stock for
employee incentive plans 6,839 2,923 2,203
Purchase of treasury stock (85,474) (2,954) --
Principal payments on
long-term debt (156) (30,552) (742)
Acquisitions (6,700) -- (4,809)
Net change in commercial paper (9,850) 8,410 9,192
Other, net -- (777) (438)
--------- --------- ---------
Net Cash Used by
Financing Activities (164,903) (71,279) (29,434)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (42,026) 34,020 (15,537)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 82,405 48,385 63,922
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,379 $ 82,405 $ 48,385
========= ========= =========
</TABLE>
21
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP
1010 MARKET STREET TELEPHONE 314 444 1400 TELEFAX 314 444 1470
ST. LOUIS, MO 63101-2085
Shareholders and Board of Directors
Mercantile Bancorporation Inc.:
We have audited the accompanying supplemental
consolidated balance sheets of Mercantile Bancorporation
Inc. and subsidiaries as of December 31, 1995, 1994, and
1993, and the related supplemental consolidated
statements of income, changes in shareholders' equity,
and cash flows for the years then ended. These
supplemental consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
The supplemental consolidated financial statements give
retroactive effect to the merger of Hawkeye
Bancorporation on January 2, 1996, which has been
accounted for using the pooling of interests method as
described in the notes to the supplemental consolidated
financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated
business combination accounted for by the pooling of
interests method in financial statements that do not
include the dates of consummation. These financial
statements do not extend through the date of
consummation; however, they will become the historical
consolidated financial statements of Mercantile
Bancorporation Inc. and subsidiaries after financial
statements covering the date of consummation of the
business combination are issued.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the supplemental consolidated financial
statements referred to above present fairly, in all
material respects, the financial position of Mercantile
Bancorporation Inc. and subsidiaries as of December 31,
1995, 1994, and 1993, and the results of their operations
and their cash flows for the years then ended in
conformity with generally accepted accounting principles
applicable after financial statements are issued for a
period which includes the date of consummation of the
business combination.
KPMG PEAT MARWICK LLP
March 11, 1996
/ // // // / MEMBER FIRM OF
KLYNVELD PEAT MARWICK GOERDELER
22
<PAGE> 25
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
Not Applicable
(b) PRO FORMA FINANCIAL INFORMATION:
Not Applicable
(c) EXHIBITS:
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
* * *
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: March 11, 1996
MERCANTILE BANCORPORATION INC.
By: /s/ Michael T. Normile
----------------------------------------
Michael T. Normile
Senior Vice President Finance and Control
<PAGE> 27
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 23
Independent Auditors' Consent
-----------------------------
The Board of Directors
Mercantile Bancorporation Inc.:
We consent to the incorporation by reference in the Registration
Statements No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139, No.
33-43694, No. 33-48952, and No. 33-57543, each on Form S-8, and No.
33-45863, No. 33-50981, No. 33-55439, No. 33-52986, No. 33-50579, No.
33-56603, No. 33-58467, and No. 33-63609, each of Form S-4, of
Mercantile Bancorporation Inc., of our report dated March 11, 1996,
relating to the supplemental consolidated balance sheets of
Mercantile Bancorporation Inc. and subsidiaries as of December 31,
1995, 1994, and 1993, and the related supplemental consolidated
statements of income, changes in shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31,
1995, which report appears in the Current Report on Form 8-K dated
March 11, 1996 of Mercantile Bancorporation Inc.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 11, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,112,088
<INT-BEARING-DEPOSITS> 51,056
<FED-FUNDS-SOLD> 271,098
<TRADING-ASSETS> 3,677
<INVESTMENTS-HELD-FOR-SALE> 4,207,079
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 11,730,887
<ALLOWANCE> 201,780
<TOTAL-ASSETS> 17,928,041
<DEPOSITS> 13,714,260
<SHORT-TERM> 1,763,736
<LIABILITIES-OTHER> 234,851
<LONG-TERM> 325,607
0
12,153
<COMMON> 258,877
<OTHER-SE> 1,368,557
<TOTAL-LIABILITIES-AND-EQUITY> 17,928,041
<INTEREST-LOAN> 1,021,052
<INTEREST-INVEST> 252,165
<INTEREST-OTHER> 20,727
<INTEREST-TOTAL> 1,293,944
<INTEREST-DEPOSIT> 495,863
<INTEREST-EXPENSE> 620,534
<INTEREST-INCOME-NET> 673,410
<LOAN-LOSSES> 36,530
<SECURITIES-GAINS> 4,042
<EXPENSE-OTHER> 553,748
<INCOME-PRETAX> 356,785
<INCOME-PRE-EXTRAORDINARY> 232,676
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,676
<EPS-PRIMARY> 3.74
<EPS-DILUTED> 3.74
<YIELD-ACTUAL> 4.28
<LOANS-NON> 79,205
<LOANS-PAST> 27,242
<LOANS-TROUBLED> 3,094
<LOANS-PROBLEM> 29,160
<ALLOWANCE-OPEN> 215,849
<CHARGE-OFFS> 69,099
<RECOVERIES> 16,670
<ALLOWANCE-CLOSE> 201,780
<ALLOWANCE-DOMESTIC> 201,780
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50,894
</TABLE>
