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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 1-11792
MERCANTILE BANCORPORATION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-0951744
(STATE OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NO.)
P.O. BOX 524 63166-0524
ST. LOUIS, MISSOURI (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-425-2525
SECURITIES REGISTERED PURSUANT TO NAME OF EXCHANGE ON WHICH
SECTION 12(b) OF THE ACT: REGISTERED:
(1) COMMON STOCK ($5.00 PAR VALUE) (1) NEW YORK STOCK EXCHANGE
(2) PREFERRED STOCK PURCHASE RIGHTS (2) NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT AS OF FEBRUARY 29, 1996:
COMMON STOCK, $5.00 PAR VALUE, $2,339,675,910
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF FEBRUARY 29, 1996:
COMMON STOCK $5.00 PAR VALUE, 62,897,868 SHARES OUTSTANDING
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
AS PROVIDED HEREIN, PORTIONS OF THE DOCUMENTS BELOW ARE INCORPORATED BY
REFERENCE:
<CAPTION>
DOCUMENT PART--FORM 10-K
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<S> <C>
ANNUAL REPORT OF THE REGISTRANT TO ITS SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1995 PARTS I, II, IV
REGISTRANT'S PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS. PART III
</TABLE>
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PART I
Item I. Business
THE COMPANY
Mercantile Bancorporation Inc. ("Mercantile" or "Registrant") is a holding
company which, as of February 29, 1996, owned all of the stock (except for
directors' qualifying shares) of Mercantile Bank of St. Louis National
Association ("Mercantile Bank of St. Louis"), 73 commercial banks located
throughout Missouri, Illinois, eastern Kansas, Iowa and Arkansas, one federal
savings bank located in Davenport, Iowa, and other non-banking subsidiaries.
At December 31, 1995, Mercantile's consolidated assets were $15,934,370,000,
consolidated loans were $10,441,579,000, consolidated deposits were
$11,974,448,000 and consolidated shareholders' equity was $1,450,297,000. At
December 31, 1995, Mercantile Bank of St. Louis and its consolidated
subsidiaries had assets of $6,688,206,000, loans of $3,935,022,000, deposits
of $3,930,021,000 and shareholder's equity of $538,585,000.
Mercantile has its principal offices at P.O. Box 524, St. Louis, Missouri
63166-0524 (telephone number 314-425-2525).
BUSINESS
GENERAL
Mercantile was organized on March 10, 1970, as a Missouri corporation for
the purpose of becoming a multi-bank holding company. Mercantile commenced
operations as a bank holding company in March 1971. Since then Mercantile has
acquired and organized additional banks, bank holding companies and a federal
savings bank located throughout Missouri, Illinois, eastern Kansas, Iowa and
Arkansas.
FINANCIAL SUMMARY OF MERCANTILE
<TABLE>
A financial summary of Mercantile and its consolidated subsidiaries is
detailed below:
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DECEMBER 31
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1995 1994 1993 1992 1991
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(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets $15,934,370 $14,806,344 $14,423,079 $14,189,860 $12,376,650
Loans and leases 10,441,579 9,669,978 8,702,332 8,525,435 7,881,005
Investments in debt
and equity securities 3,795,360 3,843,500 4,180,083 4,105,994 2,948,822
Deposits 11,974,448 11,189,250 11,598,509 11,629,300 10,211,248
Shareholders' equity 1,450,297 1,234,336 1,132,669 995,806 804,799
</TABLE>
SUBSIDIARIES
The table setting forth the names and locations of Mercantile's subsidiary
financial institutions is included on page 59 in the Annual Report of the
Registrant to its Shareholders for the year ended December 31, 1995, and is
incorporated herein by reference.
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Mercantile acquired a number of subsidiaries in transactions that closed
in 1995 and the first two months of 1996. Effective January 3, 1995,
Mercantile acquired UNSL Financial Corp ("UNSL"), a Lebanon, Missouri-based
holding company for United Savings Bank, a Missouri-chartered savings bank
with assets totaling $508 million. A total of 1,578,107 shares of Mercantile
common stock was issued in the transaction, which was accounted for as a
pooling-of-interests. Also effective January 3, 1995, Mercantile acquired
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 meets the requirements for
treatment as a pooling-of-interests. Due to the immateriality of Wedge's
financial condition and results of operations to the Registrant, however, the
historical financial statements of Mercantile were not restated for the Wedge
pooling-of-interests transaction.
Effective May 1, 1995, the Registrant acquired Central Mortgage
Bancshares, Inc. ("Central Mortgage"), a three-bank holding company with
assets totaling $655 million, headquartered in Kansas City, Missouri. A total
of 2,537,723 shares of Mercantile common was issued in this transaction. Also
effective May 1, 1995, Mercantile acquired the North Little Rock,
Arkansas-based TCBankshares, Inc. ("TCB"), a six-bank holding company with
assets totaling $1.4 billion. Issued in the TCB transaction were 4,749,999
shares of Mercantile common stock, 5,306 shares of Series B-1 preferred stock
and 9,500 shares of Series B-2 preferred stock. Such preferred shares were
redeemed on March 1, 1996. Both the Central Mortgage and TCB transactions were
accounted for as poolings-of-interest.
On July 7, 1995, Mercantile acquired Plains Spirit Financial Corporation
("Plains Spirit"), an Iowa-based holding company for First Federal Savings
Bank of Iowa (now known as Mercantile Bank, FSB), located in Davenport, Iowa,
with assets totaling $401 million. The Plains Spirit transaction was
accounted for as a purchase. The total cost of the Plains Spirit acquisition
was $59,968,000. The excess of purchase price over fair value of net assets
acquired was $17,820,000. A total of 1,301,180 shares of Mercantile common
stock was issued in the transaction.
Effective August 1, 1995, the Registrant acquired Southwest Bancshares,
Inc. ("Southwest"), a Missouri-based holding company for Southwest Bank,
headquartered in Bolivar, Missouri, with assets totaling $188 million. A
total of 674,975 shares of Mercantile common stock was issued in the Southwest
transaction. Also effective August 1, 1995, the Registrant acquired
AmeriFirst Bancorporation, Inc. ("AmeriFirst"), a $156-million-asset Sikeston,
Missouri-based holding company which owned AmeriFirst Bank. A total of
661,356 shares of Mercantile common stock was issued in the AmeriFirst
acquisition. The Southwest and AmeriFirst transactions meet the requirements
for treatment as poolings-of-interests. Due to the immateriality of
Southwest's and AmeriFirst's financial condition and results of operations to
the Registrant, however, the historical financial statements of Mercantile
were not restated for these poolings-of-interests transactions.
Effective January 2, 1996, Mercantile acquired Hawkeye Bancorporation
("Hawkeye"), a 23-bank holding company with assets totaling $2.0 billion,
headquartered in Des Moines, Iowa. The consideration for the transaction
totaled 7,892,196 shares of Mercantile common stock. The Hawkeye acquisition
was accounted for as a pooling-of-interests.
Also effective January 2, 1996, the Registrant acquired First Sterling
Bancorp, Inc. ("Sterling"), an Illinois-based 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
acquisition. The Sterling transaction meets the requirements for treatment as
a pooling-of-interests, but due to the immateriality of Sterling's financial
condition and results of operations to the Registrant, the historical
financial statements of Mercantile were not restated for the Sterling
pooling-of-interests transaction.
Effective February 9, 1996, Mercantile acquired Security Bank of Conway,
F.S.B., an Arkansas-based savings bank with assets totaling $102 million. The
consideration for the acquisition of Security Bank of Conway, F.S.B. totaled
321,964 shares of Mercantile common stock. This acquisition was accounted for
as a purchase.
Effective March 7, 1996, the Registrant acquired Metro Savings Bank,
F.S.B., a Wood River, Illinois savings bank ("Metro") with assets totaling
approximately $82 million. The consideration for the acquisition of Metro
totaled approximately 199,500 shares of Mercantile common stock. This
acquisition will be accounted for as a purchase.
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The Registrant entered into an agreement dated December 20, 1995 to
acquire the capital stock of Peoples State Bank of Topeka, Kansas, with assets
of $97 million ("Peoples"). 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. Consummation of the Peoples acquisition
is subject to approval by all appropriate regulatory authorities and the
shareholders of Peoples.
SERVICES AND TRANSACTIONS WITH SUBSIDIARIES
Mercantile provides its subsidiaries with advice and specialized services
in the areas of accounting and taxation, budgeting and strategic planning,
employee benefits and human resources, insurance, operations, marketing,
credit analysis and administration, loan support and participations,
investments, auditing, trust, data processing, bank security and banking and
corporate law. A fee is charged by Mercantile for these services. The
responsibility for the management of each subsidiary remains with its Board of
Directors and with the officers elected by each Board.
Intercompany transactions between Mercantile and its subsidiaries are
subject to restrictions of existing banking and savings and loan laws and
accepted principles of fair dealing.
Mercantile had 171 full-time equivalent employees at December 31, 1995.
Mercantile uses the premises of Mercantile Bank of St. Louis for its offices.
Mercantile pays Mercantile Bank of St. Louis a fee for services and facilities
furnished to it.
EMPLOYEES
At December 31, 1995, Mercantile and its subsidiaries had 6,918 full-time
equivalent employees. Mercantile provides a variety of employment benefits
and believes it enjoys a good relationship with its employees.
OPERATIONS
Financial Services. Through its subsidiaries, Mercantile offers complete
banking and trust services to the consumer, institutional and agricultural
segments of the market areas which it serves. Services include commercial,
real estate, installment and credit card loans, checking, savings and time
deposits, trust and other fiduciary services, and various other customer
services such as brokerage services, direct equipment lease financing,
international banking and safe deposit services.
Most subsidiary financial institutions serve only the general area in
which they are located, predominantly in the 7th, 8th and 10th Federal Reserve
Districts. In general, the smaller subsidiary banks are engaged primarily in
retail banking, with most of the business and commercial activities centered
in the larger subsidiary banks. Membership in Mercantile's subsidiary group
provides each subsidiary institution with a means of satisfying the credit
needs of its customers beyond its own legal lending limit.
Correspondent Banking. In addition to Mercantile's services for
individuals and corporations, its largest subsidiary bank, Mercantile Bank of
St. Louis, is a correspondent bank for 420 commercial banks located throughout
the United States. Correspondent banking services to banks in Kansas and
western Missouri are provided through Mercantile Bank (Kansas City) and
Mercantile Bank of Topeka. In addition, Mercantile Bank of Joplin provides
correspondent services for banks in its area. Correspondent banking services
include the processing of checks and collection items, loan assistance and
assistance with training and operations.
Trust and Investment Advisory Services. Mercantile, through its
subsidiaries, offers clients all types of fiduciary services, ranging from the
management of funds for individuals, corporate retirement plans and charitable
foundations to the administration of estates and trusts. To investors it
offers portfolio management, advisory and custodian services. For
corporations, governmental bodies and public authorities, Mercantile
subsidiaries act as fiscal and paying agent, transfer agent, registrar and
trustee under corporate indentures and pension and profit sharing trust
agreements. Mercantile Trust Company National Association is a
nationally-chartered bank which provides individual trust services.
Mississippi Valley Advisors Inc., a registered investment advisor and
subsidiary of Mercantile Bank of St. Louis, among other things, provides
investment advisory services for
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employee benefit funds, including pension and profit-sharing plans, endowment
funds and registered mutual funds. At December 31, 1995, Mercantile
subsidiaries managed investments with a market value of approximately $14.9
billion and administered $5.7 billion in non-managed assets. Certain of
Mercantile's subsidiary banks provide trust and investment services to
individual and corporate customers with assistance from Mercantile Bank of St.
Louis.
Investment and Underwriting Activities. Mercantile Bank of St. Louis
offers a wide range of investment services to individuals, corporations,
correspondent banks and others. Included in those services are foreign
exchange, derivative products, money market and bond trading operations which
serve banks and corporations in the purchase and sale of various investments
and/or hedging instruments. In addition, Mercantile Bank of St. Louis is
registered as a municipal securities dealer.
Brokerage Services. Mercantile Investment Services, Inc. ("MISI"), a
subsidiary of Mercantile Bank of St. Louis, is a registered broker/dealer and
a member of both the National Association of Securities Dealers, Inc. ("NASD")
and the Securities Investors Protection Corporation ("SIPC"). MISI currently
offers brokerage services, including execution of transactions involving
stocks, bonds, options, mutual funds and other securities.
International. Mercantile Bank of St. Louis maintains accounts at 40
foreign banks, and 34 foreign banks maintain accounts at Mercantile Bank of
St. Louis. In addition, Mercantile Bank of St. Louis is engaged in providing
its customers with international banking services. Mercantile Bank of St.
Louis and Mercantile Bank (Kansas City) offer a wide range of services to
their customers involved in international business including currency exchange
and letters of credit. Mercantile Bank of St. Louis maintains a Hong Kong
subsidiary, Mercantile Trade Services Ltd., which enables the bank to issue,
amend and negotiate letters of credit in Hong Kong on behalf of the bank's
importing customers. Customers of other subsidiary banks with a need for
international services are referred to these banks.
Mercantile Bank of St. Louis also maintains a branch in the City of
Georgetown in the Grand Cayman Islands. This branch enables Mercantile Bank
of St. Louis to participate in the Eurodollar market for deposits and loans.
At December 31, 1995, total deposits of the foreign branch amounted to
$226,120,000.
COMPETITION
Mercantile's subsidiary financial institutions are subject to intense
competition from other banks and financial institutions in their service
areas, predominantly the 7th, 8th and 10th Federal Reserve Districts. In
making loans, substantial competition is encountered from banks and other
lending institutions such as savings and loan associations, insurance
companies, finance companies, credit unions, factors, small loan companies and
pension trusts. In addition, Mercantile subsidiaries compete for retail
deposits with savings and loan associations, credit unions and money market
mutual funds. The competition provided by other financial institutions is not
limited to those institutions with offices located in the area served by the
particular subsidiary.
Many other institutions also offer some or all of the trust and fiduciary
services performed by Mercantile's subsidiaries. Mercantile Bank of St. Louis
competes with all local institutions and, in the field of corporate pension
trust services, competition is nationwide.
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 (i) by permitting bank holding companies that are
adequately capitalized and managed to acquire banks located in states outside
their home states regardless of whether such acquisitions are authorized under
the law of the host state, (ii) by permitting the interstate merger of banks
after June 1, 1997, subject to the right of individual states to "opt in" or
to "opt out" of this authority before that date, (iii) by permitting banks to
establish new branches on an interstate basis provided that such action is
specifically authorized by the law of the host state, (iv) by permitting
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v) by
permitting banks to receive deposits, renew time deposits, close loans,
service loans and receive payments on loans and other obligations as agent for
any bank or thrift affiliate, whether the affiliate is located in the same
state or a different state. One effect of this legislation is to permit
Mercantile to acquire banks located in any state and to permit bank holding
companies located in any state to acquire
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banks and bank holding companies in Missouri. Overall, this legislation is
likely to have the effects of increasing competition and promoting geographic
diversification in the banking industry.
Mercantile and its subsidiaries are also subject to various state laws
that limit the ability of Mercantile to acquire, and to be acquired by, other
financial institutions. Such laws include, among other things, limitations on
the total amount of deposits that an institution may control in a given state
and limitations with respect to the acquisition of a recently chartered bank
or savings association. Legislation also is currently pending in certain of
the states in which Mercantile and its subsidiaries operate that, if enacted,
would either remove or reduce some of these limitations. In addition, certain
states in which Mercantile operates have legislation pending that would either
"opt in" or "opt out" such states from the provisions of Riegle-Neal with
respect to interstate bank mergers. Mercantile cannot predict whether these
or any other legislative proposals will be enacted, or, if enacted, the final
form of the law or the effect of such proposals on Mercantile's operations or
ability to compete in the financial services industry.
SUPERVISION AND REGULATION
General. As a bank holding company, Mercantile is subject to regulation
under the Bank Holding Company Act of 1956, as amended ("BHCA"), and its
examination and reporting requirements. Under the BHCA, a bank holding
company may not directly or indirectly acquire the ownership or control of
more than 5% of the voting shares or substantially all of the assets of any
company, including a bank or savings and loan association, without the prior
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). In addition, bank holding companies are generally prohibited
under the BHCA from engaging in nonbanking activities, subject to certain
exceptions.
As a savings and loan holding company Mercantile is also subject to
regulatory oversight by the Office of Thrift Supervision (the "OTS") under the
Home Owners' Loan Act of 1933, as amended. As such, Mercantile is required to
register and file reports with the OTS and is subject to regulation by the
OTS. In addition, the OTS has enforcement authority over Mercantile which
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to its subsidiary savings association.
Mercantile and its subsidiaries are subject to supervision and examination
by applicable federal and state banking agencies. The earnings of
Mercantile's subsidiaries, and therefore the earnings of Mercantile, are
affected by general economic conditions, management policies and the
legislative and governmental actions of various regulatory authorities,
including the Federal Reserve Board, the Federal Deposit Insurance Corporation
("FDIC"), the Office of the Comptroller of the Currency (the "Comptroller")
and the OTS, and various state financial institution regulatory agencies. In
addition, there are numerous governmental requirements and regulations that
affect the activities of Mercantile and its subsidiaries.
Certain Transactions with Affiliates. There are various legal
restrictions on the extent to which a bank holding company and certain of its
nonbank subsidiaries can borrow or otherwise obtain credit from its bank
subsidiaries. In general, these restrictions require that any such extensions
of credit must be on non-preferential terms and secured by designated amounts
of specified collateral and be limited, as to the holding company or any one
of such nonbank subsidiaries, to 10% of the lending institution's capital
stock and surplus, and as to the holding company and all such nonbank
subsidiaries in the aggregate, to 20% of such capital stock and surplus.
Payment of Dividends. Mercantile is a legal entity separate and distinct
from its wholly-owned financial institutions and other subsidiaries. The
principal source of Mercantile's revenues is dividends from its financial
institution subsidiaries. Various federal and state statutory provisions
limit the amount of dividends the affiliate financial institution can pay to
Mercantile without regulatory approval. The approval of federal and state
bank regulatory agencies, as appropriate, is required for any dividend if the
total of all dividends declared in any calendar year would exceed the total of
the institution's 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 the 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.
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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 finanical institutions and
financial institution holding companies to maintain certain capital levels
based on "risk-adjusted" assets, so that categories of assets with potentially
higher credit risk will require more capital backing than categories with
lower credit risk. In addition, banks and bank holding companies are required
to maintain capital to support off-balance sheet activities such as loan
commitments. Mercantile and each of its subsidiary financial institutions
exceed all applicable capital adequacy standards.
FDIC Insurance Assessments. The subsidiary depository institutions of
Mercantile are subject to FDIC deposit insurance assessments. The FDIC has
adopted a risk-based premium schedule. Each financial institution is assigned
to one of three capital groups--well capitalized, adequately capitalized or
undercapitalized--and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors, and on the basis of
other information relevant to the institution's financial condition and the
risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon
the risk assessment classification assigned to the institution by the FDIC.
As of December 31, 1995, all Mercantile subsidiary depository institutions
were categorized as "well capitalized".
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
adopted in August 1989 to provide for the resolution of insolvent savings
associations, required the FDIC to establish separate deposit insurance funds
- -- the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations. The law also required the
FDIC to set deposit insurance assessments at such levels as 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 the law 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 $0.23 to $0.31 per $100 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 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, which bonds were used to fund savings and loan failures in
the 1980's, across the BIF and SAIF, merge the Comptroller and the OTS,
abolish the federal savings association charter, require federal thrifts to
covert 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.
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Support of Subsidiary Banks. Under Federal Reserve Board policy,
Mercantile is expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each of the subsidiaries in
circumstances where it might not choose to do so absent such a policy. This
support may be required at times when Mercantile may not find itself able to
provide it. In addition, any capital loans by Mercantile to any of its
subsidiaries would also be subordinate in right of payment to deposits and
certain other indebtedness of such subsidiary.
Consistent with this policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
FIRREA and FDICIA. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a cross-guarantee provision which
could result in insured depository institutions owned by Mercantile being
assessed for losses incurred by the FDIC in connection with assistance
provided to, or the failure of, any other insured depository institution owned
by Mercantile. Under FIRREA, failure to meet the capital guidelines could
subject a banking institution to a variety of enforcement remedies available
to federal regulatory authorities, including the termination of deposit
insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory process, including provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. FDICIA contains various other
provisions that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under
FDICIA, capital requirements would include a leverage limit, a risk-based
capital requirement and any other measure of capital deemed appropriate by the
federal banking regulators for measuring the capital adequacy of an insured
depository institution. All institutions, regardless of their capital levels,
are restricted from making any capital distribution or paying any management
fees that would cause the institution to fail to satisfy the minimum levels
for any relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related regulations
under FDICIA. Under those regulations, a bank will be well capitalized if it:
(i) had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier
1 capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier
1 capital to adjusted total assets of 5% or greater; and (iv) was not subject
to an order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level for any capital
measure. An association will be adequately capitalized if it was not "well
capitalized" and: (i) had a risk-based capital ratio of 8% or greater;
(ii) had a ratio of Tier 1 capital to risk-adjusted assets of 4% or greater;
and (iii) had a ratio of Tier 1 capital to adjusted total assets of 4% or
greater (except that certain associations rated "Composite 1" under the
federal banking agencies' CAMEL rating system may be adequately capitalized if
their ratios of core capital to adjusted total assets were 3% or greater). As
previously discussed, all Mercantile subsidiary financial institutions as of
December 31, 1995 were categorized as "well capitalized".
FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full scope
examinations by each bank's primary federal regulator. It also imposes new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance sheet liabilities and
assets.
Depositor Preference Statute. Legislation enacted in August 1993 provides
a preference for deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution in the
liquidation or other resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, as
well as any obligation to shareholders of such an institution in their
capacity as such.
7
<PAGE> 9
STATISTICAL DISCLOSURES
The following statistical disclosures, except as noted, are included in
the Annual Report of the Registrant to its Shareholders for the year ended
December 31, 1995, and incorporated herein by reference.
<TABLE>
<CAPTION>
ANNUAL REPORT
SCHEDULE REFERENCE
-------- -------------
<S> <C>
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. Average Balance Sheets Page 56
B. Analysis of Net Interest Earnings (included herein at page 9) N/A
C. Taxable-Equivalent Rate-Volume Analysis (included herein at page 9) N/A
II. INVESTMENT PORTFOLIO
A. Book Value by Type of Security Note E, Page 44
B. Maturity Distribution (included herein at page 10) N/A
III. LOAN PORTFOLIO
A. Types of Loans Exhibit 10, Page 25
B. Maturities and Sensitivities to Changes in Interest Rates Exhibit 10, Page 25
C. Risk Elements
1. Non-Accrual, Past Due and Restructured Loans Exhibit 13, Page 28
Exhibit 14, Page 29
Note A, Page 40
2. Potential Problem Loans Commentary, Page 29
3. Foreign Outstandings <F*>
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. Reserve for Possible Loan Losses Exhibit 11, Page 26
Commentary, Page 26
Note A, Page 40
B. Allocation of the Reserve for Possible Loan Losses Exhibit 12, Page 27
V. DEPOSITS
A. Average Balances and Rates Paid by Deposit Category Page 56
B. Maturity Distribution of Certain CDs and Time Deposits Exhibit 6, Page 22
VI. RETURN ON EQUITY AND ASSETS Exhibit 2, Page 17
VII. SHORT-TERM BORROWINGS (included herein at page 11) N/A
<FN>
<F*> There were no significant interest bearing deposits with foreign banks at
December 31, 1995, 1994 or 1993.
</TABLE>
8
<PAGE> 10
<TABLE>
TAXABLE-EQUIVALENT RATE-VOLUME ANALYSIS
<CAPTION>
Increase (Decrease)
---------------------------------------------------------------
Average Volume Average Rate<F1> Interest 1994 to 1995 1993 to 1994
- -------------------------- ------------------------ ---------------------- ----------------- ------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 Rate<F2> Vol. Total Rate<F2> Vol. Total
(Dollars in Millions)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST
INCOME
Loans and
leases<F3>
$ 2,531 $ 2,304 $ 2,204 8.59% 7.32% 6.73% Commercial $ 217 $ 169 $148 $ 31 $17 $ 48 $ 14 $ 7 $ 21
Real estate
1,673 1,545 1,469 9.02 8.25 8.01 -commercial 151 127 118 13 11 24 3 6 9
Real estate-
307 253 265 8.90 7.69 7.60 construction 27 20 20 3 4 7 -- -- --
Real estate
3,471 2,864 2,858 8.00 7.58 7.89 -residential 278 217 226 15 46 61 (9) -- (9)
1,507 1,311 1,109 8.61 8.18 8.93 Consumer 130 107 99 7 16 23 (10) 18 8
760 752 666 14.36 16.01 16.27 Credit card 109 120 108 (12) 1 (11) (2) 14 12
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans
10,249 9,029 8,571 8.90 8.42 8.39 and Leases 912 760 719 57 95 152 (4) 45 41
Investments
in debt and
equity
securities
8 11 14 5.55 5.12 5.32 Trading 1 1 1 -- -- -- -- -- --
3,456 3,676 3,760 5.94 5.55 5.91 Taxable 205 204 222 13 (12) 1 (13) (5) (18)
381 388 358 8.21 8.24 8.61 Tax-exempt 31 32 31 -- (1) (1) (1) 2 1
- -----------------------------------------------------------------------------------------------------------------------------------
3,845 4,075 4,132 6.16 5.81 6.14 Total 237 237 254 13 (13) -- (14) (3) (17)
Short-term
investments
Due from
banks-
interest
42 66 100 5.95 4.30 3.45 bearing 3 3 3 1 (1) -- 1 (1) --
Federal funds
sold and
repurchase
190 201 265 5.91 4.18 3.27 agreements 11 8 9 4 (1) 3 1 (2) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Short-term
232 267 365 5.92 4.21 3.32 Investments 14 11 12 5 (2) 3 2 (3) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Interest
$14,326 $13,371 $13,068 8.12 7.54 7.54 Income<F1> $1,163 $1,008 $985 $ 75 $80 $155 $(16) $ 39 $ 23
===================================================================================================================================
INTEREST
EXPENSE
Interest
Bearing
Deposits
Interest
bearing
$ 1,844 $ 1,960 $ 1,790 2.23 1.87 2.13 demand $ 41 $ 37 $ 38 $ 6 $(2) $ 4 $ (5) $ 4 $ (1)
Money
market
1,643 1,763 1,813 3.96 3.05 2.75 accounts 65 54 50 15 (4) 11 5 (1) 4
928 1,010 984 2.40 2.36 2.60 Savings 22 24 26 -- (2) (2) (2) -- (2)
Consumer
time
certificates
under
4,357 4,020 4,327 5.43 4.37 4.60 $100,000 237 175 199 47 15 62 (10) (14) (24)
122 40 83 6.33 3.26 2.73 Other time 8 1 2 4 3 7 -- (1) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Interest
Bearing
Core
8,894 8,793 8,997 4.19 3.31 3.50 Deposits 373 291 315 72 10 82 (12) (12) (24)
Time
certificates
$100,000 and
813 686 681 5.78 4.15 3.80 over 47 29 26 13 5 18 3 -- 3
211 109 31 6.21 4.95 4.38 Foreign 13 5 1 3 5 8 1 3 4
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Purchased
1,024 795 712 5.86 4.26 3.83 Deposits 60 34 27 16 10 26 4 3 7
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Interest
Bearing
9,918 9,588 9,709 4.36 3.39 3.53 Deposits 433 325 342 88 20 108 (8) (9) (17)
Short-term
1,526 1,183 875 5.56 4.27 2.95 borrowings 85 50 26 20 15 35 15 9 24
215 13 -- 6.37 6.19 -- Bank notes 14 1 -- -- 13 13 1 -- 1
Long-term
296 305 287 7.61 7.55 7.94 debt 22 23 23 -- (1) (1) (1) 1 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Interest
$11,955 $11,089 $10,871 4.63 3.60 3.60 Expense $ 554 $ 399 $391 $108 $47 $155 $ 7 $ 1 $ 8
===================================================================================================================================
NET INTEREST
3.49 3.94 3.94 RATE SPREAD
NET INTEREST
RATE MARGIN
AND NET
INTEREST
4.25 4.55 4.55 INCOME<F1> $ 609 $ 609 $594
<FN>
<F1> Taxable-equivalent basis. Includes tax-equivalent adjustments of $13,481,000, $13,396,000 and $13,574,000 for 1995, 1994
and 1993, respectively, based on a Federal income tax rate of 35%.
<F2> The rate-volume variance is allocated entirely to rate.
<F3> Income from loans on non-accrual status is included in loan income on a cash basis, while non-accrual loan balances
are included in average volume.
</TABLE>
9
<PAGE> 11
<TABLE>
INVESTMENTS IN DEBT AND EQUITY SECURITIES<F1>
<CAPTION>
December 31, 1995
Available-for-sale
---------------------------------------------------
Estimated
Amortized Fair
(Dollars in Thousands) Cost Value Yield<F2>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY
Within one year $ 357,867 $ 357,640 4.84%
One to five years 851,607 859,011 5.45
Five to 10 years 8,033 8,727 6.90
After 10 years -- -- --
- ------------------------------------------------------------------------------------------------------
Total 1,217,507 1,225,378 5.28
Average Maturity 1 yr. 7 mo.
U.S. GOVERNMENT AGENCIES<F2>
Within one year 414,425 413,246 5.28
One to five years 1,374,166 1,388,350 6.38
Five to 10 years 75,854 80,061 7.47
After 10 years 79,157 81,953 7.71
- ------------------------------------------------------------------------------------------------------
Total 1,943,602 1,963,610 6.24
Average Maturity 2 yr. 11 mo.
OBLIGATIONS OF STATE AND POLITICAL SUBDIVISIONS
Within one year 60,461 60,611 6.34
One to five years 281,957 286,784 7.04
Five to 10 years 71,671 74,363 8.39
After 10 years 71,016 72,576 8.93
- ------------------------------------------------------------------------------------------------------
Total 485,105 494,334 7.43
Average Maturity 4 yr. 8 mo.
OTHER<F3>
Within one year 3,306 3,294 5.54
One to five years 25,147 25,034 6.50
Five to 10 years 2,506 2,516 7.14
After 10 years 6,350 6,256 8.82
- ------------------------------------------------------------------------------------------------------
Total 37,309 37,100 6.85
Average Maturity 5 yr. 8 mo.
TOTAL INTEREST-EARNING INVESTMENTS<F1>
Within one year 836,059 834,791 5.17
One to five years 2,532,877 2,559,179 6.14
Five to 10 years 158,064 165,667 7.85
After 10 years 156,523 160,785 8.31
- ------------------------------------------------------------------------------------------------------
Total 3,683,523 3,720,422 6.08
Average Maturity 2 yr. 9 mo.
FEDERAL RESERVE BANK STOCK,
FEDERAL HOME LOAN BANK STOCK
AND OTHER EQUITY INVESTMENTS 72,352 71,261 5.56
- ------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO $3,755,875 $3,791,683 6.07
======================================================================================================
<FN>
<F1> This exhibit excludes trading securities, which are reported at estimated fair value on the
Consolidated Balance Sheet. Trading securities totaled $3,677,000, $14,299,000 and $15,735,000
at December 31, 1995, 1994 and 1993, respectively.
<F2> Taxable-equivalent basis.
<F3> Maturities of asset-backed obligations are based on the remaining weighted average maturities.
</TABLE>
10
<PAGE> 12
<TABLE>
SHORT-TERM BORROWINGS
<CAPTION>
1995 1994 1993
----------------------------- --------------------------- ----------------------------
Average Average Average
(Dollars in Thousands) Amount Rate Maturity Amount Rate Maturity Amount Rate Maturity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT YEAR-END
Federal funds purchased and
repurchase agreements $1,538,832 5.07% 16 days $1,495,540 5.44% 5 days $ 660,643 2.64% 3 days
Treasury tax and loan notes 116,416 5.16 2 days 166,545 5.26 3 days 503,360 2.75 3 days
Commercial paper 16,950 5.81 17 days 26,800 5.97 20 days 18,390 3.25 18 days
Other short-term borrowings 76,014 5.97 86 days 122,080 5.94 177 days 20,000 3.91 180 days
- -------------------------------------------------------------------------------------------------------------------------------
Total Short-term Borrowings $1,748,212 5.12 18 days $1,810,965 5.46 17 days $1,202,393 2.72 6 days
===============================================================================================================================
AVERAGE FOR THE YEAR
Federal funds purchased and
repurchase agreements $1,272,202 5.49% $ 883,379 4.32% $ 599,709 2.99%
Treasury tax and loan notes 166,104 5.72 209,318 3.75 239,643 2.65
Commercial paper 20,930 5.97 26,487 4.53 22,629 3.24
Other short-term borrowings 66,868 6.25 63,504 5.04 13,425 6.21
- -------------------------------------------------------------------------------------------------------------------------------
Total Short-term Borrowings $1,526,104 5.56 $1,182,688 4.27 $ 875,406 2.95
===============================================================================================================================
MAXIMUM MONTH-END BALANCE
Federal funds purchased and
repurchase agreements $1,624,109 $1,530,603 $ 894,408
Treasury tax and loan notes 516,672 609,267 507,936
Commercial paper 31,157 37,406 32,621
Other short-term borrowings 83,956 122,080 53,190
</TABLE>
11
<PAGE> 13
Item 2. Properties
Mercantile and Mercantile Bank of St. Louis occupy 20 stories of the
Mercantile Tower, a 35-story building owned by Mercantile Bank of St. Louis
and located at Seventh and Washington Streets in St. Louis, Missouri. Among
the other properties owned by Mercantile Bank of St. Louis are a four-story,
90,008 square-foot office building located at 12443 Olive Boulevard, Creve
Coeur, Missouri, which houses Mercantile's credit card and mortgage loan
operations; a four-story, 222,400 square foot data processing center located
at 1005 Convention Plaza in St. Louis, Missouri; and a four-story, 101,827
square-foot banking facility located at 721 Locust Street, St. Louis,
Missouri.
Mercantile's subsidiaries own and lease other facilities in Missouri,
Illinois, Kansas, Iowa and Arkansas. See Note G to the consolidated financial
statements included on page 46 in the Annual Report of the Registrant to its
Shareholders for the year ended December 31, 1995, which is incorporated
herein by reference.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 4a. Executive Officers of the Registrant
See Part III, Item 10.
12
<PAGE> 14
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
Information concerning the Common Stock of the Registrant, included on
page 58 in the Annual Report of the Registrant to its Shareholders for the
year ended December 31, 1995, is incorporated herein by reference.
Item 6. Selected Financial Data
Selected Financial Data, included as Exhibit 1 on page 16 in the Annual
Report of the Registrant to its Shareholders for the year ended December 31,
1995, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included on pages 16 through 34 of the Annual Report of the
Registrant to its Shareholders for the year ended December 31, 1995, is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements, included in the Annual
Report of the Registrant to its Shareholders for the year ended December 31,
1995, are incorporated herein by reference.
<TABLE>
<CAPTION>
ANNUAL REPORT
STATEMENT REFERENCE
--------- -------------
<S> <C>
Independent Auditors' Report. Page 35
Consolidated Statement of Income - Years ended December 31, 1995,
1994 and 1993. Page 36
Consolidated Balance Sheet - December 31, 1995, 1994 and 1993. Page 37
Consolidated Statement of Changes in Shareholders' Equity - Years ended
December 31, 1995, 1994 and 1993. Page 38
Consolidated Statement of Cash Flows - Years ended December 31, 1995,
1994 and 1993. Page 39
Notes to Consolidated Financial Statements. Pages 40 - 53
</TABLE>
Selected Quarterly Financial Data, included as Exhibit 17 on page 34 in
the Annual Report of the Registrant to its Shareholders for the year ended
December 31, 1995, is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors is contained in "Election of Directors"
and "Beneficial Ownership of Stock by Management," included in the
Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders,
which information is incorporated herein by reference.
The following is a list, as of February 29, 1996, of the names and ages of
the executive officers of Mercantile and all positions and offices with Mer
cantile presently held by the person named. There is no family relationship
between any of the named persons.
13
<PAGE> 15
<TABLE>
<CAPTION>
ALL POSITIONS AND OFFICES
Name Age Held with Mercantile
---- --- -------------------------
<C> <C> <S>
Thomas H. Jacobsen 56 Chairman of the Board, President and Chief Executive Officer
W. Randolph Adams 51 Chairman and Chief Executive Officer of Mercantile Bank of St. Louis and Mercantile
Trust Company National Association
John Q. Arnold 52 Senior Executive Vice President and Chief Financial Officer
John H. Beirise 50 Group President - Emerging Markets
Richard H. Goldberg 55 Chief Information Officer
Richard C. King 51 President and Chief Executive Officer, Mercantile Bank (Kansas City)
John W. McClure 50 Group President - Community Banking
Jon W. Bilstrom 49 General Counsel and Secretary
Jon P. Pierce 55 Executive Vice President
Patrick Strickler 52 Executive Vice President
Arthur G. Heise 47 Senior Vice President and Auditor
Michael T. Normile 46 Senior Vice President, Finance and Control
</TABLE>
The executive officers were appointed by and serve at the pleasure of the
Board of Directors of Mercantile. Each of the officers named above serve on
the Mercantile Management Executive Committee. Messrs. Jacobsen, Adams,
Arnold, McClure, Bilstrom, Pierce, Strickler, Heise and Normile have served as
executive officers of either Mercantile or Mercantile Bank of St. Louis for
the last five years. Prior to joining Mercantile in April 1992, Mr. Beirise
was employed by Continental Bank N.A. for twenty-four years, most recently as
Managing Director, Corporate Banking. Mr. Goldberg was President and Chairman
of ARTIS Ltd., a satellite based communications company, from August 1991
through August 1992. From 1981 through August 1991 he served as Vice
President of TBG Inc., a multi-national information systems company, and as
President of CLSI, a library automation company. Mr. King served as Chairman
of the Board, Chief Executive Officer and President of MidAmerican Corporation
from 1989 until January 1993.
Item 11. Executive Compensation
Information regarding executive compensation is contained in "Compensation
of Executive Officers," included in the Registrant's Proxy Statement for the
1996 Annual Meeting of Shareholders, which is incorporated herein by
reference.
14
<PAGE> 16
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is contained in "Voting Securities and Principal Holders Thereof"
and "Beneficial Ownership of Stock by Management," included in the
Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders,
which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
contained in "Interest of Management and Others in Certain Transactions,"
included in the Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders, which is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements: Incorporated herein by reference, are listed
in Item 8 hereof.
(2) Financial Statement Schedules:
None.
(3) Exhibits:
No. 3-1 Restated Articles of Incorporation of the
Registrant, as amended and currently in effect,
filed as Exhibit 3(i) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1994, are incorporated herein by reference.
No. 3-2 By-Laws of the Registrant, as amended and currently
in effect.
No. 4-1 Form of Indenture Regarding Subordinated Securities
between the Registrant and The First National Bank
of Chicago as Trustee, filed on March 31, 1992 as
Exhibit 4.1 to Registrant's Report on Form 8-K
dated September 24, 1992, is incorporated herein by
reference.
No. 4-2 Rights Agreement dated as of May 23, 1988, between
Registrant and Mercantile Bank of St. Louis, as
Rights Agent (including as exhibits thereto the
form of Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred
Stock and the form of Rights Certificate) filed as
Exhibits 1 and 2 to Registrant's Registration
Statement on Form 8-A, dated May 24, 1988, is
incorporated herein by reference.
No. 10-1 The Mercantile Bancorporation Inc. 1987 Stock
Option Plan, as amended, filed as Exhibit 10-3 to
Registrant's Report on Form 10-K for the year ended
December 31, 1989 (Commission File No. 1-11792), is
incorporated herein by reference.
No. 10-2 The Mercantile Bancorporation Inc. Executive
Incentive Compensation Plan, filed as Appendix C to
Registrant's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders, is
incorporated herein by reference.
No. 10-3 The Mercantile Bancorporation Inc. Employee Stock
Purchase Plan, filed as Exhibit 10-7 to
Registrant's Report on Form 10-K for the year ended
December 31, 1989 (Commission File No. 1-11792), is
incorporated herein by reference.
No. 10-4 The Mercantile Bancorporation Inc. 1991 Employee
Incentive Plan, filed as Exhibit 10-7 to
Registrant's Report on Form 10-K for the year ended
December 31, 1990 (Commission File No. 1-11792), is
incorporated herein by reference.
15
<PAGE> 17
No. 10-5 Amendment Number One to the Mercantile
Bancorporation Inc. 1991 Employee Incentive Plan,
filed as Exhibit 10-6 to Registrant's report on
Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
No. 10-6 The Mercantile Bancorporation Inc. 1994 Stock
Incentive Plan, filed as Appendix B to Registrant's
definitive Proxy Statement for the 1994 Annual
Meeting of Shareholders, is incorporated herein by
reference.
No. 10-7 The Mercantile Bancorporation Inc. 1994 Stock
Incentive Plan for Non-Employee Directors, filed as
Appendix E to Registrants definitive Proxy
Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
No. 10-8 The Mercantile Bancorporation Inc. Voluntary
Deferred Compensation Plan, filed as Appendix D to
Registrant's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders, is
incorporated herein by reference.
No. 10-9 Form of Employment Agreement for Thomas H.
Jacobsen, as amended, filed as Exhibit 10-8 to
Registrant's Report on Form 10-K for the year ended
December 31, 1989 (Commission File No. 1-11792), is
incorporated herein by reference.
No. 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 Registrant's Report on Form 10-K
for the year ended December 31, 1989 (Commission
File No. 1-11792), is incorporated herein by
reference.
No. 10-11 Amended and Restated Agreement and Plan of
Reorganization dated as of December 2, 1994 by and
among Mercantile Bancorporation Inc. and
TCBankshares, Inc., filed as Exhibit 2.1 to
Registrant's Report on Form 8-K dated December 21,
1994, is incorporated herein by reference.
No. 10-12 Agreement and Plan of Reorganization dated August
4, 1995, by and between Mercantile Bancorporation
Inc. and Hawkeye Bancorporation, filed as Exhibit
2.1 to Registrant's Registration Statement No. 33-
63609, is incorporated by reference herein.
No. 10-13 Mercantile Bancorporation Inc. Supplemental
Retirement Plan, filed as Exhibit 10-12 to
Registrant's Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by
reference.
No. 13 Annual Report of the Registrant to its Shareholders
for the year ended December 31, 1995.
No. 21 Subsidiaries of the Registrant as of February 29,
1996.
No. 23 Consent of KPMG Peat Marwick LLP.
No. 24 Power of Attorney (on signature page).
No. 27 Financial Data Schedule.
16
<PAGE> 18
(b) Reports on Form 8-K:
In a Current Report on Form 8-K filed on January 16, 1996, Registrant
disclosed under Item 2 that it had, effective January 2, 1996, consummated its
acquisition of Hawkeye Bancorporation ("Hawkeye") through merger of Hawkeye
with and into Mercantile Bancorporation Inc. of Iowa, a wholly-owned
subsidiary of Registrant, and that pursuant to said merger the shareholders
of Hawkeye received an aggregate of approximately 7,996,952 shares of
Registrant's Common Stock in exchange for their Hawkeye shares. In that same
Current Report on Form 8-K, Registrant filed the financial statements, notes,
auditor's report and pro forma financial information listed below:
Consolidated Balance Sheets of Hawkeye as of December 31, 1994 and
1993.
Consolidated Statements of Income of Hawkeye for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows of Hawkeye for the years
ended December 31, 1994, 1993 and 1992.
Statements of Changes in Shareholders' Equity of Hawkeye for the
years ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Independent Auditors' Report Dated January 24, 1995.
Consolidated Statements of Cash Flows (Unaudited) of Hawkeye for
the nine months ended September 30, 1995 and 1994.
Consolidated Balance Sheet (Unaudited) of Hawkeye as of September
30, 1995.
Consolidated Statements of Income (Unaudited) of Hawkeye for the
nine months ended September 30, 1995 and 1994.
Statements of Changes in Shareholders' Equity (Unaudited) of
Hawkeye for the nine months ended September 30, 1995 and 1994.
Pro Forma Combined Consolidated Balance Sheet (Unaudited) of MBI
as of September 30, 1995.
Pro Forma Combined Consolidated Income Statements (Unaudited) of
MBI for the nine months ended September 30, 1995 and 1994, and for
the years ended December 31, 1994, 1993, and 1992.
Notes to Pro Forma Combined Consolidated Financial Statements
(Unaudited) of MBI.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MERCANTILE BANCORPORATION INC.
(Registrant)
Date: March 7, 1996 By: s/Thomas H. Jacobsen
-------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President,
Chief Executive Officer and Director
POWER OF ATTORNEY
We, the undersigned officers and directors of Mercantile
Bancorporation, Inc., hereby severally and individually constitute and appoint
Thomas H. Jacobsen and John Q. Arnold, and each of them, the true and lawful
attorneys and agents of each of us to execute in the name, place and stead of
each of us (individually and in any capacity stated below) any and all
amendments to this Annual Report on Form 10-K and all instruments necessary or
advisable in connection therewith and to file the same with the Securities and
Exchange Commission, each of said attorneys and agents to have the power to
act with or without the others and to have full power and authority to do and
perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done in the premises as fully and to
all intents and purposes as any of the undersigned might or could do in
person, and we hereby ratify and confirm our signatures as they may be signed
by our said attorneys and agents or each of them to any and all such
amendments and instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
s/Thomas H. Jacobsen Chairman of the Board, President, March 7, 1996
- ----------------------------------------- Chief Executive Officer and Director
(Thomas H. Jacobsen)
Principal Executive Officer
s/John Q. Arnold Senior Executive Vice President March 7, 1996
- ---------------------------------------- and Chief Financial Officer
(John Q. Arnold)
Principal Financial Officer
s/Michael T. Normile Senior Vice President, March 7, 1996
- ------------------------------------------ Finance and Control
(Michael T. Normile)
Principal Accounting Officer
s/ Richard P. Conerly Director March 6, 1996
- -------------------------------------------
(Richard P. Conerly)
s/Harry M. Cornell, Jr. Director March 6, 1996
- ------------------------------------------
(Harry M. Cornell, Jr.)
s/Earl K. Dille Director March 6, 1996
- ---------------------------------------------
(Earl K. Dille)
18
<PAGE> 20
s/William A. Hall Director March 6, 1996
- -------------------------------------------
(William A. Hall)
s/Thomas A. Hays Director March 6, 1996
- -----------------------------------------
(Thomas A. Hays)
s/Frank Lyon, Jr. Director March 6, 1996
- -------------------------------------------
(Frank Lyon, Jr.)
s/Charles H. Price Director March 6, 1996
- -------------------------------------------
(Charles H. Price II)
s/Harvey Saligman Director March 6, 1996
- ------------------------------------------
(Harvey Saligman)
s/Craig D. Schnuck Director March 1, 1996
- ------------------------------------------
(Craig D. Schnuck)
s/Robert L. Stark Director March 6, 1996
- --------------------------------------------
(Robert L. Stark)
s/Patrick T. Stokes Director March 6, 1996
- -------------------------------------------
(Patrick T. Stokes)
s/Francis A. Stroble Director March 6, 1996
- -------------------------------------------
(Francis A. Stroble)
s/John A. Wright Director March 1, 1996
- -------------------------------------------
(John A. Wright)
</TABLE>
19
<PAGE> 21
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
No. 3-2 By-Laws of the Registrant, as amended and currently in effect.
No. 13 Annual Report of the Registrant to its
Shareholders for the year ended December 31, 1995.
No. 21 Subsidiaries of the Registrant as of February 29, 1996.
No. 23 Consent of KPMG Peat Marwick LLP.
No. 24 Power of Attorney (on Signature Page).
No. 27 Financial Data Schedule.
</TABLE>
20
<PAGE> 1
EXHIBIT NO. 3-2
BY-LAWS
OF
MERCANTILE BANCORPORATION INC.
ADOPTED BY ITS BOARD OF DIRECTORS
JANUARY 12, 1995
<PAGE> 2
BY-LAWS
OF
MERCANTILE BANCORPORATION INC.
ARTICLE I. OFFICES
-------------------
The principal office of the Corporation in the State of Missouri shall be
located at Mercantile Tower, Seventh and Washington Streets, St. Louis,
Missouri. The Corporation may have such other offices, either within or
without the State of Missouri, as the Board of Directors may designate or as
the business of the Corporation may require from time to time.
The registered office of the Corporation required by the General and Business
Corporation Law of Missouri to be maintained in the State of Missouri may be,
but need not be, identical with the principal office in the State of Missouri,
and the address of the registered office may be changed from time to time by
the Board of Directors.
ARTICLE II. SHAREHOLDERS
-------------------------
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
- --------------------------
held on the fourth Thursday in the month of April in each year, beginning with
the year 1974, at the hour of 10:00 a.m., or at such other hour as shall be
determined by the Board of Directors and stated in the notice of the meeting,
for the purpose of electing Directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday in the State of Missouri, such meeting shall
be held on the first immediately preceding Thursday which is not a legal
holiday. If the election of Directors shall not be held on the day designated
herein or at any annual meeting of the shareholders, or at any adjournment
thereof, the Board of Directors shall cause the election to be held at a
special meeting of the shareholders as soon thereafter as conveniently may be.
Section 2. Special Meeting. Special meetings of the shareholders, for any
- ---------------------------
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board or by the Board of Directors at any time in their
sole discretion. At any special meeting of shareholders, only such business
shall be conducted as shall have been set forth in the notice of meeting sent
in accordance with Section 4 of this Article II.
Section 3. Place of Meeting. The Board of Directors may designate any place,
- ----------------------------
either within or without the State of Missouri, as the place of meeting for
any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at
a meeting may designate any place, either within or without
-1-
<PAGE> 3
the State of Missouri, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the Corporation in the State of
Missouri.
Section 4. Notice of Meeting. Written notice stating the place, day and hour
- -----------------------------
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall, unless otherwise prescribed by statute, be
delivered not less than ten or more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman
of the Board or the Secretary, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
- --------------------------------------------------------------
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten days immediately preceding such meeting. In
lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than fifty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge of the stock
- ------------------------
transfer books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such list shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes thereof.
Section 7. Quorum. A majority of the outstanding shares of the Corporation
- ------------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding
shares are represented at a meeting,
-2-
<PAGE> 4
a majority of the shares so represented may adjourn the meeting from time to
time without further notice. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
- -------------------
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
Section 9. Voting of Shares. Subject to the provisions of Section 12 of this
- ----------------------------
Article II, each outstanding share entitled to vote shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders.
Section 10. Voting of Shares by Certain Holders. Shares standing in the name
- ------------------------------------------------
of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Section 11. Informal Action by Shareholders. Any action required to be taken
- --------------------------------------------
at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Section 12. Cumulative Voting. At each election for Directors, every
- ------------------------------
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of
-3-
<PAGE> 5
shares owned by him for as many persons as there are Directors to be elected
and for whose election he has a right to vote, or to cumulate his votes by
giving one candidate as many votes as the number of such Directors multiplied
by the number of his shares shall equal, or by distributing such votes on the
same principle among any number of candidates.
Section 13. Shares of Other Corporations. Shares of another corporation
- -----------------------------------------
owned by or standing in the name of the Corporation may be voted by such
person or persons as may be designated by the Board of Directors and in the
absence of any such designation, the Chairman of the Board, the President or
any Vice Chairman of the Board or any Executive Vice President shall have the
power to vote such shares.
Section 14. Notice of Shareholder Nominees. Only persons who are nominated
- -------------------------------------------
in accordance with the procedures set forth in this Section 14 shall be
eligible for election as Directors of the Corporation. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of shareholders (a) by or at the direction of the Board of Directors
or (b) by any shareholder of the Corporation entitled to vote for the election
of Directors at such meeting who complies with the procedures set forth in
this Section 14. All nominations by shareholders shall be made pursuant to
timely notice in proper written form to the Secretary of the Corporation. To
be timely, a shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 30 days
nor more than 60 days prior to the meeting; provided, however, that in the
event that less than 40 days' notice or prior public disclosure of the date of
the meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper written form, such
shareholder's notice shall set forth in writing (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as a
Director if elected; and (b) as to the shareholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such
shareholder and (ii) the class and number of shares of the Corporation which
are beneficially owned by such shareholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which
pertains to the nominee. In the event that a shareholder seeks to nominate
one or more Directors, the Secretary shall appoint two inspectors, who shall
not be affiliated with the Corporation, to determine whether a shareholder has
complied with this Section 14. If the inspectors shall determine that a share
holder has not complied with this Section 14, the inspectors shall direct the
chairman of the meeting to declare to the meeting that the nomination was not
made in accordance with the procedures prescribed by the
-4-
<PAGE> 6
By-Laws of the Corporation, and the chairman shall so declare to the meeting
and the defective nomination shall be disregarded.
Section 15. Procedures for Submission of Shareholder Proposals at Annual
- -------------------------------------------------------------------------
Meeting. At any annual meeting of the shareholders of the Corporation, only
- -------
such business shall be conducted as shall have been brought before the meeting
(i) by or at the direction of the Board of Directors or (ii) by any
shareholder of the Corporation who complies with the procedures set forth in
this Section 15. For business properly to be brought before an annual meeting
by a shareholder, the shareholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 60 days prior to the meeting; provided, however, that in the event that
less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. To be in proper written form, a
shareholder's notice to the Secretary shall set forth in writing as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (iii) the class and number of shares of
the Corporation which are beneficially owned by the shareholder and (iv) any
material interest of the shareholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 15. The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 15, and,
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III. BOARD OF DIRECTORS
--------------------------------
Section 1. General Powers. The business and affairs of the Corporation shall
- --------------------------
be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of Directors to
- ---------------------------------------------
constitute the Board of Directors shall be nineteen (19); provided, however,
that such number may be fixed, from time to time, at not less than twelve (12)
nor more than twenty-four (24) by an amendment of this Article III, Section 2
of the By-Laws or by a resolution of the Board of Directors adopted, in either
case, by the vote or consent of at least sixty-six and two-thirds percent
(66-2/3%) of the number of Directors then authorized by, or in the manner
provided in, this Article III, Section 2 of the By-Laws. Any such change
shall be reported to the Secretary of State of the State of Missouri within
thirty (30) calendar days of such change.
-5-
<PAGE> 7
The Directors shall be divided into three classes: Class I, Class II and Class
III; and the number of Directors in such classes shall be as nearly equal as
possible. The term of office of the initial Class I Directors shall expire at
the annual meeting of shareholders of the Corporation in 1986; the term of
office of the initial Class II Directors shall expire at the annual meeting of
shareholders of the Corporation in 1987; and the term of office of the initial
Class III Directors shall expire at the annual meeting of shareholders of the
Corporation in 1988; or in each case until their respective successors are duly
elected and qualified. At each annual election held after 1985, the Directors
chosen to succeed those whose terms then expire shall be identified as being of
the same class as the Directors they succeed and shall be elected for a term of
three (3) years expiring at the third succeeding annual meeting or thereafter
until their respective successors are duly elected and qualified. If the
number of Directors is changed, any increase or decrease in the number of
Directors shall be apportioned among the classes so as to maintain the number
of Directors in each class as nearly equal as possible. Directors need not be
residents of the State of Missouri or shareholders of the Corporation.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
- ----------------------------
shall be held without other notice than this By-Law immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Missouri, for the holding of additional regular meetings without
other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors may
- ----------------------------
be called by or at the request of the Chairman of the Board or any Director.
The person authorized to call special meetings of the Board of Directors may
fix any place, either within or without the State of Missouri, as the place
for holding any special meeting of the Board of Directors called by him.
Section 5. Notice. Notice of any special meeting shall be given at least two
- ------------------
days previously thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any Director may waive notice of any meeting. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of Directors fixed by, or in the
- ------------------
manner set forth in, Section 2 of this Article III shall constitute a quorum
for the transaction of business at any meeting of the Board of Directors, but
if less than such majority is present at a
-6-
<PAGE> 8
meeting, a majority of the Directors present may adjourn the meeting from time
to time without further notice.
Section 7. Manner of Acting. Except as specifically provided in these
- ----------------------------
By-Laws, the act of the majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 8. Action Without a Meeting. Any action that may be taken by the
- ------------------------------------
Board of Directors at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed before such
action by all of the Directors.
Section 9. Vacancies and Removal. Any vacancy occurring in the Board of
- ---------------------------------
Directors because of death, resignation, removal, or an increase in the number
of Directors, may be filled by the affirmative vote of a majority of Directors
surviving or remaining in office. Any Director elected to fill a vacancy in
any class (whether such vacancy is caused by death, resignation, or removal,
or by an increase in the number of Directors in such class) shall hold office
for a term which shall expire with the term of the Directors in such class.
At a meeting called expressly for that purpose, the entire Board of Directors,
or any individual Director or Directors, may be removed without cause, only
upon the affirmative vote of the holders of at least seventy-five percent
(75%) of the total votes to which all of the shares then entitled to vote at a
meeting of shareholders called for an election of Directors are entitled;
provided, however, that, if less than the entire Board of Directors is to be
so removed without cause, no individual Director may be so removed if the
votes cast against such Director's removal would be sufficient to elect such
Director if then cumulatively voted at an election of the class of Directors
of which such Director is a part. At a meeting called expressly for that
purpose, any Director may be removed by the shareholders for cause by the
affirmative vote of the holders of a majority of the shares entitled to vote
upon his election.
Section 10. Compensation. By resolution of the Board of Directors, each
- -------------------------
Director may be paid his expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a stated salary as Director or a fixed
sum for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 11. Presumption of Assent. A Director of the Corporation who is
- ----------------------------------
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a Director who voted in favor of such action.
-7-
<PAGE> 9
Section 12. Board Committees. The Board of Directors may designate one or
- -----------------------------
more committees, consisting of two or more members of the Board, each of which
shall have the name, purpose, power and authority as may be established from
time to time by resolution adopted by majority of the entire Board of
Directors.
ARTICLE IV. OFFICERS
---------------------
Section 1. Officers. The principal executive officers of the Corporation
- ---------------------
shall be the Chairman of the Board, the President, one or more Vice Chairmen
of the Board, one or more Executive Vice Presidents, which shall be elected by
the Board of Directors, and which shall have a precedence in said order. The
Board shall also elect a Secretary. The Chairman of the Board may appoint or
direct the appointment of such other officers and assistant officers as may be
deemed necessary from time to time. Any two or more offices may be held by
the same person, except the offices of President and Secretary. Election or
appointment of an officer shall not of itself create contract rights.
Section 2. Election and Term of Office. The officers of the Corporation to
- ----------------------------------------
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any officer, whether elected by the Board of Directors
- --------------------
or appointed by, or at the direction of, the Chairman of the Board, may be
removed by the Chairman of the Board or in the judgment of the executive
officer of the Corporation having direct or indirect supervisory control over
such affected officer, when the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death, resignation,
- ----------------------
removal, disqualification or otherwise, may be filled by the Board of
Directors or by, or at the direction of, the Chairman of the Board, as
appropriate, for the unexpired portion of the term.
Section 5. Chairman of the Board. The Chairman of the Board shall be the
- ----------------------------------
principal executive officer of the Corporation and, subject to the control of
the Board of Directors, shall in general supervise and control all of the
business and affairs of the Corporation. He shall, when present, preside at a
meeting of the shareholders and of the Board of Directors. He may sign, with
the Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the Board of Directors has
-8-
<PAGE> 10
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of Chairman of the Board and such other duties as
may be prescribed by the Board of Directors from time to time.
Section 6. President. Subject to the powers of the Chairman of the Board, as
- ----------------------
in these By-Laws set forth, and the powers of the Board of Directors, the
President shall have general supervision over the operations of the
Corporation and of its business, affairs and property, and the powers and
duties pertaining by law, regulation or practice to the office of President.
The President may sign with the Secretary, or any other proper officer of the
Corporation, certificates for shares of the Corporation and shall perform such
other duties as from time to time be assigned to him by the Chairman of the
Board or by the Board of Directors.
Section 7. Vice Chairman of the Board. The Vice Chairmen of the Board, who
- ---------------------------------------
may be, but need not be, members of the Board of Directors, subject to the
powers of the Chairman of the Board and to the powers of the President, as in
these By-Laws set forth, and of the powers of the Board of Directors, shall
have and may exercise all the rights, powers, duties of an executive officer
of the Corporation, and the signature and acknowledgment of a Vice Chairman of
the Board to all instruments which shall be lawfully executed by the
Corporation shall be valid and sufficient; and they shall perform such other
duties and exercise such other powers as the Chairman of the Board or the
President may from time to time prescribe.
Section 8. Executive Vice President. The Executive Vice Presidents, subject
- -------------------------------------
to the control of the Chairman of the Board and others having precedence in
their order, shall have and may exercise all rights, powers and duties of an
executive officer of the Corporation, and the signature and acknowledgement of
an Executive Vice President to all instruments which may be lawfully executed
by the Corporation shall be valid and sufficient; and they shall perform such
other duties and exercise such other powers as the Chairman of the Board or
others have precedence in their order may from time to time prescribe.
Section 9. The Secretary. The Secretary shall: (a) keep the minutes of the
- --------------------------
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized; (d) keep
a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the Chairman of
the Board, or the Vice Chairman of the Board, or the President, or a Vice
President, certificates for shares of the Corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties
-9-
<PAGE> 11
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Chairman of the Board or by the Board of
Directors.
Section 10. The Chief Financial Officer. The Board of Directors may
- -----------------------------------------
designate any Vice Chairman of the Board, Executive Vice President or Senior
Vice President as the Chief Financial Officer of the Corporation. Upon such
designation of such officer shall be the chief financial officer of the
Corporation and shall have custody of all money and securities of the
Corporation. Such officer shall see that adequate and correct accounts of the
Corporation's receipts and disbursements are kept, including records of
customers' credits and collections. The Chief Financial Officer shall see
that the funds of the Corporation are deposited in the name of the Corporation
in such depositories as the Board of Directors may from time to time
designate. He shall have such other powers and perform such other duties as
are assigned to or vest in him by the Board of Directors, the Chairman of the
Board, or the President.
Section 11. The Treasurer. During any time when no Chief Financial Officer
- ---------------------------
has been designated, the Treasurer shall have the powers and duties set out in
these By-Laws for the Chief Financial Officer. During any time when the Board
of Directors has designated a Chief Financial Officer, the Treasurer shall
assist him in carrying out the powers and duties of that office subject to the
precedence of the Chief Financial Officer. He shall have such other powers and
perform such other duties as are assigned to or vested in him by the Board of
Directors, the Chairman of the Board, the President or the Chief Financial
Officer.
Section 12. Special Powers of Designated Officers. Each officer elected by
- ---------------------------------------------------
the Board of Directors or appointed by, or at the direction of, the Chairman
of the Board shall have the authority to execute any instrument, agreement
and/or document relating to the business and property of the Corporation which
may be lawfully executed by the Corporation in the transaction of its
business, except as otherwise proscribed by the Board of Directors, the
executive officers of the Corporation and others having precedence in their
order over the affected officer.
Section 13. Salaries. The salaries of the officers shall be fixed from time
- ----------------------
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE V. CONTRACTS, CHECKS AND DEPOSITS
------------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
- ---------------------
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
-10-
<PAGE> 12
Section 2. Loans. No loans shall be contracted on behalf of the Corporation
- -----------------
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for the
- --------------------------------
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
- --------------------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
-------------------------------------------------------
Section 1. Certificates for Shares. Certificates representing shares of the
- -----------------------------------
Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman of the Board or
a Vice-Chairman or the President or a Vice President and by the Secretary or
an Assistant Secretary and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon the certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or one of its
employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in
case of a lost, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the Corporation shall
- ------------------------------
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
-11-
<PAGE> 13
ARTICLE VII. FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall begin on the first day of January and
end on the thirty-first day of December in each year.
ARTICLE VIII. DIVIDENDS
------------------------
The Board of Directors may, from time to time, declare and the Corporation may
pay dividends on its outstanding shares in the manner, and upon the terms and
conditions provided by law.
ARTICLE IX. CORPORATE SEAL
---------------------------
The Board of Directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the Corporation and the
state of incorporation and the words, "Corporate Seal."
ARTICLE X. WAIVER OF NOTICE
----------------------------
Whenever any notice is required to be given to any shareholder or director of
the Corporation under the provisions of these By-Laws or under the provisions
of the General and Business Corporation Law of Missouri, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE XI. AMENDMENTS
-----------------------
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by action of the Board of Directors at any regular or special meeting
provided that any amendment, alteration, change or repeal by the Board of
Directors of Sections 2 or 9 of Article III or this Article XI or the adoption
of any provision inconsistent therewith shall require the affirmative vote or
consent of sixty-six and two-thirds percent (66-2/3%) of the number of
Directors then authorized by, or in the manner provided in, the By-Laws.
Notwithstanding the foregoing or anything contained in the Articles of
Incorporation to the contrary, the amendment, alteration, change or repeal by
the shareholders of the Corporation of Sections 2 or 9 of Article III or this
Article XI of the By-Laws or the adoption of any provision inconsistent
therewith shall require the affirmative vote of at least seventy-five percent
(75%) of the total votes to which all of the then outstanding shares of
capital stock of the Corporation are entitled, voting together as a single
class unless such amendment, alteration, change or repeal has previously been
expressly approved by the Board of
-12-
<PAGE> 14
Directors by the affirmative vote or consent of at least sixty-six and
two-thirds percent (66-2/3%) of the number of Directors then authorized by or
in the manner provided in, the By-Laws, in which case the shareholder vote
requirement determined by statute, the Articles of Incorporation or these
By-Laws shall control.
/s/ Jon W. Bilstrom
-----------------------------
Jon W. Bilstrom
Secretary and General Counsel
Mercantile Bancorporation, Inc.
-13-
<PAGE> 1
MERCANTILE BANCORPORATION INC.
This year's superior business and financial performance continued to
strengthen our foundation of sustained financial success. Balancing rapid and
strategic growth with our critical priorities reflects the commitment and
dedication of Mercantile Bancorporation to its employees, customers, and
shareholders.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per common share data) 1995 1994 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER COMMON SHARE DATA
Net income $ 4.00 $ 3.22 24.2%
Dividends declared 1.32 1.12 17.9
Book value at December 31 26.33 23.47 12.2
Market price at December 31 46 31 1/4 47.2
Average shares outstanding 54,011,711 51,957,002 4.0
OPERATING RESULTS
Net interest income $595,399 $595,547 --%
Provision for possible loan losses 34,726 43,201 (19.6)
Other income 249,084 209,758 18.7
Other expense 478,734 492,070 (2.7)
Income taxes 114,188 101,705 12.3
Net income 216,835 168,329 28.8
- ------------------------------------------------------------------------------------------
</TABLE>
15 Financial Discussion and Report 58 Investor Information
60 Directors and Executive Officers
<PAGE> 2
LETTER TO OUR SHAREHOLDERS
At the midway point of the 1990s, Mercantile Bancorporation has attained an
indelible record of high performance in the American financial services
industry. As we look to the future, we are confident that Mercantile is
well-positioned to achieve even higher levels of performance in the last half
of the decade.
Thomas H. Jacobsen
Chairman of the Board and
Chief Executive Officer
2
<PAGE> 3
MERCANTILE BANCORPORATION INC.
By any measure, Mercantile's financial performance in 1995 was impressive.
Our earnings were $216.8 million, up 28.8% over 1994. Earnings per common
share reached $4.00, an increase of 24.2% over the year before. Corporate
growth accelerated significantly in 1995, fueled by a successful acquisition
program and by steady Midwestern market demand for credit and other financial
services. The asset base increased to $15.9 billion, an increase of more than
7% over 1994. Equally important, Mercantile's return on assets moved into the
highest levels of our industry, reaching 1.40%, also an increase over 1994's
originally reported ROA of 1.33%.
The Corporation's performance and growth continue to provide our
shareholders with a return on assets that is among the best in the banking
industry today. Over the last five years, total return to shareholders has
been 26.4% on a compound growth rate basis.
Mercantile Bancorporation has emerged as one of the leading financial
services companies in America today, with a distinguished record of
accomplishment and a world of opportunity for sustained success.
MEETING THE CHALLENGE Our excellent performance through the first half of the
1990s, which has been widely recognized in the financial community, has
provided Mercantile with a solid foundation for continued achievement in the
coming years. Many challenges and opportunities still face Mercantile and the
entire banking industry today: the emergence of full interstate banking, an
intensely competitive environment, the swiftness of technological innovation,
and an economic recovery that continues to unfold slowly.
We believe that those financial institutions capable of producing
outstanding financial results, while meeting and exceeding customer
expectations, can look to the future with a sense of confidence and optimism.
Banks that cannot keep pace will have little recourse but to forge a
relationship with a stronger organization.
There are three fundamental reasons why we feel the outlook for Mercantile
is encouraging, and why we expect the Company to rank among the very best in
our industry in the coming years.
First, Mercantile has the organization to carry out its mission of being a
premier provider of financial services. A seasoned management team is in
place and functioning well across the full range of line and staff
responsibilities. A culture of high performance permeates the entire
organization. Mercantile's operating model of locally managed community
banks, centralized operations and product management, and an earnings-driven
acquisition strategy, are structural assets that differentiate the
Corporation from many of its competitors.
Second, Mercantile has an enviable customer base in one of the nation's
most attractive financial services markets. Characterized by stability and
diversity, it represents nearly half
3
<PAGE> 4
of the commercial activity and population of the United States. With a
dominant market share in more than two-thirds of the markets it serves,
Mercantile has judiciously built an outstanding banking franchise in the '90s.
The Corporation's exceptional growth record has been accomplished without
sacrificing asset quality. This is reflected in a balanced loan portfolio and
credit ratios that have been among the best in the banking industry.
Third, Mercantile has the financial strength to sustain its growth in the
coming years. The Corporation's core earnings power was demonstrated in 1995
by both loan and fee growth. Additionally, our new co-branded credit card
with SBC was successfully launched, as well as the new initiative with the
U.S. Treasury Department for electronic tax payment systems. With capital
ratios among the best in our industry, and the payout of technology
investments in both productivity and enhanced customer service on the 1996
horizon, Mercantile has the fundamentals in place to sustain success through
the remainder of the 1990s.
As a result of the Corporation's optimistic outlook, the Board of
Directors, at our meeting on February 8, 1996, raised Mercantile's quarterly
common stock dividend by 24.2% to $.41 per share from $.33 per share.
MERGERS AND ACQUISITIONS During 1995, Mercantile dramatically expanded its reach
into important markets, increasing its asset base by more than 30%, from
$12.2 billion at the end of 1994 to $15.9 billion by the end of 1995, placing
Mercantile among the 50 largest bank holding companies in America. Seven
financial institutions merged with Mercantile in 1995, and plans were
announced during the year for an additional five banks to become part of the
franchise.
The seven strategic mergers completed in 1995 were Wedge Bank in southwest
Illinois, UNSL Financial Corp in southwest and central Missouri, Central
Mortgage Bancshares, Inc., in the Kansas City area, TCBankshares, Inc., in
Arkansas, Plains Spirit Financial Corporation in the Quad Cities market,
Southwest Bancshares, Inc., in the Springfield, Missouri area, and AmeriFirst
Bancorporation, Inc., in Sikeston, Missouri.
Five additional mergers were announced in 1995 and are scheduled for
completion in 1996:
. Security Bank of Conway, F.S.B., a $102 million institution headquartered in
Conway, Arkansas, is a natural extension of the Corporation's already strong
position in Arkansas that began in 1995 with the completion of the merger with
TCBankshares, Inc.
. First Sterling Bancorp, Inc., a $168 million bank holding company in
Sterling, Illinois, extends Mercantile's presence farther north in our
neighbor state and into the strong local economies of Sterling and Rock Falls.
. Hawkeye Bancorporation, a $2 billion bank holding company that operates local
banks in more than 20 Iowa communities, places Mercantile among the top three
largest bank holding companies in Iowa.
4
<PAGE> 5
. Metro Savings Bank, F.S.B., an $82 million federal savings bank headquartered
in Wood River, Illinois, is a welcome addition to our well-established bank in
Alton serving the Madison County area.
. Peoples State Bank, a $97 million asset bank based in Topeka, will strengthen
our position in the Kansas capital, as well as expand our presence into two
nearby communities.
BOARD OF DIRECTORS Mercantile benefits from the business expertise and sound
judgment of the outside directors who serve on the boards of its holding
company and each of its banks. In 1995, one new director joined the
Mercantile Bancorporation board, one resigned due to relocation, and three
directors became Advisory Directors under the Board's normal transition
policy.
We were saddened by the death of William G. Heckman, who served on the
Mercantile Bancorporation board for more than 16 years. During that time, he
was a constant source of enlightened judgment and insight in a period of
considerable challenge and renewed growth for this Corporation. Mr. Heckman's
extensive management experience and financial acumen provided Mercantile with
the highest levels of business leadership.
Frank Lyon, Jr., Chairman of TCBankshares, Inc. in Little Rock, one of the
most prominent business leaders in Arkansas, was invited to join the
Mercantile board to help us guide our expanding presence in Arkansas.
J. Cliff Eason, President, Network Services, Southwestern Bell Telephone
Company, resigned from the board because of his relocation to the Texas
headquarters of SBC, Southwestern Bell's parent company. Mr. Eason made many
important contributions to the direction of Mercantile during his tenure.
Making the transition to Advisory Director status in 1995 were three
directors who have served Mercantile with distinction, and will continue to
have an important role in the future direction of the Company. They are
Bernard A. Edison, Director Emeritus of Edison Brothers Stores, Inc.; James
B. Malloy, Chairman of Smurfit Packaging Corporation; and Joseph G. Werner,
President of Werner Investments.
OUTLOOK In the challenging financial services environment of the 1990s,
Mercantile has emerged as a highly capable, performance-driven bank holding
company that has proven it has the fundamental strengths to sustain its
remarkable record of achievement into the future. The commitment of all of
Mercantile's employees to premier performance for our customers and our
shareholders is the key to sustaining the momentum Mercantile has achieved.
As we look to the future, we are confident that Mercantile is well-positioned
to achieve even higher levels of performance in the last half of the decade.
5
<PAGE> 6
LETTER TO OUR SHAREHOLDERS
We want to express our sincere gratitude to our employees, customers, and
shareholders for everything they do to help make the Mercantile enterprise a
success. We have accomplished much, and we have every reason to believe we
will accomplish a great deal more.
Many thanks,
/s/ Thomas H. Jacobsen
Thomas H. Jacobsen
Chairman of the Board and Chief Executive Officer
February 19, 1996
6
<PAGE> 7
MERCANTILE BANCORPORATION INC.
performance growth
-------------------------------------------------------------
7
<PAGE> 8
ACHIEVING PERFORMANCE AND GROWTH
Mercantile's employees are responsible for the organization's outstanding
growth, superior performance, and ongoing success.
Mercantile Bancorporation stands apart from other financial services
organizations for many reasons. One of the most important is the quality of
our employees. As the primary drivers of our organization, they are
responsible for Mercantile's outstanding growth, superior performance, and
ongoing success.
Throughout our organization, these talented, motivated and highly valued
employees demonstrate, every day, a powerful commitment to Mercantile's
mission. While we have earned a great deal of favorable recognition for our
performance throughout the 1990s, we continue to strive for sustained
superior performance. And our performance hinges on the ability of our
employees to grow with us, consistently meeting and exceeding the needs of
our customers.
THE BEST PERFORMERS Mercantile has an excellent track record of attracting and
keeping some of the best men and women working in the financial services
industry today. These professionals deliver services to meet a broad range of
financial needs, for millions of customers in hundreds of Midwestern cities
and communities. By providing these employees with opportunities to broaden
their expertise, acquire new skills, and develop advanced management and
leadership techniques, Mercantile has built a strong organization that is
well-suited to the challenges and opportunities of the future.
The Leadership and Organization Effectiveness division of Human Resources
provides training and development initiatives for managers that include a
comprehensive range of courses and instruction on business, banking, and
management. The newly implemented and successful Leadership 360 program gives
employees a comprehensive view of their performance, with feedback and
comments gathered from all levels of work constituencies, including
supervisors, peers, and subordinates.
In addition, through such programs as "The Chairman's Award" and "The
Premier Performance Award," Mercantile recognizes and rewards employees whose
contributions transcend consistently superior job performance. Selected from
all levels of the Mercantile organization, these honored employees receive
personal and financial recognition.
EXPANDED OPPORTUNITY Mercantile's rapid and broad geographic expansion has
helped create new career opportunities for many employees. In addition, our
superior organization is being strengthened as a result of merger activities.
These new relationships have brought not only some of the Midwest's strongest
banks into our system, but also some of the strongest banking talent. The
skills, local expertise, and experience of these financial services
professionals contribute significantly to our ability to serve customers
throughout our growing geographic base.
With a horizontal operating structure, our management team retains
flexibility, which permits prompt response to change and informed risk
management. To maximize productivity, we evaluate our managers against
measurement systems that gauge bottom-line financial objectives, rewarding
those performing at a high level with leveraged compensation and stock
options.
8
<PAGE> 9
MERCANTILE BANCORPORATION INC.
RECORD OF PRODUCTIVITY Our employees' performance speaks for itself.
Mercantile's Mississippi Valley Advisors Inc. investment subsidiary achieves
consistently superior returns, thanks, in part, to dedicated researchers who
have mastered a complex stock screening system which identifies securities
with potential returns in the top 20 percent of the market.
The development of the Electronic Federal Tax Payment System for the
Internal Revenue Service has surpassed government expectations. The system,
developed through a joint venture of Mercantile and First National NBD
Corporation, entered the on-line testing phase in late 1995 and is expected
to begin processing electronic tax payments in April 1996. The joint venture
of the two banks will process approximately 52 million payments annually by
the year 2000.
COMMUNITY OUTLOOK While our employees strive to define new frontiers in
financial services, they still make time to maintain Mercantile's tradition
of community involvement and leadership. Our employees are Mercantile to the
communities we serve.
As members of economic and industrial development committees, local
government bodies, school boards, and philanthropies, they possess an
intimate knowledge and understanding of the quality of life and the economic
development of the neighborhoods, towns, and cities where Mercantile banks
are located. Local involvement and insight are at the heart of Mercantile's
philosophy of Community Banking, and are expressed structurally in our system
of locally managed banks in five Midwestern states. This operating model,
unlike other large bank holding companies that operate only through local
branches, is one of Mercantile's greatest assets and most distinguishing
characteristics.
We believe our customers are best served by home town banks with local
management and local boards of directors. The local management is fully
empowered to oversee the delivery of services locally and make lending
decisions. It accepts responsibility for its own performance. Interestingly,
the Mercantile Community Bank system also delivers a financial record that is
consistently among the highest in the industry.
This empowerment mirrors our belief in our employees, on whom we rely, to
take an active role in developing their own professional capabilities and
careers. Their dedication to increasing expertise, knowledge, and skills; to
providing the highest levels of customer service; and to strengthening their
relationships within their communities is critical to our continued success.
Employee involvement and insight in local communities are at the heart of
Mercantile's philosophy of Community Banking.
9
<PAGE> 10
ACHIEVING PERFORMANCE AND GROWTH
We take pride in helping customers realize their dreams and achieve their
aspirations for success.
We are dedicated to the strategic, ambitious growth of our Company and our
customers-and, as a financial institution with a long history and record of
customer service, we take particular pride in helping our customers realize
their dreams and achieve their aspirations for success.
At all times, Mercantile balances growth with the outstanding performance
our customers expect and our shareholders demand. Committed to being a
premier provider of financial services, we are determined that each customer
receives thoughtful and responsive attention.
DELIVERING FINANCIAL SERVICES Mercantile delivers a broad array of products and
services to meet the changing financial needs and requirements of our
customers through both Institutional and Retail Banking, as well as through
Mercantile Trust Company and such specialized delivery channels as
Mississippi Valley Advisors and Mercantile Investment Services.
This tradition of customer service was illuminated recently by the
celebration of our 100th anniversary with Donovan Industrial Supply
Corporation, a St. Louis company founded in 1895. The customer's early
depository needs have expanded dramatically, and today include cash
management, working capital, mortgage, and 401(k) services. The fourth
generation of this family also places their personal banking and trust
services with Mercantile. We have continued to expand our capabilities to
meet their growing needs. As a banking organization that dates back to the
middle of the 19th Century, Mercantile is pleased to have many similar
stories from literally millions of customer relationships.
Another example of meeting customer needs was the creation in 1995 of the
Capital Markets Group to help customers find creative solutions to their
capital needs. One of this Group's early success stories was to help a
long-time customer's management team obtain the leveraged financing that
enabled them to buy the company when its sale was managed by a major
investment bank.
RESPONDING TO CURRENT TRENDS As corporate belts tighten and 3%-4% cost-of-living
increases become the norm, more companies are turning to expanded benefits
packages, including 401(k) programs, to attract employees. The 401(k) market
offers enormous potential, with growth rates in the double-digits. In 1994,
Mercantile expanded its 401(k) product in response to this trend, creating a
top-tier, competitive program with several unique features.
A sophisticated investment portfolio, which includes ARCH funds managed by
Mercantile's investment management subsidiary, Mississippi Valley Advisors,
is maintained through alliances with top mutual fund companies. Comprehensive
employee education programs and customer service, including a toll-free
number, enable employees to better understand and participate in their
retirement planning and to make changes to their accounts conveniently over
the telephone.
Continually changing trends within the financial services industry have
led to the expansion of personal trust services. In response, we began
marketing trust, private banking, and investment services
10
<PAGE> 11
MERCANTILE BANCORPORATION INC.
together under the umbrella of Mercantile Trust to offer high-net-worth
individuals top-quality banking services in a single resource.
COMMITMENT AND INNOVATION At the Retail Banking level, Mercantile continues to
deliver personal banking services to individuals and families with a broad
range of deposit, credit, and investment needs. Our service area, stretching
across Midwestern states, delivers retail banking services at local banks and
bank offices, as well as through Automated Teller Machines.
In addition, we have moved strategically into the delivery of banking
services via the telephone, and are beginning to explore alternative delivery
channels such as home banking. Discussions regarding electronic banking
continue at the highest levels of Mercantile management, and local banks have
moved aggressively to establish home pages on the World Wide Web. Mercantile
Bank of Lawrence, Kansas, for instance, has a highly successful Internet home
page to leverage its already strong student loan products.
For several years, Mercantile has earned a distinguished record of meeting
its local community credit responsibilities under the Community Reinvestment
Act. Today, Mercantile enjoys an enviable record of an "outstanding" or
"satisfactory" CRA rating at every bank that has been rated. In St. Louis,
Mercantile's largest urban market, our bank has received two consecutive
"outstanding" ratings. The bank's innovative Community Partnership Program
has helped hundreds of families understand and obtain home mortgage loans in
all sectors of the urban area.
Mercantile's innovative new VISA(R) card is co-branded with Southwestern
Bell Company (SBC), a Fortune 500 company with a large customer base in the
central and lower Midwest. The card, launched early in 1995, soon became the
fastest-growing telephone credit card, with more than 490,000 accounts. Ahead
of original projections, we expect a total of 700,000 new accounts by
year-end 1996, nearly achieving our 1997 goal of one million accounts.
Mercantile's continued and carefully planned growth has led to a dynamic
expansion of locations under the Mercantile Bank sign. This provides
customers a clear advantage: a convenient, local bank, backed up by the
resources, products, and lending capacity of a multi-billion-dollar bank
holding company.
As we continue to grow and expand our offering of financial products and
services, we also provide our customers another advantage: we remain close to
our customers and their communities through an operating model of locally
managed banks which deliver financial services that are responsive to the
unique characteristics of each local community.
Mercantile has a long tradition of superior customer service, offering a wide
range of financial services to meet customers' changing needs.
11
<PAGE> 12
ACHIEVING PERFORMANCE AND GROWTH
Today Mercantile ranks as one of the top-performing bank holding companies in
the United States.
Mercantile's superior business and financial performance in the 1990s
positions us for exciting, yet carefully planned growth in the years to come.
Through aggressive expansion into new communities and new financial services,
we continue to broaden our franchise and increase shareholder value.
Our management-and the deployment of our financial services-remains
focused on the growing, economically stable Central Midwest market. Roughly
half the population and the commercial activity of the United States is
within a 500-mile radius of St. Louis. It is home to a wealth of successful,
growing businesses that compete in a diverse spectrum of industries, as well
as home to a highly diverse population with a demand for quality financial
services.
At Mercantile, we're well-equipped to meet the needs of this exacting
marketplace. Mercantile is focused on serving this customer base, the
businesses, and the individuals in the center of America, the place
Mercantile has always served and knows best.
As we focus on the challenge of constantly exceeding customers'
expectations, we also are focused on sustaining long-term financial
performance and providing outstanding returns to our shareholders. Over the
past several years, Mercantile's financial results and shareholder returns
have been outstanding and widely recognized in the banking and investment
communities.
TOP PERFORMER Today Mercantile ranks as one of the top-performing bank holding
companies in the United States. Since 1990, our asset base has grown from
$7.6 billion to a record $15.9 billion as of the end of 1995, a compounded
annual growth rate of 16%. During that time, our return on assets has risen
from 0.81% to 1.40%, while the growth in our net income has kept pace with
the growth in our markets.
Mercantile's 26.4% compounded total return to shareholders over the past
five years is among the best in our industry, with 1995 marking the sixth
consecutive year of earnings increases. Our earnings per share growth was
24.2% in 1995, and 18.9% over the past seven years.
Responding to the loyalty of our shareholders, Mercantile has paid
consecutive quarterly cash dividends since March 1971. In 1995, we increased
our dividend by 17.9%, following a 13.1% increase in 1994.
With this performance has come recognition from two of the most respected
firms in the investment business. Donaldson, Lufkin & Jenrette named
Mercantile its "Overall Gold Medal Winner" for both the fourth quarter and
full year of 1994 in its prestigious Bank Performance Review, published in
March 1995.
The DLJ report, which includes 65 banks and bank holding companies, has
ranked us in its top 10 for five consecutive years. In determining each
ranking, DLJ examines institutional profitability, capital strength, asset
quality, earnings per share growth, management, and margin.
The Salomon Brothers Bank Annual: 1995 Edition, which measures 50 of the
leading U.S. bank holding companies on profitability, credit quality,
capital, productivity, and liquidity, rated us number two in the nation.
12
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MERCANTILE BANCORPORATION INC.
Of course, while these honors and other forms of recognition for our
performance as a company and a good community citizen are welcome, we never
forget that what matters most is the business we earn from our customers.
GROWTH STRATEGIES Mercantile Bancorporation's long-term plan calls for a
continued focus on balancing growth and performance to ensure a consistent
and sustainable record of achievement.
The key elements of this strategy include:
. A highly disciplined credit and lending philosophy. We have developed a
healthy dynamic tension between our credit process and our lenders to ensure
that both our portfolios and our customer base remain at the highest quality
levels.
. A diversified business mix. We currently have powerful capabilities in
commercial and retail banking, investment and trust management, and credit
cards; and, we will continue to seek opportunities to increase our core
earnings growth through customer relationship-management, as well as through
strategic alliances with partners who bring opportunity and innovation to the
business of serving customers in today's competitive environment.
. A culture of productivity, driven by a flat organizational structure, the
latest technological advances, efficient and profitable delivery systems, and
careful expense management is constantly balanced in order to maintain the
highest levels of customer service.
. A proven Community Banking model that keeps us close to our customers and our
communities through local boards of directors, local management, and local
decision-making.
. Strategic acquisitions that both expand our service area and obtain
specialized expertise for new growth opportunities that may arise.
Mercantile, as of the end of 1995, operates banks in the five central U.S.
states of Missouri, Kansas, Illinois, Arkansas, and Iowa. We are serving more
than 3.5 million customers from over 400 separate locations. This is a financial
services organization that has moved well beyond the special challenges it
faced in the late 1980s and early '90s, and stands today among the largest and
best in its industry.
As Mercantile moves toward a new century, we remain confident that we will
continue providing significant benefits to our shareholders, customers, and
employees, the three groups upon whom we focus. The hard work of Mercantile
employees, the loyalty of our customers, and the sustained commitment of our
shareholders all overlap in the everyday life of this Corporation,
inseparable and interrelated.
This is how we view our business, seeing all three groups, serving the
needs of all three groups, and rising to the challenges posed by all three
groups. We think of it as being a well-balanced company.
Through aggressive expansion into new communities and new financial services,
Mercantile continues to increase shareholder value.
13
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MERCANTILE'S MARKETPLACE
For a complete listing of Banks and other Subsidiaries, see page 59.
14
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FINANCIAL DISCUSSION AND REPORT
TABLE OF CONTENTS
FINANCIAL COMMENTARY
16 Performance Summary
19 Net Interest Income
19 Liquidity
20 Interest Rate Sensitivity
22 Deposits
[TOTAL ASSETS GRAPH] 22 Short-Term Borrowed Funds
and Short-Term Investments
23 Capital Resources
24 Investments in Debt and Equity Securities
25 Loans
26 Risk Management and the
Reserve for Possible Loan Losses
28 Non-Performing Assets
29 Off-Balance-Sheet Risk
30 Other Income
[NET INCOME GRAPH] 32 Other Expense
33 Income Taxes
33 Fourth Quarter Results
35 MANAGEMENT REPORT ON
CONSOLIDATED FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS
35 Independent Auditors' Report
36 Mercantile Bancorporation Inc.and Subsidiaries
[EARNINGS PER COMMON Consolidated Financial Statements
SHARE GRAPH] 40 Notes to Consolidated Financial Statements
54 SIX YEAR CONSOLIDATED
FINANCIAL STATEMENTS
58 INVESTOR INFORMATION
[RETURN ON ASSETS GRAPH]
[RETURN ON EQUITY GRAPH]
15
<PAGE> 16
FINANCIAL COMMENTARY
PERFORMANCE SUMMARY
Net income for Mercantile Bancorporation Inc. ("Corporation" or
"Mercantile") was $216,835,000 in 1995, a 28.8% improvement from the
$168,329,000 recorded in 1994. On a per common share basis, net income was
$4.00, up 24.2% from the $3.22 earned last year, which in turn improved
15.4% from the $2.79 earned in 1993. The financial statements have been
restated to include the pre-acquisition accounts and results of operations
of UNSL Financial Corp ("UNSL"), Central Mortgage Bancshares, Inc.
("Central") and TCBankshares, Inc. ("TCB"). UNSL was acquired by
Mercantile on January 3, 1995 while Central and TCB were acquired by
Mercantile on May 1, 1995 in transactions accounted for as
poolings-of-interests. Included in these restated 1994 and 1993 figures
are after-tax charges of $16,700,000 ($.32 per share) and $16,500,000
($.32 per share), respectively, that acquired companies recorded to
conform their accounting and credit policies to those of Mercantile.
<TABLE>
<CAPTION>
Exhibit 1
SELECTED FINANCIAL DATA
Growth Rates
-------------
1995 1994 1993 1992 1991 1990 One Year Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income $ 4.00 $ 3.22 $ 2.79 $ 2.42 $ 2.25 $ 1.99 24.2% 15.0%
Dividends declared 1.32 1.12 .99 .93 .93 .93 17.9 7.3
Book value at year-end 26.33 23.47 21.69 19.52 19.19 17.72 12.2 8.2
Market price at year-end 46 31-1/4 30-1/8 32-1/8 25-1/8 14 47.2 26.9
Average shares outstanding
(Thousands) 54,012 51,957 50,965 47,276 39,391 37,847 4.0 7.4
OPERATING RESULTS (Thousands)
Taxable-equivalent net interest
income $608,880 $608,943 $594,145 $539,202 $441,376 $394,531 --% 9.1%
Tax-equivalent adjustment 13,481 13,396 13,574 12,911 11,681 14,455 .6 (1.4)
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 595,399 595,547 580,571 526,291 429,695 380,076 -- 9.4
Provision for possible loan losses 34,726 43,201 63,513 77,874 62,360 56,196 (19.6) (9.2)
Other income 249,084 209,758 219,703 201,965 170,770 150,508 18.7 10.6
Other expense 478,734 492,070 508,043 471,903 431,155 361,992 (2.7) 5.7
Income taxes 114,188 101,705 85,467 61,072 24,029 31,759 12.3 29.2
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $216,835 $168,329 $143,251 $117,407 $ 82,921 $ 80,637 28.8 21.9
=================================================================================================================================
ENDING BALANCE SHEET (Millions)
Total assets $ 15,934 $ 14,806 $ 14,423 $ 14,190 $ 12,377 $ 11,674 7.6% 6.4%
Earning assets 14,433 13,671 13,259 12,989 11,331 10,447 5.6 6.7
Loans and leases 10,442 9,670 8,702 8,525 7,881 7,827 8.0 5.9
Investments in debt and equity
securities 3,795 3,844 4,180 4,106 2,949 2,286 (1.3) 10.7
Deposits 11,974 11,189 11,599 11,629 10,211 9,660 7.0 4.4
Long-term debt 299 299 288 310 216 247 -- 3.9
Shareholders' equity 1,450 1,234 1,133 996 805 683 17.5 16.3
Reserve for possible loan losses 179 195 185 179 158 159 (7.9) 2.3
AVERAGE BALANCE SHEET (Millions)
Total assets $ 15,501 $ 14,534 $ 14,277 $ 13,596 $ 11,768 $ 11,038 6.7% 7.0%
Earning assets 14,326 13,371 13,068 12,423 10,712 9,981 7.1 7.5
Loans and leases 10,249 9,029 8,571 8,420 7,729 7,412 13.5 6.7
Investments in debt and equity
securities 3,845 4,075 4,132 3,590 2,516 2,262 (5.7) 11.2
Deposits 11,920 11,635 11,820 11,334 9,790 9,143 2.5 5.4
Long-term debt 296 305 287 251 240 265 (2.8) 2.2
Shareholders' equity 1,351 1,197 1,072 924 756 656 12.9 15.5
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
When compared with 1994, year-to-date 1995 overall results reflected a
consistent level of net interest income, lower levels of operating
expenses, a lower provision for possible loan losses and a significant
increase in non-interest income. The key measurements of profitability
also continued to show improvement, as return on average assets grew to
1.40% in 1995 compared with the 1994 restated 1.16% and the originally
reported ratios of 1.33% in 1994 and 1.11% in 1993. Return on equity was
16.05% versus the prior year's restated 14.07%, and 15.82% and 14.87%, as
originally reported in 1994 and 1993, respectively. Financial highlights
for the past six years are presented in Exhibits 1 and 2.
Four other mergers occurred in 1995 and five more are scheduled to
close in the first and second quarters of 1996. Merger activity as
summarized in Exhibit 3 and Note B to the Consolidated Financial
Statements provides details on all merger transactions which occurred in
the past three years. The Wedge Bank, AmeriFirst Bancorporation, Inc. and
Southwest Bancshares, Inc. mergers were accounted for as
poolings-of-interests, yet the financial statements were not restated due
to their immateriality. These three entities have been merged with
existing Mercantile banks during 1995. It is not anticipated that any of
the recently completed or pending acquisitions will have a significant
impact on liquidity, capital ratios or expected trends in the results of
operations of the Corporation.
During 1995, the total number of banking offices increased from an
originally reported 249 to 336. There were 85 locations added from
mergers, six new offices opened and four closed during the year, as the
Corporation continued to monitor the profitability and growth
opportunities of each of its locations. After all announced acquisitions
included in Exhibit 3 are closed during 1996, Mercantile will be operating
approximately 411 banking offices in its trade service area.
<TABLE>
<CAPTION>
Exhibit 2
SELECTED RATIOS
1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Return on assets 1.40% 1.16% 1.00% .86% .70% .73%
Return on equity 16.05 14.07 13.37 12.71 10.96 12.30
Overhead ratio 55.80 60.10 62.42 63.67 70.43 66.42
Other expense to average assets 3.09 3.39 3.56 3.47 3.66 3.28
Dividend yield 2.87 3.58 3.29 2.89 3.70 6.64
Dividend payout 33.00 34.78 35.48 38.43 41.33 46.73
Equity to assets 9.10 8.34 7.85 7.02 6.50 5.85
Tier I capital to risk-adjusted assets 12.04 11.69 11.28 10.24 8.71 6.97
Total capital to risk-adjusted assets 15.33 15.20 14.98 14.45 10.69 8.75
Leverage 8.48 8.02 7.33 6.52 6.07 5.21
Loans to deposits (Average) 85.98 77.60 72.52 74.29 78.95 81.07
Reserve for possible loan losses to
outstanding loans 1.71 2.01 2.12 2.10 2.00 2.04
Reserve for possible loan losses to
non-performing loans 227.71 579.62 278.23 147.60 105.33 108.49
Non-performing loans to outstanding loans .75 .35 .76 1.42 1.90 1.88
Non-performing assets to outstanding loans
and foreclosed assets .87 .49 1.24 2.17 3.02 2.75
Net interest rate margin 4.25 4.55 4.55 4.34 4.12 3.95
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL COMMENTARY
Consolidated assets at December 31, 1995 were $15.9 billion compared with
$14.8 billion at year-end 1994 and $14.4 billion at December 31, 1993.
Core deposits grew by 6.0% to $10.9 billion, loans were $10.4 billion, up
8.0% from last year, and shareholders' equity of $1.45 billion was up
17.5% from year to year. To maximize financial flexibility, the
Corporation transferred approximately $3 billion of held-to-maturity
investment securities to available-for-sale in the fourth quarter of 1995.
The 1995 year-end equity to assets ratio grew to 9.10% from 8.34% the
prior year, and the Tier I and Total risk-based capital ratios increased
to 12.04% and 15.33%, respectively, from 11.69% and 15.20% at December 31,
1994.
At the Board of Directors meeting on February 8, 1996, the quarterly
dividend was increased by 24.2%, to $.41 from $.33 per common share. Also,
the Corporation plans to include a one-time charge to earnings
approximating $.60 to $.65 per common share in first-quarter 1996 results.
The charge includes accruals made to substantially conform the accounting
and credit policies of the recent acquirees noted in Exhibit 3 to those of
Mercantile. None of these actions is expected to significantly impact the
liquidity or capital position of the Corporation. Further discussions of
capital and liquidity follow.
The following financial commentary presents a more thorough discussion
and analysis of the results of operations and financial position of the
Corporation. It should be read in conjunction with the accompanying
audited Consolidated Financial Statements and related
notes.
<TABLE>
<CAPTION>
Exhibit 3
ACQUISITIONS
Consideration
------------------- Accounting
(Dollars in Thousands) Date Assets Deposits Cash Gross Shares Method
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
Southwest Bancshares, Inc. August 1, 1995 $ 187,701 $ 155,628 $ 1 674,975 Pooling
AmeriFirst Bancorporation, Inc. August 1, 1995 155,521 130,179 1 661,356 Pooling
Plains Spirit Financial Corporation July 7, 1995 400,754 276,887 6,697 1,301,180 Purchase
TCBankshares, Inc. May 1, 1995 1,422,798 1,217,740 -- 4,749,999<F1> Pooling
Central Mortgage Bancshares, Inc. May 1, 1995 654,584 571,105 8 2,537,723 Pooling
UNSL Financial Corp January 3, 1995 508,346 380,716 11 1,578,107 Pooling
Wedge Bank January 3, 1995 195,716 152,865 1 969,954 Pooling
United Postal Bancorp, Inc. February 1, 1994 1,260,765 1,025,252 39 5,631,953 Pooling
Metro Bancorporation January 3, 1994 370,175 333,183 6 1,638,278 Pooling
RECENTLY COMPLETED ACQUISITIONS
Security Bank of Conway,F.S.B. February 9, 1996 102,007 89,432 -- 322,000<F2> Purchase
Hawkeye Bancorporation January 2, 1996 1,978,540 1,739,811 80 7,892,196 Pooling
First Sterling Bancorp, Inc. January 2, 1996 167,610 147,588 1 521,417 Pooling
ACQUISITIONS PENDING
Metro Savings Bank,F.S.B. March 1996 81,872 75,587 -- 199,446<F2> Purchase
Peoples State Bank 2nd Quarter 1996 96,824 74,361 -- 325,843<F2> Purchase
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> In addition to Mercantile common stock issued, the Corporation assumed,
through an exchange, the outstanding, non-convertible preferred stock of
TCBankshares, Inc.
<F2> Estimated gross shares to be issued in acquisition.
</TABLE>
18
<PAGE> 19
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NET INTEREST INCOME
Net interest income, the difference between total interest income on
earning assets and total interest expense, the cost of funds supporting
those assets, is Mercantile's primary source of earnings. Representing the
Corporation's gross profit from lending, investing, deposit gathering and
borrowing activities, net interest income is affected by three variables:
the volume, the mix, and the rates earned and paid on funds. The net
interest rate margin is net interest income on a fully taxable-equivalent
basis as a percentage of average earning assets.
In 1995, net interest income was $595,399,000, consistent with the
$595,547,000 earned in 1994, which was up 2.6% over 1993 results. While
the volume of average earning assets grew by 7.1% in 1995, the net
interest rate margin declined by 30 basis points from the 4.55% recorded
in 1994 and 1993 to 4.25% this year. Factors contributing to the lower net
interest rate margin in 1995 included introductory rates on the SBC
Communications Inc. ("SBC") co-branded credit card program until November
1995, more competitive pricing for both loans and deposits, the movement
of retail deposits from savings and transaction accounts to
higher-costing, longer-term certificates of deposit, a decline in core
deposit funding as a percentage of total funding, growth in non-performing
assets, and a credit card securitization in May 1995. Also, the companies
acquired in 1995 purchases or poolings without restatement have generally
had lower net interest rate margins, thereby further diluting the
Corporation's margin.
In 1995, interest rates rose early in the year, stabilized, then began
declining in the third and fourth quarters. During that time, however, the
prime rate of interest was always in the 8.50% to 9.00% range. Using 1996
budgeted balance sheet levels, current model projections indicate that up
to a 100-basis-point change in market interest rates will impact net
interest income by less than one percent when compared to a stable rate
environment.
While average earning assets in 1995 grew by $954,255,000 or 7.1% when
compared with 1994, average loans grew by 13.5%. This growth was partially
funded by a decline of 13.4% in short-term investments, a contraction of
5.7% in the investment portfolio, increased usage of a bank note program,
higher Federal Home Loan Bank advances and more aggressive pricing and
solicitation of retail certificates of deposit. As loan demand increased,
the ratio of average loans to earning assets grew to 71.55% in 1995
compared with 67.52% in 1994 and 65.59% in 1993, and since loans are the
highest yielding earning asset, this shift in mix somewhat aided the net
interest rate margin.
There were also changes in the mix of deposits; in the higher 1995
interest rate environment, consumer funds invested in savings, interest
bearing demand and money market accounts moved into higher-yielding retail
certificates of deposit, thereby lengthening contractual liability
maturities and raising the cost of those funds. Average core deposits
increased by .5% and represented 91.41% of total deposits compared with
93.16% a year ago and 93.98% in 1993. Average retail certificates of
deposit, the largest and a more costly source of core funds, grew by 8.4%
and represented 39.99% of total core deposits versus 37.09% in 1994 and
38.95% in 1993.
Average shareholders' equity grew by 12.9%, providing the Corporation's
banks with a supplemental source of non-interest bearing funds, as
non-interest bearing deposit volumes contracted by 2.2% in 1995 following
a 3.0% decline in 1994.
The subsequent discussions on liquidity and interest rate sensitivity,
deposits, securities and loans further detail the changes in net interest
income and the net interest rate margin for the years 1995, 1994 and 1993.
LIQUIDITY
Mercantile's Asset/Liability Management Committee meets regularly to
formulate guidelines for and to monitor the composition of assets and
liabilities. Its objective is to meet earnings goals by producing the
optimal yield and maturity mix consistent with interest rate expectations
and projected liquidity needs within the constraints of capital levels.
Key to these goals is liquidity management, which ensures Mercantile has
ready access to sufficient funds at reasonable rates to meet both existing
commitments and future financial obligations. Liquidity management also is
necessary to withstand fluctuations in deposit levels and to provide for
customers' credit needs in a timely and cost-effective manner. Liquidity
management is viewed from a long-term and short-term perspective, as well
as from a liability and asset perspective.
Long-term liquidity is a function of a strong capital position and a
large core deposit base. Growth and stability of both of these components
form the foundation for Mercantile's long-term liquidity strength.
Short-term liquidity needs arise from the continuous fluctuations in the
flow of funds on both sides of the balance sheet, and to a lesser extent
from seasonal and cyclical customer demands.
The most important source of liquidity for Mercantile is liability
liquidity, which is the ability to raise new funds and renew maturing
liabilities in a variety of markets. The most critical factor in assuring
liability liquidity is the maintenance of confidence in Mercantile by
suppliers of funds. The Corporation has a current liability position in
line with established strategic objectives. Certain of these objectives
emphasize significant core deposit funding of subsidiary banks, corporate
and subsidiary performance goals, and capital positions well in excess of
regulatory guidelines.
A prime example of liability liquidity was a transaction structured in
the fourth quarter of 1994, whereby five of the larger Mercantile banks,
led by Mercantile Bank of St. Louis N.A., initiated a $1 billion bank note
program. Through this program, bank notes can be sold to institutional
investors at various maturities, and with fixed or floating rates of
interest, depending on the liquidity and interest sensitivity needs of the
Corporation. Borrowings at December 31, 1995 under the program totaled
$250,000,000. The Corporation also has added significant access to the
Federal Home Loan Bank for funds at a wide range of maturities.
Asset liquidity is typically provided through the maturities of various
assets, the net cash flow of fee-based businesses, the ability to convert
quality loans and maturing investments into cash, the availability of
proceeds from the sale of investment securities classified as
available-for-sale, and the utilization of securities as collateral in
repurchase agreements.
19
<PAGE> 20
FINANCIAL COMMENTARY
A prime example of asset liquidity was a transaction structured in the
second quarter of 1995, in which $400,000,000 of Mercantile MasterCard(R)
and VISA(R) credit card loans were securitized, thereby removing them and
the need to fund them from the balance sheet. Future asset securitizations
are possible if 1996 loan growth projections are attained. Another example
of asset liquidity was the sale of $225,000,000 of adjustable-rate
mortgages in December 1995, and if certain mortgages generated in 1996
exceed internal policy limits, they also could be sold.
The reputation of Mercantile Bank of St. Louis N.A., as well as its
financial strength and numerous long-term customer relationships, enable
it to raise funds as needed in various markets. Historically, these funds
have been purchased locally, nationally and internationally in the federal
funds market and via large certificates of deposit and Eurodollar
transactions, capitalizing on relationships maintained with investment
banks, money center banks and money market funds.
On January 2, 1996, Mercantile completed the acquisition of Hawkeye
Bancorporation, the largest acquisition in its history. This transaction
is expected to further strengthen the liquidity position of Mercantile as
Hawkeye is significantly funded by core deposits.
At December 31, 1995, the Parent Company held $63,048,000 in cash,
liquid money market investments and available-for-sale securities. The
Parent Company's routine cash requirements consist primarily of operating
expenses, dividends to shareholders, principal and interest payments on
debt, and funds used in acquisitions accounted for as purchases. Operating
expenses are funded by subsidiary bank management fees, while shareholder
dividends and debt service are satisfied by quarterly subsidiary bank
dividends. The Parent Company also borrows funds in the commercial paper
market, which are in turn lent to subsidiaries, and it also has access to
long-term capital markets. Maintaining favorable debt ratings is critical
to liquidity as these ratings affect the availability and cost of funds to
the Corporation. These public ratings are indicated in the Investor
Information summary on Page 58.
Net cash provided by operating activities for the Corporation in 1995
was $215,910,000. Net income of $216,835,000 largely accounted for the net
cash provided by operating activities. Net cash provided by investing
activities was $149,488,000 in 1995. The largest component of cash
provided by investing activities was the proceeds from maturities of
investment securities, which totaled $1.2 billion. Net cash used for
financing activities in 1995 was $84,108,000. As disclosed, $400,000,000
of cash was provided to Mercantile via the credit card securitization
transaction in May 1995. That cash ultimately reduced short-term borrowed
funds.
INTEREST RATE SENSITIVITY
Interest sensitivity is related to liquidity, as each is affected by
maturing assets and sources of funds. Interest sensitivity, however, also
takes into consideration those assets and liabilities with interest rates
which are subject to change prior to maturity. The objective and primary
focus of interest sensitivity management is to optimize earnings results,
while managing, within internal policy constraints, interest rate risk.
Mercantile's policy on rate sensitivity is to manage exposure to potential
risks associated with changing interest rates by maintaining a balance
sheet posture in which annual net interest income is not significantly
impacted by unexpected changes in interest rates. The total absence of
risk, as well as excessive risk, will result in less than acceptable
returns; therefore, Mercantile manages its interest sensitivity risk
between those two extremes.
Interest rate risk at a given point in time can be represented by an
interest rate sensitivity position ("gap"). Exhibit 4 presents a summary
balance sheet at December 31, 1995 with an interest rate gap analysis that
shows the difference between the amount of assets and liabilities maturing
or subject to repricing in given time periods. The cumulative gap
represents the net position of assets and liabilities subject to repricing
over specified time periods. A static gap report is one measure of the
risk inherent in the existing balance sheet structure as it relates to
potential changes in net interest income, and it indicates that the
Corporation maintained a relatively balanced position at December 31,
1995. Because that portrayal does not capture many of the factors which
determine interest rate risk, Mercantile places more emphasis on the use
of sophisticated models to measure changes in net interest income which
might occur due to changes in interest rates. Using future balance sheet
trends and different patterns of rate movements, these projections enable
the Corporation to adjust its strategies to protect the net interest rate
margin against significant interest rate fluctuations. Uniform sensitivity
reports and guidelines are used by all subsidiary banks.
The Corporation has been successful in meeting its interest sensitivity
objectives, primarily by adjusting the interest rate maturities of its
assets and liabilities, and not through the use of various
off-balance-sheet instruments such as derivatives. However, Mercantile
currently is carefully building its capability to use basic derivative
products to better manage interest rate risk.
Current model projections indicate that annual net interest income
would change by less than one percent should rates rise or fall within 100
basis points from their current level. The year-end 1995 gap report shows
a negative interest sensitivity gap position. This would indicate that net
interest income would generally be enhanced in a declining rate
environment and if rates rose net interest income would be somewhat
negatively impacted. However, the results of the simulation models show
that the Company's position is just the opposite. Net interest income
would be enhanced by rising interest rates and slightly diminished by a
further decline in rates. In either case, the impact would be small and
management believes the Corporation is appropriately positioned for
subsequent rate movements in the current economic environment.
20
<PAGE> 21
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit 4
INTEREST RATE SENSITIVITY
December 31, 1995
--------------------------------------------------------------------------------
Total
1-3 4-6 7-12 One Year Over
(Dollars in millions) Variable Rate Months Months Months or Less One Year Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases<F1> $ 1,670 $ 2,736 $ 925 $1,570 $6,901 $3,541 $10,442
Investments in debt and equity securities 4 396 223 495 1,118 2,677 3,795
Short-term investments 145 51 -- -- 196 -- 196
--------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets $ 1,819 $ 3,183 $ 1,148 $2,065 $8,215 $6,218 $14,433
================================================================================================================================
ACQUIRED FUNDS
Interest bearing core deposits<F2> $ 2,424 $ 961 $ 956 $1,208 $5,549 $3,511 $9,060
Purchased deposits 20 518 218 150 906 156 1,062
Short-term borrowings 1,319 337 74 18 1,748 -- 1,748
Bank notes -- 250 -- -- 250 -- 250
Long-term debt -- 10 -- -- 10 289 299
Net effect of credit card securitization -- 188 -- -- 188 (188) --
--------------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Acquired Funds 3,763 2,264 1,248 1,376 8,651 3,768 12,419
Non-interest bearing deposits<F2> 245 -- -- -- 245 1,607 1,852
--------------------------------------------------------------------------------------------------------------------------------
Total Acquired Funds $ 4,008 $ 2,264 $ 1,248 $1,376 $8,896 $5,375 $14,271
================================================================================================================================
GAP ANALYSIS
Interest sensitivity gap $(2,189) $ 919 $ (100) $ 689 $ (681)
================================================================================================================================
Cumulative interest sensitivity gap $(2,189) $(1,270) $(1,370) $ (681)
================================================================================================================================
Cumulative ratio of interest-sensitive assets
to interest-sensitive liabilities 0.45 0.80 0.82 0.92
================================================================================================================================
<FN>
<F1> Non-accrual loans are reported in the "Over 1 Year" category.
<F2> Mercantile's experience with interest bearing demand, money market
accounts, savings and non-interest bearing deposits has been that,
although these deposits are subject to immediate withdrawal or
repricing, a portion of the balances has remained relatively constant
in periods of both rising and falling rates. Therefore, a portion of
these deposits is included in the "Over 1 Year" category. If these
deposits were all included in the "Total 1 Year or Less" category, the
cumulative ratio of interest-sensitive assets to interest-sensitive
liabilities would be .65.
</TABLE>
21
<PAGE> 22
FINANCIAL COMMENTARY
<TABLE>
<CAPTION>
Exhibit 5
DEPOSITS
December 31
-----------------------------------------------------------------------------------
(Thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-interest bearing $ 1,852,080 $ 1,763,439 $ 1,928,441 $ 1,694,148 $ 1,537,715
Interest bearing demand 1,882,880 1,922,538 1,915,602 1,758,853 1,248,571
Money market accounts 1,730,473 1,604,839 1,826,441 1,858,669 1,409,231
Savings 884,831 946,973 1,040,470 917,987 669,672
Consumer time certificates under
$100,000 4,523,668 4,016,600 4,160,680 4,583,532 4,495,078
Other time 38,742 38,717 35,438 123,669 75,180
- ----------------------------------------------------------------------------------------------------------------------------------
Total Core Deposits 10,912,674 10,293,106 10,907,072 10,936,858 9,435,447
Time certificates $100,000 and over 852,604 677,009 665,352 672,792 761,864
Foreign 209,170 219,135 26,085 19,650 13,937
- ----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Deposits 1,061,774 896,144 691,437 692,442 775,801
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits $11,974,448 $11,189,250 $11,598,509 $11,629,300 $10,211,248
==================================================================================================================================
</TABLE>
DEPOSITS
Deposits are the primary funding source for the Corporation's banks and
are acquired from a broad base of local markets, including both individual
and corporate customers. Total deposits at December 31, 1995 were $12.0
billion, a 7.0% or $785,198,000 increase from the $11.2 billion of a year
ago, as deposits of $715,559,000 were added in the Wedge, AmeriFirst,
Southwest and Plains Spirit Financial Corporation ("Plains Spirit")
transactions. On average, total deposits grew by $285,147,000 or 2.5%, and
most of that growth was likewise due to the four transactions mentioned
above. Exhibit 5 details the components of the Corporation's deposit mix
for the past five years.
Core deposits remain Mercantile's largest, most reliable and most
important funding source. Core deposits include both interest bearing and
non-interest bearing demand deposits, money market and savings deposits,
consumer certificates of deposit under $100,000 and other time deposits.
Average core deposits grew by .5% in 1995 and represented 76.06% of
earning assets compared with 81.06% last year and 85.00% in 1993. While
the trend is negative, Mercantile remains substantially core funded, and
the ratio should increase in 1996 as the acquisitions noted in Exhibit 3
are integrated.
Average non-interest bearing deposits decreased by $44,416,000 or 2.2%
in 1995. Average savings and interest bearing demand accounts declined by
$81,591,000 or 8.1% and $116,485,000 or 5.9%, respectively. Average money
market accounts declined by $120,021,000 or 6.8%. Some of these funds
shifted to retail certificates of deposit, which grew by $337,303,000 or
8.4%; others moved to Mercantile investment products such as the
proprietary ARCH mutual funds; and some left the Mercantile system. The
increase in retail certificates was due to their relative attractiveness
in a higher interest rate environment and a more aggressive pricing of
those deposits than had been in place in 1994 or 1993, when loan demand
was not as great.
Average certificates of deposit greater than $100,000 and foreign
branch deposits increased by 28.7% to $1.02 billion. Most of the large
domestic deposits were gathered from the local retail, commercial and
institutional customer base, which provides a natural access to purchased
funds and, accordingly, tends to be less volatile than other categories of
purchased funds. Exhibit 6 portrays the maturities of domestic time
deposits $100,000 and over.
<TABLE>
<CAPTION>
Exhibit 6
MATURITY OF DOMESTIC TIME DEPOSITS
$100,000 AND OVER
December 31, 1995
-------------------------------------------------
Certificates Other Time
(Thousands) of Deposit Deposits Total
--------------------------------------------------------------------------
<S> <C> <C> <C>
Three months or less $364,021 $13,506 $377,527
Over three through
six months 182,987 5,547 188,534
Over six through
twelve months 149,757 18,754 168,511
Over twelve months 155,839 -- 155,839
--------------------------------------------------------------------------
Total $852,604 $37,807 $890,411
==========================================================================
</TABLE>
SHORT-TERM BORROWED FUNDS AND
SHORT-TERM INVESTMENTS
Short-term borrowings are an alternative to other funding sources, such as
large certificates of deposit and Eurodollar deposits, and consist
primarily of federal funds purchased, treasury tax and loan note option
accounts, securities sold under agreements to repurchase, short-term
Federal Home Loan Bank advances and commercial paper. These sources of
funding are utilized primarily by Mercantile Bank of St. Louis N.A. and
volumes are monitored by the Asset/Liability Management Committee. As a
major bank in the Midwest with a significant correspondent bank network
and corporate account base, Mercantile Bank of St. Louis N.A. purchases
excess funds from correspondent banks and borrows on a short-term basis
from commercial customers. Accordingly, some of Mercantile's short-term
borrowings can be considered a stable source of funds, similar to core
deposits. Depending on funding requirements and liquidity strategies
employed by the Asset/Liability Management Committee, these funds are
either used internally or redeployed as short-term investments.
Average short-term borrowed funds increased by $343,416,000 or 29.0%
during 1995, while average short-term investments declined by $35,668,000
or 13.4%. These funding changes were in line with the growth in loans,
liquidity goals and balance sheet management strategies that were
consistent with the strategies employed in prior years.
Short-term investments include interest bearing deposits, federal funds
sold and securities purchased under agreements to resell. The declining
volume since 1993 was utilized primarily to fund loan growth.
22
<PAGE> 23
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit 7
REGULATORY CAPITAL
December 31
-----------------------------------------------------------------------------------
(Thousands) 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier I capital $ 1,330,697 $ 1,173,137 $ 1,042,778 $ 916,962 $ 734,883
Tier II capital 364,755 352,198 342,496 377,648 166,862
-------------------------------------------------------------------------------------------------------------------------------
Total Risk-based Capital $ 1,695,452 $ 1,525,335 $ 1,385,274 $ 1,294,610 $ 901,745
===============================================================================================================================
Risk-adjusted assets $11,056,695 $10,032,372 $ 9,246,050 $ 8,958,911 $ 8,438,366
===============================================================================================================================
Quarterly average tangible assets $15,694,179 $14,632,026 $14,226,933 $14,069,674 $12,105,051
===============================================================================================================================
</TABLE>
CAPITAL RESOURCES
Consistent with the objective of operating a premier banking organization,
Mercantile maintains a strong capital base which provides a solid
foundation for anticipated future asset growth and promotes depositor and
investor confidence. Capital management is a continuous process at
Mercantile, and ensures that capital is provided for current needs and
anticipated growth. Mercantile's capital position has enabled it to
profitably expand its balance sheet, while maintaining capital ratios
stronger than those of other quality banking organizations, and well in
excess of regulatory standards. It is expected that the Corporation's
capital ratios will not be significantly impacted by the January 2, 1996
merger with Hawkeye Bancorporation.
Mercantile continued to strengthen its capital position during 1995, as
shareholders' equity grew to $1.45 billion, an increase of 17.5% from last
year-end. Net earnings retained, the conversion of capital notes to
equity, a favorable change in the Financial Accounting Standard ("FAS")
115 adjustment and stock issued in the Wedge, Southwest, AmeriFirst and
Plains Spirit transactions and under various employee benefit plans,
partially offset by treasury stock purchases, accounted for the majority
of the increase. Equity grew to 9.10% of assets at December 31, 1995
compared with 8.34% a year ago. Exhibits 7 and 8 detail significant
capital information for the past five years.
Due to the strength of the capital base at the individual bank
subsidiaries, approximately $347,100,000 was available for distribution
through dividends to the Parent Company without prior regulatory approval
and without reducing the capital of the respective subsidiary banks below
present minimum standards. An additional $127,223,000 would be available
in the form of loans to the Parent Company under current regulations. This
strong capital base allowed the Corporation in 1995 to purchase 2,064,600
shares of its common stock in the open market at an average price of
$41.40 to be reissued in conjunction with employee benefit plans and for
acquisition purposes.
The Parent Company's double leverage ratio, which measures the extent to
which the equity capital of its subsidiaries is supported by Parent
Company debt rather than equity, remained relatively constant at 107.67%.
Intangible assets, which consisted largely of goodwill, totaled
$89,334,000 at December 31, 1995 compared with $76,172,000 a year ago, and
$86,255,000 at December 31, 1993. Long-term debt has been at the same
level since December 31, 1993, yet continues to decline as a percentage of
total capitalization. No significant amount of debt is scheduled to mature
before 1999.
Book value per common share at December 31, 1995 was $26.33 compared
with $23.47 at the prior year-end, an increase of 12.2%. The equity
formation rate (defined as net income less dividends divided by average
equity) increased to 10.63% in 1995 from 9.62% in 1994. Cash dividends
totaling $1.32 per common share were declared and paid during 1995, a
17.9% increase from last year's total of $1.12. In addition, on February
8, 1996, the quarterly dividend payable April 1, 1996 was increased 24.2%
to $.41 per common share. Additional data relating to Mercantile's common
stock is included in the Investor Information summary on Page 58 of this
report.
Management has established financial objectives designed to monitor
future capital needs. Mercantile's dividend policy is influenced by the
belief that most shareholders are interested in long-term performance as
well as current yield. The current dividend payout level is considered
reasonable given the Corporation's present cash flow position, level of
earnings, capital position and the strength of its subsidiary banks'
capital. Future dividends will be determined based on Mercantile's results
of operations, growth expectations, financial condition, regulatory
constraints and other factors deemed relevant by the Board of Directors.
<TABLE>
<CAPTION>
Exhibit 8
CAPITAL RATIOS
December 31
-------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier I capital to risk-adjusted assets 12.04% 11.69% 11.28% 10.24% 8.71%
Total capital to risk-adjusted assets 15.33 15.20 14.98 14.45 10.69
Leverage 8.48 8.02 7.33 6.52 6.07
Equity to assets
Consolidated 9.10 8.34 7.85 7.02 6.50
Combined bank subsidiaries 8.75 8.27 8.08 7.29 6.49
Double leverage 107.67 107.68 111.00 112.68 97.87
Long-term debt to total capitalization 17.10 19.48 20.27 23.73 21.12
=======================================================================================================================
</TABLE>
23
<PAGE> 24
FINANCIAL COMMENTARY
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Mercantile's investment portfolio serves three important functions. First,
it is a vehicle for adjusting balance sheet rate sensitivity and
protecting against the impact of changes in interest rate movements by
managing the purchases and maturities of securities; second, it is a means
for investment of excess funds, depending on loan demand; and, third, the
available-for-sale securities provide potential immediate liquidity. The
investment portfolio is structured to maximize the return on invested
funds within acceptable interest rate risk guidelines and to meet pledging
requirements, while giving consideration to loan demand, credit risk,
future liquidity needs, balance sheet strategies and the outlook for
trends in interest rates.
After loans, securities are the largest category of earning assets.
During 1995, average securities represented 26.84% of earning assets
compared with 30.48% for 1994 and 31.62% for 1993. Investment securities
totaled $3.80 billion at December 31, 1995 compared with $3.84 billion at
December 31, 1994, a decrease of 1.3%. As loan demand increased, the
overall size of the portfolio was reduced to partially accommodate those
funding needs.
<TABLE>
<CAPTION>
Exhibit 9
INVESTMENTS IN DEBT AND EQUITY SECURITIES<F1>
December 31
----------------------------------------------
(Thousands) 1995 1994 1993
------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVAILABLE FOR SALE
(estimated fair value)<F2>
US government $3,188,988 $ 348,718 $ 361,047
State and political
subdivisions
Tax-exempt 364,119 12,714 15,173
Taxable 130,215 -- --
------------------------------------------------------------------------------------
Total 494,334 12,714 15,173
Other 108,361 54,627 43,536
------------------------------------------------------------------------------------
Total $3,791,683 $ 416,059 $ 419,756
====================================================================================
HELD-TO-MATURITY
(amortized cost)<F2>
US government $ -- $2,849,318 $3,121,831
State and political
subdivisions
Tax-exempt -- 372,641 378,531
Taxable -- 157,992 101,852
------------------------------------------------------------------------------------
Total -- 530,633 480,383
Other -- 33,191 142,378
------------------------------------------------------------------------------------
Total $ -- $3,413,142 $3,744,592
====================================================================================
<FN>
<F1> This exhibit excludes trading securities, which are reported at
estimated fair value on the Consolidated Balance Sheet. Trading
securities totaled $3,677,000, $14,299,000 and $15,735,000 at December
31, 1995, 1994 and 1993, respectively.
<F2> In December 1995, the Corporation reclassified approximately $3
billion in held-to-maturity securities to the available-for-sale
category, as allowed by the Financial Accounting Standards Board in a
Special Report dated November 1995.
</TABLE>
On December 31, 1993, Mercantile adopted FAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." FAS 115 requires investment
securities be classified into three categories: trading,
available-for-sale and held-to-maturity. Throughout 1994 and 1995,
Mercantile classified the vast majority of its investment securities as
held-to-maturity. In November 1995, the Financial Accounting Standards
Board issued "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities, Questions and Answers."
That publication allowed for a one-time redesignation of securities
between categories. In December 1995, the Corporation, with approval from
its Asset/Liability Management Committee, redesignated the entire
held-to-maturity portfolio as available-for-sale and transferred
approximately $3.0 billion of securities to that category. This decision
does not necessarily indicate a change in portfolio strategy, but rather
is a move to provide Mercantile with greater flexibility to manage the
portfolio. This change will have no impact on regulatory capital. Note E
to the Consolidated Financial Statements provides a detailed breakout of
the components of the investment portfolio for the past three years.
The year-end available-for-sale investment portfolio was composed of
84.10% in U.S. Treasury and other government agency securities, including
26.67% in mortgage-related issues, 13.04% in state and municipal
securities, and 2.86% consisted of other miscellaneous securities,
primarily private-label collateralized mortgage obligations. The
comparable distribution for the combined available-for-sale and
held-to-maturity securities at year-end 1994 were 83.52%, 14.19% and
2.29%, respectively.
The average stated maturity of the overall portfolio lengthened at the
end of 1995 to two years and nine months from two years at year-end 1994
and two years and two months at December 31, 1993. Securities assumed in
1995 mergers largely accounted for the longer maturity. Purchased
securities were generally added with maturities of two to four years to
match the expected average maturity of retail deposits, and to help manage
the projected interest sensitivity position of the Corporation. The
overall tax-equivalent yield of the portfolio increased during 1995 to
6.16% from 5.81% in 1994, due to both higher interest rates and a steady
volume of maturing securities.
Mercantile's commitment to its expanding region continued to be
reflected by the holdings of securities of Missouri, Arkansas, Illinois,
Kansas and Iowa and their local governmental units, although securities of
many other states were also held in the portfolio. At December 31, 1995,
investments in securities of those five states and their political
subdivisions amounted to approximately 39% of total tax-exempt securities.
However, securities of any one single political subdivision in any of
these states did not exceed .90% of shareholders' equity at December 31,
1995. Outside of those five states, securities of no single issuer
exceeded 1.23% of shareholders' equity.
Approximately 70% of the state and municipal securities held at
December 31, 1995 were rated A or higher by Moody's Investors Service. Of
the remaining securities, most were non-rated bonds due to the smaller
size of the issues and the expense associated with obtaining a rating.
These bonds generally represented local issues purchased by subsidiary
banks, which are evaluated internally for creditworthiness on an ongoing
basis, similar to loans.
24
<PAGE> 25
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
LOANS
Loans are the primary earning asset of the Corporation and were $10.4
billion at December 31, 1995, up $771,601,000 or 8.0% from year-end 1994.
This growth follows an 11.1% increase in 1994 over 1993. The vast majority
of the Corporation's loans are extended in its natural trade areas, which
now includes five states.
Affecting the loan growth figures from year-to-year is the $365,000,000
of loans acquired in the Wedge, AmeriFirst and Southwest transactions.
These acquisitions were accounted for as poolings-of-interests, yet no
restatement of prior year figures was made due to immateriality. There
also were $276,000,000 of loans added in July 1995 in the Plains Spirit
acquisition that was accounted for as a purchase. Offsetting these
additions was a sale of $225,000,000 of residential mortgage loans in
December 1995 and the $400,000,000 in credit card loans that were
securitized in May 1995. Thus 7.8% is the internal loan growth for the
year 1995.
Mercantile's diversified loan portfolio spreads the risk and reduces
exposure to economic downturns that may occur in different segments of the
economy or in different industries. At December 31, 1995, the portfolio
was 44.34% commercial and 55.66% consumer-related, compared with 43.78%
and 56.22% at December 31, 1994. Note M provides more details on
concentrations of credit and the overall loan portfolio. The portfolio mix
has undergone a favorable shift in recent years as business development
efforts have focused on expanding middle-market commercial and consumer
loans. Lower-risk residential mortgage loans are the dominant asset,
comprising nearly one-third of the loan portfolio. This shift has been
complemented by consumer and middle-market portfolios added in mergers.
The 1995 average loan to deposit ratio for the Corporation was 85.98%
compared with 77.60% and 72.52% in 1994 and 1993, respectively. Exhibit 10
portrays the composition of the loan portfolio for the past five years.
During 1995, commercial loans averaged $2.53 billion, which represented
a growth rate of 9.8% following growth of 4.6% in 1994. The growth was
across the system with notable increases recorded in the first half of
1995 followed by stable volumes for the last six months of the year.
Average commercial real estate mortgage and construction loans
increased by 10.1% following a slight 3.7% growth in 1994. Commercial
mortgage and construction loans held by Mercantile Bank of St. Louis N.A.
represented 22.66% of the portfolio, with the rest relating largely to
smaller owner-occupied projects in Missouri, Illinois, Arkansas, Kansas
and Iowa originated by the Corporation's other banks. Particularly strong
growth was experienced in Kansas City. Commercial real estate loans are
generally secured by the underlying property at a 75% to 80%
loan-to-appraised value, and are typically supported by guarantees from
the project developers. Additional collateral may be taken as deemed
necessary.
For 1995, average residential real estate mortgage loan volume grew by
21.2% following no growth in 1994, and during 1995 represented 33.87% of
the total loan portfolio. The integration of the Mercantile Bank of St.
Louis N.A. and United Postal Savings Association mortgage operations in
late 1994 significantly added market power in St. Louis during 1995. Also,
higher interest rates in that period led customers to switch from
fixed-rate loans, which were sold, to adjustable-rate loans that were held
in the loan portfolio. That growth was tempered later in the year as
interest rates declined. Residential mortgage loans added from the four
acquisitions mentioned above totaled $511,000,000, which was partially
offset by the sale of $225,000,000 in December 1995. Mercantile currently
services a residential real estate loan portfolio of $5.3 billion. The
mortgage operations of the 1996 acquired entities will further add to
Mercantile's servicing portfolio and loan production potential as they are
integrated in 1996.
Average consumer loans increased 14.9% during 1995 following growth of
18.2% in 1994. The growth was primarily in the Community Bank and Kansas
City Area markets.
Average credit card loan volume was flat when compared with 1994, after
growing 12.9% in 1994. If the $400,000,000 of credit card loans that were
securitized during May 1995 are included, average loan volume grew by
34.4% from 1994. The SBC co-branded portfolio totaled $433,588,000 at
December 31, 1995 and averaged $171,705,000 for the year. The core
Mercantile MasterCard(R) and VISA(R) portfolio increased on average by
$87,427,000 during 1995 if the securitization were excluded. The
Corporation centralized its credit card operations at Mercantile Bank of
Illinois N.A. during early 1995. Participations to other Mercantile
affiliates are still made as deemed appropriate.
<TABLE>
<CAPTION>
Exhibit 10
LOAN AND LEASE PORTFOLIO MATURITIES<F*>
One to Five Years Over Five Years
------------------ ---------------- December 31
Under Fixed Floating Fixed Floating -----------------------------------------------
(Millions) One Year Rate Rate Rate Rate 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,001 $ 611 $ 451 $ 340 $ 157 $ 2,560 $2,354 $2,158 $2,219 $2,171
Real estate-
commercial 559 508 379 152 208 1,806 1,580 1,452 1,501 1,323
Real estate-
construction 146 40 47 18 13 264 300 282 265 258
Real estate-
residential 269 226 82 511 2,370 3,458 3,109 2,897 2,853 2,652
Consumer 303 1,012 96 97 5 1,513 1,482 1,150 1,077 994
Credit card -- 324 517 -- -- 841 845 763 610 483
-----------------------------------------------------------------------------------------------------------------------------
Total Loans
and Leases $2,278 $2,721 $1,572 $1,118 $2,753 $10,442 $9,670 $8,702 $8,525 $7,881
=============================================================================================================================
<FN>
<F*>Non-accrual loans are reported at contractual maturities and rates.
</TABLE>
25
<PAGE> 26
FINANCIAL COMMENTARY
The overall tax-equivalent yield of the loan portfolio increased by 48 basis
points to 8.90% in 1995. As shown in Exhibit 10, which portrays the maturity
and interest sensitivity of the portfolio, 63.24% of loans were priced at
floating rates or maturing within one year.
RISK MANAGEMENT AND THE RESERVE FOR
POSSIBLE LOAN LOSSES
The underlying objectives of Mercantile's credit management are to
identify and manage credit exposure and to support the growth of a
profitable and high quality loan portfolio. At Mercantile, these functions
are performed centrally by corporate Credit Administration, which provides
management with extensive information on risk levels, trends,
delinquencies, portfolio concentrations and internal ratings. Credit
Administration includes corporate Credit Policy, approval of large credits
and corporate Credit Review. At Mercantile Bank of St. Louis N.A., Credit
Administration also provides special asset teams that promptly concentrate
on identified problem loans and workout situations when necessary, as well
as the management of foreclosed property. Mercantile utilizes a
lender-initiated system of rating credits which is subsequently tested by
Credit Review, external auditors and bank regulators. Adversely-rated
credits are included on a watch list, and are reviewed at the bank level
and centrally at least on a quarterly basis.
The reserve for possible loan losses represents the aggregate reserves
of the Corporation's banking subsidiaries, and at December 31, 1995 was
$179,055,000 compared with $194,515,000 at the end of 1994. Loans
outstanding increased by 8.0%, which resulted in a year-end 1995 ratio of
the reserve for possible loan losses to outstanding loans of 1.71%
compared with 2.01% at December 31, 1994. The reserve as a percentage of
non-performing loans was 227.71% compared with 579.62% last year. The 1995
levels are reasonable considering that the risk profile has been lessened
due to growth in low-risk residential mortgage loans and the removal of
$400,000,000 of credit card loans from the balance sheet via the
securitization.
<TABLE>
<CAPTION>
Exhibit 11
RESERVE FOR POSSIBLE LOAN LOSSES
Year Ended December 31
----------------------------------------------------------------------------
(Dollars in Thousands) 1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE $ 194,515 $ 184,836 $ 178,735 $ 157,842 $ 159,460
PROVISION 34,726 43,201 63,513 77,874 62,360
CHARGE-OFFS
Commercial 6,727 5,167 17,813 23,547 20,715
Real estate-commercial 6,531 7,573 30,741 35,816 27,493
Real estate-construction 258 2,171 344 1,491 1,660
Real estate-residential 1,950 4,797 2,173 2,471 1,737
Consumer 9,864 5,655 5,340 7,189 8,254
Credit card 42,358 41,238 30,915 20,642 21,530
----------------------------------------------------------------------------------------------------------------
Total Charge-offs 67,688 66,601 87,326 91,156 81,389
RECOVERIES
Commercial 2,968 8,610 11,797 5,752 6,415
Real estate-commercial 3,558 16,026 4,497 3,234 712
Real estate-construction 151 248 682 154 485
Real estate-residential 714 594 512 1,317 296
Consumer 2,740 2,608 2,562 2,833 1,841
Credit card 5,364 4,481 3,463 2,514 1,521
Foreign 258 65 930 383 1,216
----------------------------------------------------------------------------------------------------------------
Total Recoveries 15,753 32,632 24,443 16,187 12,486
----------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 51,935 33,969 62,883 74,969 68,903
Acquired Reserves 13,749 447 5,471 17,988 4,925
Transfer to Mercantile Credit Card
Master Trust (12,000) -- -- -- --
----------------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 179,055 $ 194,515 $ 184,836 $ 178,735 $ 157,842
================================================================================================================
LOANS AND LEASES
December 31 balance $10,441,579 $9,669,978 $8,702,332 $8,525,435 $7,881,005
================================================================================================================
Average balance $10,249,376 $9,028,909 $8,571,303 $8,420,476 $7,728,731
================================================================================================================
RATIOS
Reserve balance to outstanding
loans 1.71% 2.01% 2.12% 2.10% 2.00%
Reserve balance to non-performing
loans 227.71 579.62 278.23 147.60 105.33
Net charge-offs to average loans .51 .38 .73 .89 .89
Earnings coverage of net charge-offs 7.04x 9.22x 4.65x 3.42x 2.46x
----------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
In 1995, the provision for possible loan losses decreased by $8,475,000 or
19.6% to $34,726,000 compared with $43,201,000 last year. The provision is
the annual cost of providing a reserve for anticipated future loan losses.
In any accounting period, the amount of provision is dependent upon many
factors, including loan growth, net charge-offs, changes in the
composition of the loan portfolio, delinquencies, management's assessments
of loan quality, general economic factors and collateral values.
The ratio of net charge-offs to average loans for 1995 was .51%
compared with .38% in 1994. The actual net charge-off figures were
$51,935,000 and $33,969,000, respectively. Net charge-offs for 1995
consisted primarily of credit card net losses of $36,994,000 and
write-downs taken on commercial real estate credits relating to loans
acquired in 1994 or 1995 acquisitions. In 1994, recoveries of $13,841,000
were received on several commercial real estate loans, thereby lowering
net charge-offs. Exhibit 11 provides the details of charge-offs and
recoveries for the past five years.
Credit card losses were 4.87% of average credit card loans for 1995
compared with 4.89% in 1994. By credit policy, losses are taken after six
cycles of non-payment or notice of personal bankruptcy, if earlier. Losses
on the securitized credit cards are excluded from these figures as they
reduce excess servicing fees which are in other income. Including
charge-offs on the securitized loans, credit card loan losses trended
upward in 1995 and averaged 5.79% of the total managed portfolio for the
year.
The Corporation evaluates the reserves of all banks on a quarterly
basis to ensure the timely charge-off of loans and the adequacy of each
bank's reserve for possible loan losses. This review is performed by each
bank preliminarily, and is validated by both corporate Credit Review and
the Chief Credit Officer. Factors considered in determining reserve
adequacy include: volumes and trends in delinquencies and non-performing
loans; specific loan ratings and outstandings; historical and projected
loss experience based on volumes and types of loans; the results of
independent internal loan ratings or external credit reviews; industrial
or geographical concentrations; national, regional and/or specific
industry economic conditions; off-balance-sheet risk; and other subjective
factors.
Every significant problem credit is reviewed initially by the
respective bank, and a secondary review is performed quarterly to confirm
the risk rating, proper accounting and adequacy of both strategy and the
loan loss reserve. In addition to specific allocations, reserve
allocations are made based on percentage guidelines for all
individually-rated loans, whether criticized or not. Additionally,
allocations are made for unrated loans, such as residential mortgage,
credit card and other consumer loans, based on historical loss experience
adjusted for portfolio activity and current economic trends. These
allocated reserves are further supplemented by unallocated reserves in
each bank based on judgments regarding risk of error, local economic
conditions and any other relevant factors.
In Exhibit 12, the Corporation has estimated an allocation of the
reserve for possible loan losses to the various loan categories.
Consideration for making such allocations is consistent with the factors
discussed above and all of those factors are subject to change; thus the
allocation is not necessarily indicative of the loan categories in which
future losses will occur. The total reserve is available to absorb losses
from any portion of the loan portfolio. Management believes the December
31, 1995 consolidated reserve of 1.71% of total loans outstanding and
227.71% of non-performing loans was adequate based on the risks identified
at such date in the loan portfolio, and is not aware of any significant
risks in the loan portfolio due to concentrations within any particular
industry.
<TABLE>
Exhibit 12
ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES
<CAPTION>
1995 1994 1993 1992 1991
-------------------- ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Allocated Total Allocated Total Allocated Total Allocated Total Allocated Total
(Dollars in Thousands) Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 37,361 24.51 $ 27,358 24.35 $ 24,054 24.80 $ 33,002 26.02 $ 31,268 27.55
Real estate-
commercial 39,920 17.30 31,384 16.34 35,483 16.68 41,344 17.60 48,566 16.79
Real estate-
construction 3,854 2.53 3,132 3.10 2,208 3.24 4,922 3.11 5,935 3.27
Real estate-
residential 11,369 33.12 8,682 32.15 5,495 33.29 4,330 33.47 2,891 33.65
Consumer 8,324 14.49 9,966 15.32 7,437 13.22 9,519 12.64 7,921 12.61
Credit card 27,333 8.05 36,827 8.74 31,285 8.77 25,169 7.16 16,861 6.13
Unallocated 50,894 N/A 77,166 N/A 78,874 N/A 60,449 N/A 44,400 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $179,055 100.00 $194,515 100.00 $184,836 100.00 $178,735 100.00 $157,842 100.00
====================================================================================================================================
</TABLE>
27
<PAGE> 28
FINANCIAL COMMENTARY
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, renegotiated loans and
foreclosed property. A summary of these assets for the past five years is
presented in Exhibit 13. FAS 114, "Accounting by Creditors for Impairment
of a Loan," as amended by FAS 118, was adopted by the Corporation in the
first quarter of 1995. The new standard requires an impaired loan to be
measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate. By the Corporation's
definition, all non-accrual and renegotiated commercial-related loans are
considered impaired. As of December 31, 1995, impaired loans totaled
$56,731,000, for which the related reserve for possible loan losses was
$14,786,000. For 1995, the average recorded investment in impaired loans
was $36,477,000. The Corporation recognized $312,000 of interest income on
these impaired loans in 1995.
At year-end 1995, non-performing loans (non-accrual and renegotiated)
were $78,633,000 and represented .75% of total loans. Foreclosed assets at
December 31, 1995 were $12,435,000; the ratio of non-performing assets to
outstanding loans plus foreclosed assets was .87% at December 31, 1995. As
noted in Exhibit 13, non-accrual loans increased by $48,513,000 while
renegotiated loans declined by $3,439,000 and foreclosed property dropped
by $1,722,000.
Non-accrual loans are those for which, in the opinion of management, the
timely or ultimate collection of principal and/or interest is unlikely or
problematic. Note A to the Consolidated Financial Statements further
details the Corporation's policy on accounting for non-accrual loans. A
$16,500,000 unsecured loan to a St. Louis-based specialty retailer and a
$5,500,000 secured industrial revenue bond related to the same borrower
accounted for nearly half of the increase in non-accrual loans. Much of
the remaining increase came from loans that were reclassified to
non-accrual status following acquisition by Mercantile. Except for the one
specific borrower noted above, the Corporation had only four non-accrual
loans with balances exceeding $1,000,000, all of which were secured, and
none exceeded $4,500,000.
Renegotiated loans are those for which the terms have been restructured
beyond those available in the market, in order to aid the borrower by
providing a reduction or deferral of interest and/or principal.
Renegotiations usually result from a deterioration in the financial
condition of the borrower. Renegotiated loans have declined to $2,433,000
from $5,872,000 at year-end 1994. All loans classified as renegotiated
were paying in accordance with their modified terms.
Loans past due 90 days or more and still accruing interest were
$26,554,000 compared with $21,814,000 last year. This classification
<TABLE>
Exhibit 13
NON-PERFORMING ASSETS
<CAPTION>
December 31
-------------------------------------------------------------------
(Dollars in Thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
NON-ACCRUAL LOANS
<S> <C> <C> <C> <C> <C>
Commercial $38,110 $ 4,752 $ 13,194 $ 37,835 $ 39,774
Real estate-commercial 17,393 13,182 27,196 39,450 74,914
Real estate-construction 342 129 955 6,084 4,151
Real estate-residential 16,359 7,491 9,891 13,115 15,699
Consumer 3,996 2,133 2,139 2,978 1,671
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-accrual Loans 76,200 27,687 53,375 99,462 136,209
Renegotiated Loans 2,433 5,872 13,058 21,634 13,639
- -----------------------------------------------------------------------------------------------------------------------------------
Total Non-performing Loans $78,633 $33,559 $ 66,433 $121,096 $149,848
===================================================================================================================================
FORECLOSED ASSETS
Foreclosed real estate $ 9,794 $ 9,161 $ 20,490 $ 56,394 $ 66,607
In-substance foreclosures -- 2,683 20,108 5,522 19,289
Other foreclosed assets 2,641 2,313 1,199 3,237 4,874
- -----------------------------------------------------------------------------------------------------------------------------------
Total Foreclosed Assets $12,435 $14,157 $ 41,797 $ 65,153 $ 90,770
===================================================================================================================================
Total Non-performing Assets $91,068 $47,716 $108,230 $186,249 $240,618
===================================================================================================================================
Past-due Loans (90 days or more) $26,554 $21,814 $ 17,629 $ 13,592 $ 10,315
===================================================================================================================================
RATIOS
Non-performing loans to outstanding loans .75% .35% .76% 1.42% 1.90%
Non-performing assets to outstanding loans and foreclosed assets .87 .49 1.24 2.17 3.02
Non-performing assets to total assets .57 .32 .75 1.31 1.94
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 29
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<TABLE>
Exhibit 14
INTEREST NOT RECORDED ON NON-PERFORMING LOANS
<CAPTION>
December 31
-------------------------------------------------------------------
(Thousands except per common share data) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest not accrued $3,192 $2,812 $4,585 $8,917 $11,942
Less cash-basis income 260 368 230 494 2,198
- -----------------------------------------------------------------------------------------------------------------------------------
Effect on income before income taxes $2,932 $2,444 $4,355 $8,423 $ 9,744
===================================================================================================================================
Effect on net income $1,906 $1,589 $2,831 $5,559 $ 6,431
===================================================================================================================================
Effect on net income per common share $ .04 $ .03 $ .06 $ .12 $ .16
===================================================================================================================================
Interest collected applied to principal $1,242 $ 851 $2,984 $4,424 $ 2,738
===================================================================================================================================
</TABLE>
consisted largely of credit card loans and residential mortgage loans.
Credit card loans are fully charged off after six cycles or 180 days of
delinquency and losses on residential mortgage loans generally are
minimal.
The Corporation had $1,440,000 par value of investment securities at
December 31, 1995, 1994 and 1993 on non-accrual status. The carrying value
on these securities was reduced to $1,240,000 as of December 31, 1995.
Foreclosed assets declined to $12,435,000 at December 31, 1995 from the
1994 year-end level of $14,157,000, due primarily to sales. Foreclosed
assets consisted primarily of real estate and were recorded at the lower
of cost or fair value less estimated costs to sell. At year-end 1995, the
carrying values of all properties were less than appraised value and the
Corporation did not hold any properties with book values in excess of
$1,500,000.
"Potential problem loans" at December 31, 1995 amounted to $24,406,000.
These are defined as loans and commitments not included in any of the two
basic non-performing loan categories discussed above or 90 days past due
and still accruing interest, but about which management, through normal
internal credit review procedures, has developed information regarding
possible credit problems that could cause the borrowers future
difficulties in complying with present loan repayment terms. There were no
loans classified for regulatory purposes as loss, doubtful or substandard
that were not included above or which caused management to have serious
doubts as to the ability of such borrowers to comply with repayment terms.
In addition, there were no material commitments to lend additional funds
to borrowers whose loans were classified as non-performing.
OFF-BALANCE-SHEET RISK
In the normal course of business, there are various commitments and
contingent liabilities outstanding which are properly not recorded on the
balance sheet, such as letters of credit, commitments under operating
leases, commitments to extend credit and interest rate swaps. Many of
these arrangements are complementary to the loan and deposit products
which are accounted for on the balance sheet. The Corporation's activities
in foreign exchange, interest rate swaps, futures contracts and forward
commitments continue to be minimal. Mercantile offers these products as a
financial intermediary, yet at present it does not use financial
derivatives to manage its own interest rate exposure other than three
interest rate swaps with a notional value of $27,000,000 acquired in the
United Postal Bancorp., Inc. merger and $68,000,000 in forward delivery
contracts to hedge the fixed-rate production in the residential loan
pipeline. However, Mercantile currently is carefully building its
capability to use basic derivative products to better manage interest rate
risk.
Standby letters of credit and similar arrangements issued primarily to
support corporate obligations commit Mercantile to make payments on behalf
of customers contingent upon the occurrence of future specified events.
Standbys outstanding were primarily related to customer obligations, such
as industrial revenue financings, as well as other financial and
performance-related obligations. At December 31, 1995, the Corporation's
commitments under standbys aggregated approximately $304,684,000, with
$232,820,000 expiring within one year, $61,043,000 expiring within one to
five years and $10,821,000 expiring after five years.
At year-end 1995, Mercantile subsidiary banks had outstanding unused
loan commitments of $7.0 billion, including $4.5 billion in credit card
lines and $340,000,000 in home equity credit lines. The remaining
commitments were largely to commercial customers in Mercantile's primary
service area.
Management does not anticipate any losses that would materially affect
the financial position or results of operations of the Corporation as a
result of such commitments and contingent liabilities. Note N to the
Consolidated Financial Statements provides further discussion pertaining
to these off-balance-sheet activities and provides information as to the
estimated fair values of all financial instruments, including
off-balance-sheet financial instruments.
29
<PAGE> 30
FINANCIAL COMMENTARY
OTHER INCOME
Non-interest income for 1995 was $249,084,000, up $39,326,000 or 18.7%
from the $209,758,000 reported in 1994. This follows a decline of
$9,945,000 or 4.5% from 1993. Non-interest income as a percentage of
average assets was 1.61% compared with 1.44% in 1994 and 1.54% in 1993. As
shown in Exhibit 15, trust fees and other miscellaneous income both
improved from last year, while service charges, investment banking
revenue, mortgage banking income and credit card fees declined. Excess
servicing fees on the securitized credit card loans, or securitization
revenue, were $23,005,000 this year and net securities gains were
$3,932,000 in 1995 compared with $2,177,000 last year and $5,121,000 in
1993.
Trust fees were $65,788,000 and increased $5,019,000 or 8.3% from the
$60,769,000 reported in 1994, which declined 2.0% from the 1993 level.
Personal trust fees were the largest source of trust revenue, improving
significantly in the Affiliate Bank trust departments and at Mercantile
Trust Company N.A. in St. Louis. New business, selective fee increases and
a strong stock and bond market accounted for the growth in income.
Personal trust assets under management totaled $ 7.4 billion at December
31, 1995.
Trust income generated by Mississippi Valley Advisors Inc., the
investment management subsidiary of Mercantile Bank of St. Louis N.A.,
grew by 8.3% as fund management fees, new business and revenues from
investment services continued to meet growth objectives. Mississippi
Valley Advisors Inc. manages the eleven Mercantile proprietary mutual
funds--the ARCH Funds. These funds had assets of $2.265 billion at
December 31, 1995 compared with $1.675 billion at year-end 1994, a growth
of 35.2%. Fund results once again experienced good performance relative to
popular market indices and peer group comparisons.
Institutional and corporate trust service fees were down slightly when
compared with last year. At December 31, 1995, the Corporation held $14.9
billion in assets under investment management and $5.7 billion additional
assets under custodial relationships, increases of 24.2% and 23.9%,
respectively, from year-end 1994.
Service charge income of $67,011,000 was 2.6% lower in 1995, following
a 2.4% growth in 1994. Some corporate customers opted to use compensating
deposit balances in the higher rate environment to offset account analysis
charges rather than pay fees. Also, normal post-merger attrition of
transaction accounts lowered retail service charges.
Credit card fees were $17,751,000 in 1995, a 28.7% decline from 1994.
Credit card income primarily represents fees charged merchants for
processing credit card transactions, interchange fees received on
transactions of Mercantile cardholders and cardholders' miscellaneous
fees. In 1995, there was good growth in interchange fees, merchant revenue
and miscellaneous cardholder income that was more than offset by the
netting of the transaction-based rebates paid to the new co-branded
cardholders against fee income. Also, certain fees relating to the
securitized loans were reclassified to securitization revenue.
<TABLE>
Exhibit 15
OTHER INCOME
<CAPTION>
(Dollars in Thousands) 1995 1994 Change 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust $ 65,788 $ 60,769 8.3% $ 61,996
Service charges 67,011 68,783 (2.6) 67,144
Credit card fees 17,751 24,895 (28.7) 24,312
Securitization revenue 23,005 -- -- --
Mortgage banking 10,823 10,917 (.9) 13,691
Investment banking and brokerage 7,550 8,301 (9.0) 8,486
Letters of credit fees 6,441 6,681 (3.6) 6,223
Securities gains 3,932 2,177 80.6 5,121
Other 46,783 27,235 71.8 32,730
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income $249,084 $209,758 18.7 $219,703
=====================================================================================================================
</TABLE>
30
<PAGE> 31
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
Securitization revenue represents amounts accruing to Mercantile on the
$400,000,000 in credit card loans securitized in the Mercantile Credit
Card Master Trust during May 1995. Total revenue was $23,005,000 in 1995.
For securitized loans, amounts that would previously have been reported as
interest income, interest expense, credit card fees, and provision for
loan losses are instead netted in non-interest income as securitization
revenue. Because credit losses are absorbed against credit card servicing
income over the life of these transactions, such income may vary depending
upon the credit performance of the securitized loans. Higher than
anticipated credit losses on the loans transferred to the securitized pool
caused securitization revenue to be less than anticipated in 1995.
Mercantile acts as servicing agent and receives loan servicing fees equal
to two percent per annum of the securitized receivables. As servicing
agent, Mercantile continues to provide customer service to collect past
due accounts, and to provide other services typically performed for its
customers. Accordingly, Mercantile's relationship with its credit card
customers is not affected by the securitization. Mercantile may continue
to securitize in 1996 if credit card receivables continue to grow as
planned.
Mortgages serviced totaled $5.3 billion at December 31, 1995 compared
to $4.0 billion at December 31, 1994. Mortgage banking revenues decreased
a slight .9% from 1994. Servicing revenue was down slightly from 1994
while gains on the sale of loans increased by $1,100,000, due to the
fourth-quarter sale of $225,000,000 of mortgages at a gain of $1,427,000.
During the second quarter of 1995, Mercantile adopted FAS 122, "Accounting
for Mortgage Servicing Rights, an amendment of FASB Statement No. 65," for
which the financial impact was immaterial. Total originated mortgage
servicing rights on the balance sheet at year-end 1995 were $2,808,000 and
the associated risk for significant impairment was not considered to be
material.
Investment banking and brokerage fees were $7,550,000 for 1995, down
9.0% from 1994 following a 2.2% decline from 1993. This income represents
fees for services performed as a dealer bank for individual customers and
corporate customers, including sales of annuities and mutual funds,
profits earned on limited trading positions and foreign exchange
commissions. This source of revenue can vary depending on movements in
interest rates and overall market conditions. In the third quarter of
1994, Mercantile discontinued providing institutional bond sales services
and revenue has been impacted accordingly since then. Also, the higher
interest rates during 1995 made certificates of deposit more attractive to
retail customers, slowing mutual fund sales.
The 3.6% decrease in letters of credit fees was due largely to a
decline in the average volume of standby letters of credit during 1995.
Note N to the Consolidated Financial Statements and the discussion of
Off-Balance-Sheet Risk on Page 29 summarize the Corporation's commitments
under letters of credit.
Securities gains increased by $1,755,000 from 1994, due largely to
gains on the sale of equity securities. All other non-interest income was
up $19,548,000 or 71.8% during 1995 due to certain one-time items. During
the first quarter of 1995, a gain of $5,155,000 was recorded on the sale
of an equity interest in a joint venture. Gains of $1,805,000 were earned
on the sale of a bank and an insurance agency that were divested in
conjunction with mergers. Leveraged lease residual sales and termination
gains of $5,917,000 were earned in the first and third quarters of 1995.
In the fourth quarter of 1995, a $2,400,000 gain was earned on a pension
transaction of an acquired subsidiary.
31
<PAGE> 32
FINANCIAL COMMENTARY
<TABLE>
Exhibit 16
OTHER EXPENSE
<CAPTION>
(Dollars in Thousands) 1995 1994 Change 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries $212,529 $208,690 1.8% $197,569
Employee benefits 51,659 49,856 3.6 47,900
- ---------------------------------------------------------------------------------------------------------------------
Total Personnel Expense 264,188 258,546 2.2 245,469
Net occupancy 32,780 31,675 3.5 32,737
Equipment 40,422 38,109 6.1 38,174
Marketing/business development 11,036 13,533 (18.5) 14,278
Postage and freight 18,576 16,471 12.8 15,210
Office supplies 11,248 10,369 8.5 10,616
Communications 9,954 7,910 25.8 7,136
Legal and professional 9,013 14,302 (37.0) 11,935
Credit card 10,515 10,710 (1.8) 11,205
FDIC insurance 15,698 25,440 (38.3) 25,523
Foreclosed property expense 1,352 (5,077) -- 10,877
Intangible asset amortization 8,025 9,645 (16.8) 7,145
Other 45,927 60,437 (24.0) 77,738
- ---------------------------------------------------------------------------------------------------------------------
Total Other Expense $478,734 $492,070 (2.7) $508,043
=====================================================================================================================
RATIOS
Overhead ratio 65.80% 60.10% 62.42%
Other expense to average assets 3.09 3.39 3.56
=====================================================================================================================
</TABLE>
OTHER EXPENSE
Non-interest expenses decreased 2.7% in 1995 following a 3.1% decrease in
1994. Total operating expenses were 3.09% of average assets in 1995
compared with 3.39% in 1994 and 3.56% in 1993, while the overhead ratio,
defined as operating expenses as a percentage of taxable-equivalent net
interest income and other income, improved to 55.80% in 1995 versus the
restated 60.10% last year and 62.42% in 1993. Included in fourth-quarter
1994 and 1993 expenses were $12,664,000 and $12,728,000 of charges and
conforming accounting entries, such as investment banking fees, foreclosed
property write-downs and various synergy-related accruals for acquisitions
closed in succeeding quarters. If those costs were excluded from the 1994
and 1993 restated figures, the respective operating expenses to average
assets would be reduced to 3.30% and 3.47% and the overhead ratios would
be lowered to 58.56% and 60.86%.
The largest category of non-interest expense was personnel costs, which
in 1995 accounted for 55.18% of total non-interest expense and amounted to
$264,188,000 compared with $258,546,000 last year. Salaries increased 1.8%
and reflected the costs of staffing additional offices, higher incentive
pay and merit increases, offset by lower relative headcount due to
productivity gains; benefit costs rose by 3.6%. As disclosed in Note K to
the Consolidated Financial Statements, the Corporation lowered the
discount rate used in pension and postretirement actuarial assumptions by
one percent, to 7.5%. The expected increase in 1996 pension expense
approximates $1,000,000.
On an originally reported basis, two key productivity ratios showed
continual improvement as net income per average employee grew to $33,000
in 1995 from $28,000 in 1994 and $22,000 in 1993. Average assets per
average employee improved to $2,361,000 in 1995 from $2,105,000 last year
and $1,970,000 in 1993.
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which was adopted in 1993, required the recording of the
unrecognized transitional obligation for postretirement benefits other
than pensions. That liability approximated $26,889,000 at December 31,
1995 and will be amortized over the next 17 years. FAS 112, "Employers'
Accounting for Postemployment Benefits," was effective in 1994 and it
relates to accounting for benefits provided to former or inactive
employees after employment, but before retirement. The adoption of this
statement remains immaterial to the financial position and results of
operations of Mercantile. FAS 123, "Accounting for Stock Based
Compensation," was issued in October 1995; it encourages companies to
adopt a new accounting method in 1996 based on the estimated fair value of
employee stock options. Mercantile will comply with the expanded footnote
disclosures in 1996, but does not expect to adopt the new accounting
method for stock options.
32
<PAGE> 33
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
Occupancy and equipment expenses increased 4.9% in 1995, reflecting the
costs of maintaining additional offices and a consistent program of
upgrading systems and equipment to further enhance productivity offset by
productivity gains and the closing of overlapping branch offices. Total
capital expenditures were $53,212,000, $41,720,000 and $36,975,000 in
1995, 1994 and 1993, respectively. In March 1995, FAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," was published. Under FAS 121, long-lived assets and certain
identifiable intangible assets are reviewed whenever events or changes in
circumstances indicate the carrying amount of an asset may not be
recoverable. This statement is effective in 1996 and is not expected to
have a material impact on Mercantile.
In September 1995, Mercantile received a $5,500,000 rebate from the
FDIC relating to overpaid insurance premiums for the months of June
through September 1995. That refund was classified as a reduction in FDIC
insurance expense. During the fourth quarter of 1995, the FDIC lowered the
premium once again. FDIC insurance expense for the Corporation was
$9,742,000 lower in 1995 when compared with 1994. In 1996, it is
anticipated that, exclusive of insurance premiums to be assessed on the
$2.0 billion in thrift deposits insured by the SAIF fund, Mercantile
affiliates will pay minimum FDIC insurance.
The major components of all other operating expenses for the past three
years are shown in Exhibit 16. The communications and postage expense
increases in 1995 were due primarily to the costs of soliciting and
servicing the new SBC co-branded credit card customers. Foreclosed
property costs returned to a normal level after reaching a very high level
in 1993, followed by a net recovery in 1994. All miscellaneous other and
legal and professional expenses were down in 1995 from the 1994 and 1993
levels, which included significant accruals for merger-related activity.
INCOME TAXES
For the year ended December 31, 1995, the Corporation recorded income tax
expense of $114,188,000 compared with $101,705,000 in 1994 and $85,467,000
in 1993. The effective tax rate for 1995 was 34.50% compared with 37.66%
last year and 37.37% in 1993. The 1994 and 1993 higher effective rates
were impacted by additional tax provisions for the statutory recapture of
acquired thrift loan loss reserves for which no deferred taxes had
previously been provided.
A three-year summary of significant income tax data is presented in
Note J to the Consolidated Financial Statements, which provides an
analysis of deferred income taxes as well as a reconciliation between the
amount of taxes computed using the statutory rate and the amount actually
recorded. As disclosed, Mercantile has a net deferred tax asset of
$9,041,000 at December 31, 1995. Due to the significant amount of taxes
paid for the past three years and the forecasted taxes payable for 1996,
no valuation reserve for the deferred tax asset is deemed necessary. The
Corporation currently has no operating loss carryforwards and federal
returns have been examined through 1990 by the Internal Revenue Service.
FOURTH QUARTER RESULTS
Mercantile earned $58,076,000 in the fourth quarter of 1995, which was
more than double the $28,120,000 earned last year. On a per common share
basis, earnings increased to $1.05 from $.53 the prior year. The return on
average assets was 1.47% during the quarter compared with .76% in 1994's
fourth quarter, while return on equity was 16.18% versus 9.09% last year.
Prior year figures included after-tax charges of approximately $16.7
million to substantially conform the accounting and credit policies of
UNSL, Central and TCB to those of Mercantile. A more meaningful comparison
of quarterly financial performance would be with originally reported
fourth quarter 1994 results. Current quarter earnings per common share of
$1.05 was up 10.5% from the $.95 originally reported in 1994, while return
on assets was 1.47% in the current quarter compared with 1.34% in 1994.
Exhibit 17 presents condensed quarterly financial data for the last two
years.
Net interest income improved by .6% to $151,092,000, as the volume of
average earning assets increased by 7.0% and the net interest rate margin
decreased from 4.51% to 4.23%. Average loan volume was up $1.1 billion or
11.7%, as loan demand improved and loans were added from the four 1995
acquisitions previously discussed. The commentary on Net Interest Income
on Page 19 provides more details on the dynamics of net interest income
and the decline in the net interest rate margin from quarter to quarter.
The provision for possible loan losses for the fourth quarter was
$5,798,000 compared with $16,827,000 the prior year, which included
$7,775,000 to substantially conform the acquired companies' reserve
policies to those of Mercantile. Net charge-offs were $14,615,000 or .55%
of average loans for the quarter compared with the year-earlier
$12,266,000 or .52%. Losses on credit card loans continued to be
responsible for most of the charge-offs.
Other income grew by $17,271,000 or 34.3% from the fourth quarter of
1994. The current year included credit card securitization revenue of
$10,085,000. Trust fee income grew by 23.4% for the reasons previously
discussed, and mortgage banking revenue was up 73.8%. A detailed
explanation of the year over year increase in other income is included on
Page 30.
Other operating expenses were down $10,140,000 or 7.7% from a year ago,
which included $12,664,000 of non-recurring charges related to the
mergers. The overhead ratio was 54.90% in the current quarter compared
with 64.70% last year, and 57.93% as originally reported in the fourth
quarter of 1994.
33
<PAGE> 34
FINANCIAL COMMENTARY
<TABLE>
Exhibit 17
QUARTERLY FINANCIAL SUMMARY
<CAPTION>
1994 1995
------------------------------------------- -------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $ .88 $ .89 $ .92 $ .53 $ .93 $ .99 $ 1.02 $ 1.05
Dividends declared .28 .28 .28 .28 .33 .33 .33 .33
Book value at period-end 22.23 22.67 23.26 23.47 23.89 24.55 25.43 26.33
Market price at period-end 31-7/8 35-1/8 36-7/8 31-1/4 36-1/2 44-7/8 44-3/4 46
Average common shares
outstanding (Thousands) 51,724 51,903 52,070 52,126 52,920 52,795 55,150 55,144
OPERATING RESULTS (Thousands)
Taxable-equivalent net interest
income $148,603 $151,911 $154,852 $153,577 $156,337 $149,367 $148,951 $154,225
Tax-equivalent adjustment 3,288 3,402 3,345 3,361 3,594 3,420 3,334 3,133
- ----------------------------------------------------------------------------------------------------------------------------------
Net-interest income 145,315 148,509 151,507 150,216 152,743 145,947 145,617 151,092
Provision for possible loan losses 8,879 8,544 8,951 16,827 13,975 6,641 8,312 5,798
Other income 55,094 52,185 52,146 50,333 56,803 58,987 65,690 67,604
Other expense 119,884 120,131 120,125 131,930 119,243 118,166 119,535 121,790
Income taxes 26,051 25,565 26,417 23,672 26,625 27,768 26,763 33,032
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 45,595 $ 46,454 $ 48,160 $ 28,120 $ 49,703 $ 52,359 $ 56,697 $ 58,076
==================================================================================================================================
AVERAGE BALANCE SHEET (Millions)
Total assets $ 14,455 $ 14,414 $ 14,555 $ 14,710 $ 15,088 $ 15,254 $ 15,867 $ 15,783
Earning assets 13,239 13,209 13,399 13,634 13,976 14,058 14,676 14,582
Loans and leases 8,648 8,829 9,148 9,480 9,869 10,002 10,531 10,585
Investments in debt and equity
securities 4,133 4,178 4,064 3,929 3,886 3,839 3,868 3,787
Deposits 11,888 11,756 11,619 11,283 11,573 11,806 12,209 12,084
Long-term debt 313 306 302 300 296 288 303 299
Shareholders' equity 1,154 1,181 1,214 1,237 1,265 1,294 1,405 1,436
SELECTED RATIOS
Return on assets 1.26% 1.29% 1.32% .76% 1.32% 1.37% 1.43% 1.47%
Return on equity 15.81 15.73 15.87 9.09 15.71 16.19 16.14 16.18
Overhead ratio 58.85 58.86 58.03 64.70 55.95 56.71 55.69 54.90
Other expense to average assets 3.32 3.33 3.30 3.59 3.16 3.10 3.01 3.09
Equity to assets 8.21 8.31 8.31 8.34 8.40 8.57 8.86 9.10
Tier 1 capital to risk-adjusted assets 11.74 11.69 11.73 11.69 11.72 12.04 12.29 12.04
Total capital to risk-adjusted assets 15.46 15.32 15.28 15.20 15.17 15.47 15.63 15.33
Leverage 7.51 7.80 8.00 8.02 8.05 8.22 8.45 8.48
Loans to deposits (Average) 72.75 75.10 78.73 84.02 85.28 84.72 86.26 87.60
Reserve for possible loans losses
to outstanding loans 2.07 2.11 2.03 2.01 1.94 1.78 1.76 1.71
Reserve for possible loan losses
to non-performing loans 377.76 447.31 469.36 579.62 546.22 420.33 352.34 227.71
Non-performing loans
to outstanding loans .55 .47 .43 .35 .36 .42 .50 .75
Non-performing assets to outstanding
loans and foreclosed assets .96 .84 .77 .49 .49 .57 .64 .87
Net interest rate margin 4.49 4.60 4.62 4.51 4.47 4.25 4.06 4.23
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
The management of Mercantile Bancorporation Inc. is responsible for the
preparation, and the integrity and objectivity of the accompanying
financial statements. The financial statements necessarily include amounts
that are based on management's best estimates and judgments. Future
economic conditions and events, and the economic prospects of the
Corporation's borrowers, create the possibility that such estimates and
judgments may be subject to review and revision.
The Corporation maintains an accounting system and related internal
controls that have been deemed sufficient to provide reasonable assurance
that the financial records are reliable for preparing the financial
statements and maintaining accountability for assets. The concept of
reasonable assurance is based upon the recognition that the cost of a
system of internal control must be related to the benefits derived, and
that the balancing of those factors requires estimates and judgments. The
system of internal controls includes written policies and procedures,
proper delegation of authority, and segregation of duties. In addition,
written Standards of Conduct adopted by the Corporation help to ensure the
highest standards of ethical conduct by all employees. Management
continually monitors compliance with the system of internal controls,
primarily through an extensive program of internal audits. The system of
internal controls and compliance therewith are considered by independent
auditors, in accordance with generally accepted auditing standards, to the
extent necessary to render an opinion on the financial statements, and by
regulatory examiners.
The financial statements were audited by KPMG Peat Marwick LLP,
independent auditors, in accordance with generally accepted auditing
standards. Their independent professional opinion on the Company's
financial statements is presented herein.
/s/ T. H. Jacobsen
Thomas H. Jacobsen
Chairman and Chief Executive Officer
/s/ J. Q. Arnold
John Q. Arnold
Senior Executive Vice President and
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Mercantile Bancorporation Inc.:
We have audited the accompanying consolidated balance sheets of Mercantile
Bancorporation Inc. and subsidiaries as of December 31, 1995, 1994 and 1993,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Mercantile Bancorporation Inc. and subsidiaries as of December 31, 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.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
St. Louis, Missouri
January 11, 1996
35
<PAGE> 36
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Year Ended December 31
-------------------------------------------------
(Thousands except per common share data) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 908,983 $757,571 $715,974
Investments in debt and equity securities
Trading 431 527 678
Taxable 204,979 203,902 221,933
Tax-exempt 21,139 21,659 20,807
- -----------------------------------------------------------------------------------------------------------------
Total 226,549 226,088 243,418
Due from banks-interest bearing 2,476 2,843 3,428
Federal funds sold and repurchase agreements 11,220 8,394 8,662
- -----------------------------------------------------------------------------------------------------------------
Total Interest Income 1,149,228 994,896 971,482
INTEREST EXPENSE
Interest bearing deposits 419,720 319,709 340,952
Foreign deposits 13,088 5,398 1,363
Short-term borrowings 84,793 50,443 25,822
Bank notes 13,674 780 --
Long-term debt 22,564 23,019 22,774
- -----------------------------------------------------------------------------------------------------------------
Total Interest Expense 553,829 399,349 390,911
- -----------------------------------------------------------------------------------------------------------------
Net Interest Income 595,399 595,547 580,571
PROVISION FOR POSSIBLE LOAN LOSSES 34,726 43,201 63,513
- -----------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Possible Loan Losses 560,673 552,346 517,058
OTHER INCOME
Trust 65,788 60,769 61,996
Service charges 67,011 68,783 67,144
Credit card fees 17,751 24,895 24,312
Securitization revenue 23,005 -- --
Mortgage banking 10,823 10,917 13,691
Investment banking and brokerage 7,550 8,301 8,486
Securities gains 3,932 2,177 5,121
Other 53,224 33,916 38,953
- -----------------------------------------------------------------------------------------------------------------
Total Other Income 249,084 209,758 219,703
OTHER EXPENSE
Salaries 212,529 208,690 197,569
Employee benefits 51,659 49,856 47,900
Net occupancy 32,780 31,675 32,737
Equipment 40,422 38,109 38,174
Other 141,344 163,740 191,663
- -----------------------------------------------------------------------------------------------------------------
Total Other Expense 478,734 492,070 508,043
- -----------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 331,023 270,034 228,718
INCOME TAXES 114,188 101,705 85,467
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 216,835 $168,329 $143,251
=================================================================================================================
PER COMMON SHARE DATA
Average shares outstanding 54,011,711 51,957,002 50,965,103
Net income<F*> $ 4.00 $ 3.22 $ 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>
36
<PAGE> 37
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31
-------------------------------------------------
(Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,013,420 $ 770,710 $ 772,314
Due from banks-interest bearing 50,706 29,166 164,573
Federal funds sold and repurchase agreements 145,304 128,264 211,762
Investments in debt and equity securities
Trading 3,677 14,299 15,735
Available-for-sale 3,791,683 416,059 419,756
Held-to-maturity (Estimated fair value of $3,301,207 in 1994
and $3,811,026 in 1993) -- 3,413,142 3,744,592
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments in Debt and Equity Securities 3,795,360 3,843,500 4,180,083
Loans held-for-sale 94,877 21,383 141,468
Loans and leases, net of unearned income 10,346,702 9,648,595 8,560,864
- --------------------------------------------------------------------------------------------------------------------------------
Total Loans and Leases 10,441,579 9,669,978 8,702,332
Reserve for possible loan losses (179,055) (194,515) (184,836)
- --------------------------------------------------------------------------------------------------------------------------------
Net Loans and Leases 10,262,524 9,475,463 8,517,496
Bank premises and equipment 270,844 248,318 243,363
Due from customers on acceptances 2,622 6,609 11,923
Other assets 393,590 304,314 321,565
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $15,934,370 $14,806,344 $14,423,079
================================================================================================================================
LIABILITIES
Deposits
Non-interest bearing $ 1,852,080 $ 1,763,439 $ 1,928,441
Interest bearing 9,913,198 9,206,676 9,643,983
Foreign 209,170 219,135 26,085
- --------------------------------------------------------------------------------------------------------------------------------
Total Deposits 11,974,448 11,189,250 11,598,509
Federal funds purchased and repurchase agreements 1,538,832 1,495,540 660,643
Other short-term borrowings 209,380 315,425 541,750
Bank notes 250,000 100,000 --
Long-term debt 299,191 298,664 287,949
Bank acceptances outstanding 2,622 6,609 11,923
Other liabilities 209,600 166,520 189,636
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 14,484,073 13,572,008 13,290,410
Commitments and contingent liabilities -- -- --
<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 and outstanding 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 55,992 52,167 51,666 279,962 260,836 258,332
Capital surplus 217,135 166,878 161,188
Retained earnings 1,001,604 797,423 700,996
Treasury stock, at cost 1,380 94 -- (60,557) (2,954) --
- --------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 1,450,297 1,234,336 1,132,669
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $15,934,370 $14,806,344 $14,423,079
================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
37
<PAGE> 38
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock
--------------------- Total
Outstanding Dollars Preferred Capital Retained Treasury Shareholders'
(Thousands) Shares Stock Surplus Earnings Stock Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 50,391,888 $251,960 $12,153 $138,020 $ 593,673 $ -- $ 995,806
Net income 143,251 143,251
Common dividends declared:
Mercantile Bancorporation Inc. ($.99 per share) (34,840) (34,840)
Pooled companies prior to acquisition (7,180) (7,180)
Preferred dividends declared (1,190) (1,190)
Issuance of common stock:
Acquisition of First National Bank of Flora 232,503 1,162 6,879 8,041
Acquisition of Mt. Vernon Bancorp, Inc. 216,936 1,085 6,056 7,141
Employee incentive plans 161,912 809 1,929 2,738
Convertible notes 73,360 367 1,536 1,903
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 40,360 203 (435) 92 (140)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 51,666,199 258,332 12,153 161,188 700,996 -- 1,132,669
Net income 168,329 168,329
Common dividends declared:
Mercantile Bancorporation Inc. ($1.12 per share) (48,329) (48,329)
Pooled companies prior to acquisition (3,645) (3,645)
Preferred dividends declared (1,219) (1,219)
Issuance of common stock:
Employee incentive plans 308,112 1,541 1,683 3,224
Convertible notes 181,092 905 3,793 4,698
Net fair value adjustment for
available-for-sale securities (18,808) (18,808)
Purchase of treasury stock (93,500) (2,954) (2,954)
Pre-merger transactions of pooled
companies and other 11,450 58 214 99 371
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 52,073,353 260,836 12,153 166,878 797,423 (2,954) 1,234,336
Net income 216,835 216,835
Common dividends declared:
Mercantile Bancorporation Inc. ($1.32 per share) (68,542) (68,542)
Pooled companies prior to acquisition (3,715) (3,715)
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 39,731 39,731
Purchase of treasury stock (2,064,600) (85,474) (85,474)
Pre-merger transactions of pooled
companies and other 1,819 1,819
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 54,612,041 $279,962 $12,153 $217,135 $1,001,604 $(60,557) $1,450,297
==================================================================================================================================
</TABLE>
38
<PAGE> 39
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended December 31
------------------------------------------
(Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 216,835 $ 168,329 $ 143,251
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible loan losses 34,726 43,201 63,513
Depreciation and amortization 34,672 31,936 30,064
Provision for deferred income taxes (credits) (10,424) (8,751) 6,304
Net change in loans held-for-sale (73,494) 120,085 (104,081)
Net change in accrued interest receivable (8,201) (14,584) 8,952
Net change in accrued interest payable 25,115 4,812 (7,014)
Other, net (3,319) (2,944) 7,344
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 215,910 342,084 148,333
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading securities
Purchases (980,347) (1,339,490) (1,760,526)
Proceeds from maturities 1,150,893 1,264,995 1,746,639
Proceeds from sales of
Held-to-maturity securities -- 1,985 32,749
Available-for-sale securities 171,401 371,205 41,632
Net change in loans and leases (846,200) (1,381,784) (315,644)
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 (53,212) (41,720) (36,975)
Proceeds from sales of premises and equipment 5,146 5,880 707
Proceeds from sales of foreclosed property 20,079 45,978 51,067
Cash and cash equivalents from acquisitions, net of cash paid 46,732 10,664 14,077
Other, net 3,731 30,384 23,197
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 149,488 (808,053) 138,822
FINANCING ACTIVITIES
Net change in time certificates of deposit under $100,000 149,532 (144,080) (517,390)
Net change in time certificates of deposit $100,000 and over 122,104 11,657 (30,210)
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 (170,471) (471,864) 286,261
Net change in short-term borrowings (160,105) 608,572 170,919
Issuance of bank notes 150,000 100,000 --
Issuance of long-term debt 2,996 75,000 6,275
Principal payments on long-term debt (14,488) (58,683) (29,576)
Cash dividends paid (73,277) (52,650) (43,210)
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 1,816 (4,572) (14,766)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities (84,108) 245,460 (241,341)
- ----------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 281,290 (220,509) 45,814
Cash and Cash Equivalents at Beginning of Year 928,140 1,148,649 1,102,835
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,209,430 $ 928,140 $ 1,148,649
======================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A ACCOUNTING POLICIES
Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") and its
subsidiaries follow generally accepted accounting principles and
reporting practices applicable to the banking industry. The
significant accounting policies are summarized below.
Basis of Presentation
Consolidation: The Consolidated Financial Statements include the
accounts of Mercantile Bancorporation Inc. and its subsidiaries.
Material intercompany transactions are eliminated.
Restatements: Effective January 3, 1995, Mercantile Bancorporation Inc.
acquired UNSL Financial Corp ("UNSL"), and on May 1, 1995, the
Corporation acquired TCBankshares, Inc. ("TCB") and Central Mortgage
Bancshares, Inc. ("Central") in transactions accounted for as
poolings-of-interests. Accordingly, prior period financial statements
have been restated as if the combining entities have been consolidated for all
periods.
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
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 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.
40
<PAGE> 41
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
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 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 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 Consolidated Statement of Cash Flows.
Financial Instruments
Financial instruments include cash, evidence of an ownership interest in
an entity or a contract that both (a) imposes on the Corporation a
contractual obligation, (1) to deliver a financial instrument to another
party, or (2) to exchange other financial instruments on potentially
unfavorable terms with another party; and (b) conveys to another party a
contractual right, (1) to receive a financial instrument from the
Corporation, or (2) to exchange other financial instruments on
potentially favorable terms with the Corporation.
NOTE B SUBSIDIARIES
Acquisitions
Effective January 2, 1996, the Corporation acquired Hawkeye
Bancorporation ("Hawkeye"), a 23-bank holding company with assets
totaling $2 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. The following unaudited pro forma combined
consolidated financial data portrays the transaction as if the
acquisition had occurred prior to the earliest period presented:
<TABLE>
<CAPTION>
Year Ended December 31
(Dollars in Thousands -----------------------------------------
except per common share data) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $17,928,041 $16,723,887 $16,293,187
Net interest income 673,410 667,119 650,038
Other income 273,653 236,561 245,589
Net income 232,676 192,074 165,069
Net income per
common share 3.74 3.19 2.79
- ---------------------------------------------------------------------------------------
</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.
41
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is expected to be consummated in
the first quarter of 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 Consolidated Financial
Statements from the acquisition date.
Effective May 1, 1995, the Corporation acquired 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 TCB, a six-bank holding company with assets
totaling $1.4 billion. Effective January 3, 1995, the Corporation acquired
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
(Dollars in Thousands ----------------------
except per common share data) 1994 1993
- ------------------------------------------------------------------
<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 and
a related tax benefit of $3,739,000, for a total of $16,700,000 on an
after-tax basis.
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 those of
Mercantile's, the historical financial statements of the Corporation
were not restated for the Wedge pooling-of-interests transaction.
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.
42
<PAGE> 43
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<TABLE>
Net income and net income per common share for the Corporation and the
pooled companies prior to restatement were as follows:
<CAPTION>
(Dollars in Thousands Year Ended
except per common share data) December 31, 1993
- ------------------------------------------------------------
<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 Consolidated
Financial Statements from the respective acquisition dates.
On January 4, 1993, the Corporation acquired MidAmerican Corporation and
Johnson County Bankshares, Inc., two northeast Kansas-based holding
companies with assets totaling $1.1 billion. A total of 4,736,424 shares
of Mercantile common stock was issued in the transaction, which was
accounted for as a pooling-of-interests.
For all acquisitions accounted for as purchases, the unamortized excess
of cost over the fair value of assets acquired was $71,261,000, $58,663,000 and
$66,708,000 at December 31, 1995, 1994 and 1993,
respectively.
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
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, is expected
to be consummated in the second quarter of 1996.
NOTE C CASH FLOWS
The Corporation paid interest on deposits, short-term borrowings, bank
notes and long-term debt of $528,714,000, $394,537,000
and $397,925,000 in 1995, 1994 and 1993, respectively. The Corporation
paid Federal income taxes of $94,577,000, $103,928,000 and $70,449,000
in 1995, 1994 and 1993, respectively.
<TABLE>
The following details cash and cash equivalents from acquisitions
accounted for as purchases or poolings-of-interests with no restatement,
net of cash paid:
<CAPTION>
Year Ended December 31
---------------------------------------
(Thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets
purchased $(930,603) $(6,089) $(373,379)
Liabilities assigned 833,570 16,753 334,038
Issuance of common stock 93,337 -- 15,182
- ---------------------------------------------------------------------------------------
Net cash received (paid)
for acquisitions (3,696) 10,664 (24,159)
Cash and cash equivalents
acquired 50,428 -- 38,236
- ---------------------------------------------------------------------------------------
Cash and Cash Equivalents
from Acquisitions,
Net of Cash Paid $ 46,732 $10,664 $ 14,077
- ---------------------------------------------------------------------------------------
</TABLE>
NOTE D CASH AND DUE FROM BANKS RESTRICTIONS
The Corporation's subsidiary banks and savings bank 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
$196,244,000.
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
(Thousands) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. government $3,161,109 $42,031 $ 14,152 $3,188,988
State and political subdivisions:
Tax-exempt 355,124 9,968 973 364,119
Taxable 129,981 948 714 130,215
- --------------------------------------------------------------------------------------------------------
Total State and Political Subdivisions 485,105 10,916 1,687 494,334
Other 109,661 107 1,407 108,361
- --------------------------------------------------------------------------------------------------------
Total $3,755,875 $53,054 $ 17,246 $3,791,683
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
U.S. government $ 359,552 $ 258 $ 11,092 $ 348,718
State and political subdivisions-tax-exempt 12,582 156 24 12,714
Other 55,302 1,468 2,143 54,627
- --------------------------------------------------------------------------------------------------------
Total $ 427,436 $ 1,882 $ 13,259 $ 416,059
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
U.S. government $ 359,362 $ 2,289 $ 604 $ 361,047
State and political subdivisions-tax-exempt 14,259 925 11 15,173
Other 40,540 4,240 1,244 43,536
- --------------------------------------------------------------------------------------------------------
Total $ 414,161 $ 7,454 $ 1,859 $ 419,756
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
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
(Thousands) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. government $2,849,318 $ 7,877 $104,366 $2,752,829
State and political subdivisions:
Tax-exempt 372,641 3,853 9,764 366,730
Taxable 157,992 49 9,067 148,974
- --------------------------------------------------------------------------------------------------------
Total State and Political Subdivisions 530,633 3,902 18,831 515,704
Other 33,191 -- 517 32,674
- --------------------------------------------------------------------------------------------------------
Total $3,413,142 $11,779 $123,714 $3,301,207
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
U.S. government $3,121,831 $54,852 $ 6,038 $3,170,645
State and political subdivisions:
Tax-exempt 378,531 17,109 638 395,002
Taxable 101,852 338 671 101,519
- --------------------------------------------------------------------------------------------------------
Total State and Political Subdivisions 480,383 17,447 1,309 496,521
Other 142,378 1,809 327 143,860
- --------------------------------------------------------------------------------------------------------
Total $3,744,592 $74,108 $ 7,674 $3,811,026
- --------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 45
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
In December 1995, the Corporation reclassified approximately
$3 billion in held-to-maturity securities to the available-for-sale
category. The unrealized gain on the securities transferred was
approximately $30 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 $2,160,681,000 at December 31, 1995,
$2,324,721,000 at December 31, 1994 and $2,331,278,000 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
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales of:
Held-to-maturity
securities $ -- $ 1,985 $32,749
Available-for-sale
securities 171,401 371,205 41,632
Securities gains on:
Held-to-maturity
securities $ 111 $ 471 $ 2,396
Available-for-sale
securities 4,094 5,141 5,230
- ------------------------------------------------------------------------
Total Securities Gains 4,205 5,612 7,626
Securities losses on:
Held-to-maturity
securities 1 262 867
Available-for-sale
securities 272 3,173 1,638
- ------------------------------------------------------------------------
Total Securities Losses 273 3,435 2,505
- ------------------------------------------------------------------------
Net Securities Gains
Before Income Taxes 3,932 2,177 5,121
Applicable income taxes (1,376) (762) (1,792)
- ------------------------------------------------------------------------
Net Securities Gains $ 2,556 $ 1,415 $ 3,329
- ------------------------------------------------------------------------
</TABLE>
NOTE F LOANS AND LEASES
<TABLE>
Loans and leases consisted of the following:
<CAPTION>
December 31
-----------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 2,558,966 $2,353,918 $2,158,016
Real estate-
commercial 1,806,334 1,580,380 1,451,781
Real estate-
construction 263,993 300,081 282,370
Real estate-
residential 3,457,777 3,108,748 2,896,855
Consumer 1,513,484 1,481,823 1,150,067
Credit card 841,025 845,028 763,243
- ------------------------------------------------------------------------
Loans and Leases $10,441,579 $9,669,978 $8,702,332
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
Changes in the reserve for possible loan losses were as follows:
<CAPTION>
Year Ended December 31
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Balance $194,515 $184,836 $178,735
Provision 34,726 43,201 63,513
Charge-offs (67,688) (66,601) (87,326)
Recoveries 15,753 32,632 24,443
- ------------------------------------------------------------------------
Net Charge-offs (51,935) (33,969) (62,883)
Acquired Reserves 13,749 447 5,471
Transfer to Mercantile
Credit Card Master Trust (12,000) -- --
- ------------------------------------------------------------------------
Ending Balance $179,055 $194,515 $184,836
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
Non-performing loans consisted of the following:
<CAPTION>
December 31
-------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual $76,200 $27,687 $53,375
Renegotiated 2,433 5,872 13,058
- ------------------------------------------------------------------------
Non-performing Loans $78,633 $33,559 $66,433
- ------------------------------------------------------------------------
</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.
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G BANK PREMISES AND EQUIPMENT
<TABLE>
Bank premises and equipment were as follows:
<CAPTION>
December 31
---------------------------------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 47,260 $ 43,028 $ 42,710
Bank premises 249,726 236,666 234,238
Leasehold improvements 28,051 24,451 22,776
Furniture and equipment 237,041 204,337 192,493
- ------------------------------------------------------------------------------------------------
Total Cost 562,078 508,482 492,217
Accumulated depreciation (291,234) (260,164) (248,854)
- ------------------------------------------------------------------------------------------------
Net Carrying Value $ 270,844 $ 248,318 $ 243,363
- ------------------------------------------------------------------------------------------------
</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>
Minimum Rental
Period (Thousands)
- ------------------------------------
<S> <C>
1996 $ 6,744
1997 5,899
1998 4,562
1999 3,393
2000 2,561
2001 and later 12,495
- ------------------------------------
Total $35,654
- ------------------------------------
</TABLE>
Net rental expense for all operating leases was $8,164,000 in 1995,
$7,714,000 in 1994 and $8,103,000 in 1993.
NOTE H SHORT-TERM BORROWINGS
<TABLE>
Short-term borrowings were as follows:
<CAPTION>
December 31
----------------------------------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and repurchase
agreements $1,538,832 $1,495,540 $ 660,643
Treasury tax and
loan notes 116,416 166,545 503,360
Commercial paper 16,950 26,800 18,390
Other short-term
borrowings 76,014 122,080 20,000
- ------------------------------------------------------------------------------------------------
Total $1,748,212 $1,810,965 $1,202,393
- ------------------------------------------------------------------------------------------------
</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
----------------------------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MERCANTILE BANK OF ST. LOUIS N.A.
6.000% 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
----------------------------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<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 -- 11,319 16,469
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 20,605 -- --
Mortgage payable -- -- 23,653
Other 136 73 714
- ------------------------------------------------------------------------------------------------------------
Total 149,191 128,523 77,408
- ------------------------------------------------------------------------------------------------------------
Total Long-term Debt $299,191 $298,664 $287,949
- ------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 47
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
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 current
regulatory guidelines.
On January 25, 1994, Mercantile Bank of St. Louis n.a. issued
$75,000,000 of 6.375% 10-year, non-callable subordinated debt, due
January 15, 2004. This debt qualifies as Tier II capital. The
Corporation used the proceeds of this subordinated debt issue
to: (1) prepay in full on February 23, 1994 the $30,550,000 8.500%
unsecured debentures of the Corporation; and (2) prepay in full on
February 1, 1994 the $23,653,000 8.250% mortgage secured by the
Corporation's headquarters building.
The 9.000% mortgage-backed notes are 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 5.000% to 7.710%. This
debt was collateralized by certain loans and securities, with maturities
through January 2010.
<TABLE>
A summary of annual principal reductions of long-term debt
is presented below:
<CAPTION>
Annual Principal Reductions
Period (Thousands)
- ----------------------------------------------
<S> <C>
1996 $ 58
1997 16,963
1998 2,521
1999 53,526
2000 721
2001 and later 225,402
- ----------------------------------------------
Total $299,191
==============================================
</TABLE>
NOTE J INCOME TAXES
<TABLE>
The Corporation's results include income tax expense as follows:
<CAPTION>
(Thousands) Current Deferred Total
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended
December 31, 1995
U.S. Federal $111,174 $ (9,944) $101,230
State and local 13,438 (480) 12,958
- ------------------------------------------------------------------------
Total $124,612 $(10,424) $114,188
========================================================================
Year ended
December 31, 1994
U.S. Federal $ 98,940 $ (8,350) $ 90,590
State and local 11,516 (401) 11,115
- ------------------------------------------------------------------------
Total $110,456 $ (8,751) $101,705
========================================================================
Year ended
December 31, 1993
U.S. Federal $ 67,917 $ 5,578 $ 73,495
State and local 11,246 726 11,972
- ------------------------------------------------------------------------
Total $ 79,163 $ 6,304 $ 85,467
========================================================================
</TABLE>
The tax effects of temporary differences that gave rise to the deferred
tax assets and deferred tax liabilities are presented below.
<TABLE>
<CAPTION>
December 31
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Reserve for possible
loan losses $ 57,826 $ 62,383 $ 58,602
Foreclosed property 720 2,560 2,842
Deferred compensation 3,647 2,447 2,792
Net operating losses from
pooled subsidiary -- 1,494 4,527
Expenses not
currently allowable
for tax purposes 11,824 11,079 7,598
State tax liabilities 2,554 2,239 1,266
Investments in debt and
equity securities-
FAS 115 -- 8,168 --
Retirement expenses
in excess of
tax deduction 6,737 5,274 2,404
Other 1,923 5,856 1,575
- ------------------------------------------------------------------------
Total Gross Deferred
Tax Assets 85,231 101,500 81,606
Deferred tax liabilities
Leasing (37,616) (56,776) (55,050)
Pension settlement gain (6,079) (6,005) (6,005)
Intangible assets (5,614) (9,078) (10,726)
Depreciation (2,020) (2,163) (3,610)
Investments in debt and
equity securities-
FAS 115 (12,531) -- (1,959)
Other (12,330) (8,162) (3,818)
- ------------------------------------------------------------------------
Total Gross Deferred
Tax Liabilities (76,190) (82,184) (81,168)
- ------------------------------------------------------------------------
Net Deferred Tax Assets $ 9,041 $ 19,316 $ 438
========================================================================
</TABLE>
The 1993 net deferred tax assets reflect amounts attributable to
entities acquired in purchase transactions.
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected"
tax expense $115,858 $ 94,512 $80,051
Increase (reduction)
in income taxes
resulting from
Tax-exempt income (7,944) (8,096) (8,109)
State and local income
taxes, net of federal
income tax benefit 8,423 6,937 7,501
Thrift bad debt recapture -- 3,615 6,070
Other, net (2,149) 4,737 (46)
- ------------------------------------------------------------------------
Total Tax Expense $114,188 $101,705 $85,467
========================================================================
</TABLE>
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 Consolidated Statement of Income is summarized
as follows:
<CAPTION>
Year Ended December 31
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<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 Consolidated Balance Sheet for the qualified plan:
<CAPTION>
December 31
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<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)
========================================================================
</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%
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 three 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.
48
<PAGE> 49
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
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
Consolidated Statement of Income is summarized as follows:
<CAPTION>
Year Ended December 31
------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<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>
<TABLE>
The table below sets forth the funded status and the amount recognized
in the Consolidated Balance Sheet regarding other postretirement
benefits:
<CAPTION>
December 31
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<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 54,612,041, 52,073,353 and
51,666,199 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.
49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
<TABLE>
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 as Incentive Stock Options as defined by
Section 422 of the Internal Revenue Code of 1986, as amended. A summary
of the plans follows:
<CAPTION>
Shares Price
- ------------------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1995
Available for grant 1,240,724
Outstanding 2,753,172 $5.41-45.25
Exercisable 1,473,282 5.41-38.88
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
Changes in options outstanding were as follows:
<CAPTION>
Shares Price
- ------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1992 2,083,577 $ 5.41-29.00
Granted 729,935 14.62-34.33
Exercised (269,920) 5.41-26.33
Canceled (40,225) 17.17-32.67
- ------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 2,503,367 5.41-34.33
Granted 718,489 18.44-38.88
Exercised (319,080) 5.41-32.50
Canceled (55,227) 12.50-32.67
- ------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 2,847,549 5.41-38.88
Granted 377,825 36.00-45.25
Exercised (498,565) 5.41-32.50
Canceled (71,995) 5.41-38.00
Assumed 98,358 15.06-19.81
- ------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 2,753,172 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 $347,100,000 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 $127,223,000 would be available for loans to the Parent
Company under Federal Reserve regulations. The remaining equity of bank
subsidiaries approximating $965,953,000 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 92% of
the total loan portfolio, and 89% of the commercial and commercial real
estate loan portfolio, were to borrowers within this region. The
diversity of the region's economic base tends to provide a stable
lending environment.
Real estate lending 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 35% of all such instruments of the Corporation. However, of
this total, approximately 62% was consumer-related in the form of
residential real estate mortgages and home equity lines of credit.
Credit card-related financial instruments comprised approximately 30% of
all such instruments of the Corporation.
The Corporation is, in general, a secured lender. At December 31, 1995,
approximately 84% 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 Consolidated Balance
Sheet approximated fair values.
Investments in Debt and Equity Securities: Fair values for held-to-
maturity and available-for-sale securities were based upon quoted market
prices where available. Fair values for trading securities, which also
were the amounts reported in the Consolidated Balance Sheet, were based
on quoted market prices where available. If quoted market prices were
not available, fair values were based upon quoted market prices of
comparable instruments.
Loans and Leases: The fair values for most fixed-rate loans were
estimated by utilizing discounted cash flow analysis, applying interest
rates currently being offered for similar loans to borrowers with
similar risk profiles. The discount rates used therefore include a
credit risk premium. The fair values of variable-rate loans and
residential mortgages were estimated by utilizing the same type of
discounted cash flows, but over a range of interest rate scenarios, in
order to incorporate the value of the options imbedded in these assets.
Loans with similar characteristics were aggregated for purposes of these
calculations. The fair value of credit card loans was assumed to be the
same as the par value.
50
<PAGE> 51
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
Deposits: The fair values disclosed for deposits generally payable on
demand (i.e., interest bearing and non-interest bearing demand, savings,
and money market accounts) were considered equal to their respective
carrying amounts as reported in the Consolidated Balance Sheet. Fair
values for certificates of deposit and foreign deposits were estimated
using a discounted cash flow calculation that applied interest rates
generally offered on similar certificates to a schedule of aggregated
expected monthly maturities of time deposits. The fair value estimate
of the deposit portfolio has not been adjusted for any value derived
from the retention of those deposits for an expected future period of
time. That component, commonly referred to as core deposit premium,
was estimated to be approximately $215,000,000 to $325,000,000 at
December 31, 1995 and was neither considered in the fair value amounts
below nor recorded as an intangible asset on the Consolidated Balance
Sheet.
Bank Notes and Long-term Debt: The fair value of publicly-traded debt
was based upon quoted market prices, where available, or upon quoted
market prices of comparable instruments. The fair values of bank notes
and long-term debt were estimated using discounted cash flow analysis,
based on the Corporation's current incremental borrowing rates for
similar types of borrowing arrangements.
Off-Balance-Sheet Instruments: Fair values of foreign exchange contracts
and interest rate contracts were determined from quoted market prices.
Fair values of commitments to extend credit, standby letters of credit
and commercial letters of credit were based on fees currently charged to
enter into similar agreements, taking into account the remaining terms
of the agreements and the counterparties' credit standings.
<TABLE>
The estimated fair values of the Corporation's financial instruments
were as follows:
<CAPTION>
December 31
-----------------------------------------------------------------------------------
1995 1994 1993
----------------------------- -------------------------- --------------------------
(Thousands) Carrying Value Fair Value Carrying Value Fair Value Carrying Value Fair Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks and short-
term investments $ 1,209,430 $ 1,209,430 $ 928,140 $ 928,140 $ 1,148,649 $ 1,148,649
Trading securities 3,677 3,677 14,299 14,299 15,735 15,735
Held-to-maturity securities -- -- 3,413,142 3,301,207 3,744,592 3,811,026
Available-for-sale securities 3,791,683 3,791,683 416,059 416,059 419,756 419,756
Net loans and leases 10,262,524 10,713,001 9,475,463 9,533,598 8,517,496 8,779,353
FINANCIAL LIABILITIES
Deposits 11,974,448 12,180,749 11,189,250 11,175,045 11,598,509 11,661,355
Short-term borrowings 1,748,212 1,748,212 1,810,965 1,810,965 1,202,393 1,202,393
Bank notes and long-term debt 549,191 565,428 398,664 377,730 287,949 317,652
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 (11,151) (8,817) (11,950)
Standby letters of credit (2,377) (1,955) (2,247)
Commercial letters of credit (4,194) (3,988) (4,321)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Off-Balance-Sheet Risk
<TABLE>
The Corporation is, in the normal course of business, a party to certain
off-balance-sheet financial instruments with inherent credit and/or market
risk. These instruments, which include commitments to extend credit, standby
letters of credit, interest options written, interest futures contracts and
foreign exchange contracts, are used by the Corporation to meet the financing
needs of its customers and, to a lesser degree, to reduce its own exposure to
interest rate fluctuations. These instruments involve, to varying degrees,
credit and market risk in excess of the amount recognized in the Consolidated
Balance Sheet.
Financial instruments with off-balance-sheet credit risk for which the
contract amounts represent potential credit risk were as follows:
<CAPTION>
December 31
----------------------------------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commitments to extend credit
Commercial $1,992,789 $1,829,221 $1,613,817
Consumer 4,959,934 3,905,890 3,061,311
- ------------------------------------------------------------------------------------------------
Total $6,952,723 $5,735,111 $4,675,128
================================================================================================
Standby letters of credit $ 304,684 $ 207,121 $ 237,718
================================================================================================
Interest rate contracts $ 27,000 $ 21,000 $ 37,500
================================================================================================
</TABLE>
51
<PAGE> 52
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
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 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.
52
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF INCOME
<CAPTION>
Year Ended December 31
--------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<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 10,860 79,116 79,113
- ------------------------------------------------------------------------
NET INCOME $216,835 $168,329 $143,251
========================================================================
</TABLE>
<TABLE>
BALANCE SHEET
<CAPTION>
December 31
----------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<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 1,490,236 1,270,456 1,190,526
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 $1,649,917 $1,444,655 $1,362,647
========================================================================
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 1,450,297 1,234,336 1,132,669
- ------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $1,649,917 $1,444,655 $1,362,647
========================================================================
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended December 31
---------------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 216,835 $ 168,329 $ 143,251
Adjustments to reconcile
net income to net cash
provided by operating
activities
Net income of
subsidiaries (226,440) (184,066) (156,661)
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>
53
<PAGE> 54
<TABLE>
SIX YEAR CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(Dollars in Thousands except per common share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 908,983 $ 757,571 $715,974
Investments in debt and equity securities
Trading 431 527 678
Taxable 204,979 203,902 221,933
Tax-exempt 21,139 21,659 20,807
- ----------------------------------------------------------------------------------------
Total Investments in Debt and Equity
Securities 226,549 226,088 243,418
Due from banks-interest bearing 2,476 2,843 3,428
Federal funds sold and repurchase agreements 11,220 8,394 8,662
- ----------------------------------------------------------------------------------------
Total Interest Income 1,149,228 994,896 971,482
Tax-equivalent adjustment<F*> 13,481 13,396 13,574
- ----------------------------------------------------------------------------------------
Taxable-equivalent Interest Income 1,162,709 1,008,292 985,056
INTEREST EXPENSE
Deposits 432,808 325,107 342,315
Borrowed funds 121,021 74,242 48,596
- ----------------------------------------------------------------------------------------
Total Interest Expense 553,829 399,349 390,911
- ----------------------------------------------------------------------------------------
Taxable-equivalent Net Interest Income 608,880 608,943 594,145
PROVISION FOR POSSIBLE LOAN LOSSES 34,726 43,201 63,513
OTHER INCOME
Trust 65,788 60,769 61,996
Service charges 67,011 68,783 67,144
Credit card fees 17,751 24,895 24,312
Securitization revenue 23,005 -- --
Investment banking and brokerage 7,550 8,301 8,486
Securities gains 3,932 2,177 5,121
Other 64,047 44,833 52,644
- ----------------------------------------------------------------------------------------
Total Other Income 249,084 209,758 219,703
OTHER EXPENSE
Salaries 212,529 208,690 197,569
Employee benefits 51,659 49,856 47,900
Net occupancy 32,780 31,675 32,737
Equipment 40,422 38,109 38,174
Other 141,344 163,740 191,663
- ----------------------------------------------------------------------------------------
Total Other Expense 478,734 492,070 508,043
- ----------------------------------------------------------------------------------------
Taxable-equivalent Income
Before Income Taxes 344,504 283,430 242,292
INCOME TAXES
Income taxes 114,188 101,705 85,467
Tax-equivalent adjustment<F*> 13,481 13,396 13,574
- ----------------------------------------------------------------------------------------
Adjusted Income Taxes 127,669 115,101 99,041
- ----------------------------------------------------------------------------------------
Net Income $ 216,835 $ 168,329 $143,251
========================================================================================
PER COMMON SHARE DATA
Net income $ 4.00 $ 3.22 $ 2.79
Dividends declared 1.32 1.12 .99
Book value 26.33 23.47 21.69
- ----------------------------------------------------------------------------------------
<FN>
<F*>Tax-equivalent Adjustment
Loans $ 3,191 $ 2,833 $ 3,155
Investments in debt and equity securities 10,290 10,563 10,419
- ----------------------------------------------------------------------------------------
Total Tax-equivalent Adjustment $ 13,481 $ 13,396 $ 13,574
========================================================================================
54
<PAGE> 55
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
<CAPTION>
Growth Rates
------------------------
1992 1991 1990 One Year Five Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 742,173 $ 778,533 $ 797,798
Investments in debt and equity securities
Trading 593 1,288 981
Taxable 231,129 193,644 181,462
Tax-exempt 20,464 16,330 17,813
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments in Debt and Equity
Securities 252,186 211,262 200,256
Due from banks-interest bearing 8,306 15,115 13,619
Federal funds sold and repurchase agreements 8,879 13,778 10,768
- ----------------------------------------------------------------------------------------------------------------------------
Total Interest Income 1,011,544 1,018,688 1,022,441
Tax-equivalent adjustment<F*> 12,911 11,681 14,455
- ----------------------------------------------------------------------------------------------------------------------------
Taxable-equivalent Interest Income 1,024,455 1,030,369 1,036,896
INTEREST EXPENSE
Deposits 431,316 523,535 554,055
Borrowed funds 53,937 65,458 88,310
- ----------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 485,253 588,993 642,365
- ----------------------------------------------------------------------------------------------------------------------------
Taxable-equivalent Net Interest Income 539,202 441,376 394,531 --% 9.1%
PROVISION FOR POSSIBLE LOAN LOSSES 77,874 62,360 56,196 (19.6) (9.2)
OTHER INCOME
Trust 58,222 50,032 47,723 8.3 6.6
Service charges 62,670 54,383 46,051 (2.6) 7.8
Credit card fees 21,658 20,800 19,630 (28.7) (2.0)
Securitization revenue -- -- -- -- --
Investment banking and brokerage 8,918 7,463 4,063 (9.0) 13.2
Securities gains 5,590 5,150 955 80.6 32.7
Other 44,907 32,942 32,086 42.9 14.8
- ----------------------------------------------------------------------------------------------------------------------------
Total Other Income 201,965 170,770 150,508 18.7 10.6
OTHER EXPENSE
Salaries 180,385 159,217 150,926 1.8 7.1
Employee benefits 37,364 34,377 31,093 3.6 10.7
Net occupancy 28,523 24,084 23,329 3.5 7.0
Equipment 33,947 32,284 30,630 6.1 5.7
Other 191,684 181,193 126,014 (13.7) 2.3
- ----------------------------------------------------------------------------------------------------------------------------
Total Other Expense 471,903 431,155 361,992 (2.7) 5.7
- ----------------------------------------------------------------------------------------------------------------------------
Taxable-equivalent Income
Before Income Taxes 191,390 118,631 126,851 21.5 22.1
INCOME TAXES
Income taxes 61,072 24,029 31,759 12.3 29.2
Tax-equivalent adjustment<F*> 12,911 11,681 14,455 .6 (1.4)
- ----------------------------------------------------------------------------------------------------------------------------
Adjusted Income Taxes 73,983 35,710 46,214 10.9 22.5
- ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 117,407 $ 82,921 $ 80,637 28.8 21.9
============================================================================================================================
PER COMMON SHARE DATA
Net income $ 2.42 $ 2.25 $ 1.99 24.2 15.0
Dividends declared .93 .93 .93 17.9 7.3
Book value 19.52 19.19 17.72 12.2 8.2
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
<F*>Tax-equivalent Adjustment
Loans $ 3,666 $ 4,370 $ 6,284 12.6 (12.7)
Investments in debt and equity securities 9,245 7,311 8,171 (2.6) 4.7
- -----------------------------------------------------------------------------------------------------------------------------
Total Tax-equivalent Adjustment $ 12,911 $ 11,681 $ 14,455 .6 (1.4)
=============================================================================================================================
</TABLE>
55
<PAGE> 56
<TABLE>
SIX YEAR CONSOLIDATED AVERAGE BALANCE SHEET
<CAPTION>
1995 1994 1993
----------------------- ----------------------- ------------------
(Dollars in Thousands) Volume Rate<F*> Volume Rate<F*> Volume Rate<F*>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 2,530,984 8.59% $ 2,304,291 7.32% $ 2,203,930 6.73%
Real estate-commercial 1,673,464 9.02 1,545,224 8.25 1,469,418 8.01
Real estate-construction 306,595 8.90 253,166 7.69 265,305 7.60
Real estate-residential 3,471,084 8.00 2,863,613 7.58 2,857,975 7.89
Consumer 1,507,066 8.61 1,311,197 8.18 1,108,979 8.93
Credit card 760,183 14.36 751,418 16.01 665,696 16.27
- ----------------------------------------------------------------------------------------------------------------
Total Loans and Leases 10,249,376 8.90 9,028,909 8.42 8,571,303 8.39
Investments in debt
and equity securities
Trading 7,760 5.55 10,947 5.12 14,008 5.32
Taxable 3,456,249 5.94 3,676,107 5.55 3,760,181 5.91
Tax-exempt 380,876 8.21 388,375 8.24 358,222 8.61
- ----------------------------------------------------------------------------------------------------------------
Total Investments in
Debt and Equity Securities 3,844,885 6.16 4,075,429 5.81 4,132,411 6.14
Short-term investments
Due from banks-interest bearing 41,579 5.95 66,045 4.30 99,493 3.45
Federal funds sold and
repurchase agreements 189,848 5.91 201,050 4.18 264,648 3.27
- ----------------------------------------------------------------------------------------------------------------
Total Short-term Investments 231,427 5.92 267,095 4.21 364,141 3.32
- ----------------------------------------------------------------------------------------------------------------
Total Earning Assets 14,325,688 8.12 13,371,433 7.54 13,067,855 7.54
Non-earning Assets
Cash and due from banks 795,059 784,180 780,073
Bank premises and equipment 262,500 246,498 238,189
Other assets 306,373 321,814 367,061
Reserve for possible loan losses (188,574) (189,826) (175,946)
- ----------------------------------------------------------------------------------------------------------------
Total Assets $15,501,046 $14,534,099 $14,277,232
================================================================================================================
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,002,366 $ 2,046,782 $ 2,110,717
Interest bearing demand 1,843,807 2.23 1,960,292 1.87 1,789,872 2.13
Money market accounts 1,642,608 3.96 1,762,629 3.05 1,813,133 2.75
Savings 928,365 2.40 1,009,956 2.36 984,009 2.60
Consumer time certificates
under $100,000 4,357,244 5.43 4,019,941 4.37 4,326,911 4.60
Other time 122,187 6.33 39,822 3.26 83,373 2.73
- -----------------------------------------------------------------------------------------------------------------
Total Core Deposits 10,896,577 4.19 10,839,422 3.31 11,108,015 3.50
Time certificates $100,000
and over 812,693 5.78 686,588 4.15 680,432 3.80
Foreign 210,873 6.21 108,986 4.95 31,093 4.38
- -----------------------------------------------------------------------------------------------------------------
Total Purchased Deposits 1,023,566 5.86 795,574 4.26 711,525 3.83
- -----------------------------------------------------------------------------------------------------------------
Total Deposits 11,920,143 4.36 11,634,996 3.39 11,819,540 3.53
Short-term borrowings 1,526,104 5.56 1,182,688 4.27 875,406 2.95
Bank notes 214,658 6.37 12,603 6.19 -- --
Long-term debt 296,351 7.61 305,018 7.55 286,896 7.94
- -----------------------------------------------------------------------------------------------------------------
Total Acquired Funds 13,957,256 4.63 13,135,305 3.60 12,981,842 3.60
Other liabilities 193,162 202,075 223,668
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities 14,150,418 13,337,380 13,205,510
SHAREHOLDERS' EQUITY 1,350,628 1,196,719 1,071,722
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $15,501,046 $14,534,099 $14,277,232
================================================================================================================
<FN>
<F*>Taxable-equivalent basis
56
<PAGE> 57
<CAPTION>
1995 1994 1993 Growth Rates
------------------- ------------------- ------------------ ----------------------
(Dollars in Thousands) Volume Rate<F*> Volume Rate<F*> Volume Rate<F*> One Year Five Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 2,220,930 7.22% $ 2,138,787 8.91% $ 2,141,274 10.64% 9.8% 3.4%
Real estate-commercial 1,468,733 8.36 1,315,392 9.77 1,104,369 10.22 8.3 8.7
Real estate-construction 267,399 8.18 250,519 9.79 298,434 10.58 21.1 .5
Real estate-residential 2,891,763 8.76 2,588,949 10.12 2,374,624 10.44 21.2 7.9
Consumer 1,049,924 9.76 1,006,905 10.77 1,074,640 11.20 14.9 7.0
Credit card 521,727 16.31 428,179 16.06 418,912 15.13 1.2 12.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans and Leases 8,420,476 8.86 7,728,731 10.13 7,412,253 10.85 13.5 6.7
Investments in debt
and equity securities
Trading 11,510 5.75 19,041 6.95 12,528 8.22 (29.1) (9.1)
Taxable 3,292,855 7.03 2,267,071 8.56 1,997,295 9.10 (6.0) 11.6
Tax-exempt 286,126 10.23 229,885 10.10 252,487 10.12 (1.9) 8.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments in
Debt and Equity Securities 3,590,491 7.28 2,515,997 8.69 2,262,310 9.21 (5.7) 11.2
Short-term investments
Due from banks-interest bearing 193,603 4.29 228,905 6.60 162,016 8.41 (37.0) (23.8)
Federal funds sold and
repurchase agreements 218,086 4.07 237,912 5.79 144,828 7.44 (5.6) 5.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 411,689 4.17 466,817 6.19 306,844 7.95 (13.4) (5.5)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 12,422,656 8.25 10,711,545 9.62 9,981,407 10.39 7.1 7.5
Non-earning Assets
Cash and due from banks 710,920 610,738 683,116 1.4 3.1
Bank premises and equipment 218,844 189,528 191,115 6.5 6.6
Other assets 415,645 414,877 347,247 (4.8) (2.5)
Reserve for possible loan losses (171,949) (159,062) (164,543) (.7) 2.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $13,596,116 $11,767,626 $11,038,342 6.7 7.0
===================================================================================================================================
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 1,789,942 $ 1,418,275 $ 1,407,174 (2.2) 7.3
Interest bearing demand 1,498,258 2.95 1,093,277 4.61 985,909 4.98 (5.9) 13.3
Money market accounts 1,694,175 3.35 1,284,461 4.97 1,148,395 5.88 (6.8) 7.4
Savings 825,733 3.63 598,100 5.25 545,436 5.51 (8.1) 11.2
Consumer time certificates
under $100,000 4,662,166 5.67 4,488,019 7.40 4,053,733 8.38 8.4 1.5
Other time 108,937 3.86 87,247 4.94 103,345 6.31 -- 3.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total Core Deposits 10,579,211 4.54 8,969,379 6.38 8,243,992 7.21 .5 5.7
Time certificates $100,000
and over 731,835 4.25 789,555 5.01 851,230 6.76 18.4 (.9)
Foreign 23,433 3.71 30,986 6.14 47,427 8.09 93.5 34.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Deposits 755,268 4.23 820,541 5.05 898,657 6.83 28.7 2.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 11,334,479 4.52 9,789,920 6.25 9,142,649 7.16 2.5 5.4
Short-term borrowings 856,055 3.71 785,613 5.47 794,206 7.48 29.0 14.0
Bank notes -- -- -- -- -- -- -- --
Long-term debt 250,572 8.85 239,527 9.38 265,400 10.89 (2.8) 2.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total Acquired Funds 12,441,106 4.56 10,815,060 6.27 10,202,255 7.30 6.3 6.5
Other liabilities 231,007 196,287 180,374 (4.4) 1.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 12,672,113 11,011,347 10,382,629 6.1 6.4
SHAREHOLDERS' EQUITY 924,003 756,279 655,713 12.9 15.5
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $13,596,116 $11,767,626 $11,038,342 6.7 7.0
===================================================================================================================================
<FN>
<F*>Taxable-equivalent basis
</TABLE>
57
<PAGE> 58
INVESTOR INFORMATION
NEW YORK STOCK EXCHANGE: MTL
In newspaper stock tables generally MercBc or MercBcpMO
<TABLE>
<CAPTION>
COMMON STOCK INFORMATION 1995 1994 1993
---------------------------- -------------------------- -------------------------------
Market Price Market Price Market Price
----------------- Dividend ----------------- Dividend ------------------- Dividend
High Low Declared High Low Declared High Low Declared
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $37-1/4 $31-1/4 $ .33 $34-1/8 $29-7/8 $ .28 $35-5/8 $30-5/8 $.24-3/4
2nd Quarter 44-7/8 36 .33 38-1/8 31-1/8 .28 37-5/8 29-3/8 .24-3/4
3rd Quarter 47 41-5/8 .33 39-1/4 34-7/8 .28 34-3/8 31-5/8 .24-3/4
4th Quarter 46-1/2 41-1/2 .33 36-7/8 29-1/2 .28 34-5/8 29-1/8 .24-3/4
- ----------------------------------------------------------------------------------------------------------------------
$1.32 $1.12 $.99
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SELECTED DATA December 31
------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Price $46 $ 31-1/4 $30-1/8
Dividend Yield 2.87% 3.58% 3.29%
Price Earnings Ratio 11.5x 9.7x 10.8x
Book Value per Common Share $26.33 $23.47 $21.69
Market Price to Book Value 174.7% 133.1% 138.9%
Average Common Shares Outstanding 54,011,711 51,957,002 50,965,103
Year-end Common Shares Outstanding 54,612,041 52,073,353 51,666,199
Shareholders of Record 15,176 14,879 15,092
Average Daily Volume 89,172 52,926 68,561
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DEBT RATINGS Thomson Standard
Moody's Fitch BankWatch & Poor's
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer Rating B
Commercial Paper P-2 TBW-1 A-2
7.625% Subordinated Notes, due 2002 Baa1 BBB+ BBB
MERCANTILE BANK OF ST. LOUIS N.A.
Bank Notes, due 1996 A1/P-1 A
6.375% Subordinated Notes, due 2004 A3 A A- BBB+
9.000% Mortgage-backed Notes, due 1999 AAA
Certificates of Deposit TBW-1 A-/A-2
Letters of Credit TBW-1 A-/A-2
- -----------------------------------------------------------------------------------------
</TABLE>
DIVIDEND INFORMATION
Dividends are normally paid the first business day of January, April,
July and October.
If you wish to participate in or want further information concerning the
Dividend Reinvestment Plan or Dividend Direct Deposit, please contact
KeyCorp Shareholder Services, Inc., One Mercantile Center, Suite 2120,
St. Louis, MO 63101-1673, telephone 314-241-4002.
ANNUAL MEETING
The Annual Meeting of Shareholders will be at 10:00 a.m., Thursday,
April 25, 1996, at The Ritz-Carlton St. Louis, 100 Carondelet Plaza, St.
Louis, MO 63105, Salon 1. A notice of the annual meeting and proxy
materials will be mailed under separate cover to shareholders.
INVESTOR RELATIONS AND FORM 10-K
Analysts, investors and others seeking financial data about Mercantile
are invited to contact John H. Beirise, Group President--Emerging
Markets, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, MO
63166-0524.
A copy of the Corporation's Form 10-K (Annual Report) filed with the
Securities and Exchange Commission may be obtained without charge upon
written request.
Additional financial information is available at no charge, via fax,
through Mercantile's News on Call service. Simply dial the number listed
below, and follow the voice instructions.
News on Call: 1-800-758-5804 Ext. 107087
Investor Relations Hotline: 314-425-1359
58
<PAGE> 59
BANKS AND OTHER SUBSIDIARIES
MISSOURI
Mercantile Bank of St. Louis N.A. St. Louis
Mercantile Trust Company N.A. St. Louis
Mercantile Bank of Boone County Columbia
Mercantile Bank of Cape Girardeau Cape Girardeau
Mercantile Bank of Doniphan Doniphan
Mercantile Bank of East Central Missouri Montgomery City
Mercantile Bank of Franklin County Washington
Mercantile Bank of Jefferson County High Ridge
Mercantile Bank of Joplin Joplin
Mercantile Bank of Kansas City Kansas City
Mercantile Bank of Lake of the Ozarks Eldon
Mercantile Bank of Lebanon Lebanon
Mercantile Bank of Memphis Memphis
Mercantile Bank of the Mineral Area Farmington
Mercantile Bank of Missouri Valley Richmond
Mercantile Bank of Monett Monett
Mercantile Bank of North Central Missouri Macon
Mercantile Bank of Northwest Missouri Maryville
Mercantile Bank of Perryville Perryville
Mercantile Bank of Phelps County Rolla
Mercantile Bank of Pike County Bowling Green
Mercantile Bank of Plattsburg Plattsburg
Mercantile Bank of Poplar Bluff Poplar Bluff
Mercantile Bank of St. Joseph St. Joseph
Mercantile Bank of Ste. Genevieve Ste. Genevieve
Mercantile Bank of Sikeston Sikeston
Mercantile Bank of Springfield Springfield
Mercantile Bank of
Stoddard/Bollinger Counties Dexter
Mercantile Bank of Trenton Trenton
Mercantile Bank of Warrensburg Warrensburg
Mercantile Bank of West Central Missouri Sedalia
Mercantile Bank of Western Missouri Lamar
Mercantile Bank of Willow Springs Willow Springs
Mercantile Bank of Wright County Hartville
IOWA
Mercantile Bank, FSB Davenport
Mercantile Bank of the Bluffs Council Bluffs
Mercantile Bank of Boone Boone
Mercantile Bank of Cedar Rapids Cedar Rapids
Mercantile Bank of Centerville Centerville
Mercantile Bank of Chariton Chariton
Mercantile Bank of Clay County Spencer
Mercantile Bank of Clinton Clinton
Mercantile Bank of Dubuque N.A. Dubuque
Mercantile Bank of Henry County Mt. Pleasant
Mercantile Bank of Humboldt County Humboldt
Mercantile Bank of Jasper County Newton
Mercantile Bank of Lyon County Rock Rapids
Mercantile Bank of Maquoketa Maquoketa
Mercantile Bank of Marshalltown Marshalltown
Mercantile Bank of Mount Ayr Mt. Ayr
Mercantile Bank of Northern Iowa Waterloo
Mercantile Bank of Onawa Onawa
Mercantile Bank of Osceola County Sibley
Mercantile Bank of Pella Pella
Mercantile Bank of Polk County Des Moines
Mercantile Bank of Washington Washington
ILLINOIS
Mercantile Bank of Carlyle Carlyle
Mercantile Bank of Centralia Centralia
Mercantile Bank of Flora Flora
Mercantile Bank of Illinois Alton
Mercantile Bank of Illinois N.A. Hartford
Mercantile Bank of Mt. Vernon Mt. Vernon
Mercantile Bank of Sterling-Rock Falls N.A. Sterling
KANSAS
Mercantile Bank of Kansas Overland Park
Mercantile Bank of Lawrence Lawrence
Mercantile Bank of Topeka Topeka
ARKANSAS
Mercantile Bank of Batesville N.A. Batesville
Mercantile Bank of Central Arkansas North Little Rock
Mercantile Bank of Conway County N.A. Morrilton
Mercantile Bank of Crawford County N.A. Van Buren
Mercantile Bank of Heber Springs N.A. Heber Springs
Mercantile Bank of North Central Arkansas Flippin
ASSET-BASED LENDING
Mercantile Business Credit, Inc.
100 South Brentwood Blvd., Suite 500
St. Louis, MO 63105
BROKERAGE SERVICES
Mercantile Investment Services, Inc.
Mercantile Tower
St. Louis, MO 63101
CREDIT LIFE INSURANCE
Mississippi Valley Life Insurance Co.
Mercantile Tower
St. Louis, MO 63101
INSURANCE AGENCY
Mercantile Insurance Services, Inc.
Mercantile Tower
St. Louis, MO 63101
INVESTMENT MANAGEMENT
Mississippi Valley Advisors Inc.
Mercantile Tower
St. Louis, MO 63101
OFF-SHORE BRANCH
Mercantile Bank of St. Louis N.A.
Cayman Branch
Grand Cayman, B.W.I.
59
<PAGE> 60
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Richard P. Conerly<F1>,<F3>
Retired Chairman
Orion Capital Inc.
Harry M. Cornell, Jr.<F2>,<F4>
Chairman and
Chief Executive Officer
Leggett & Platt, Inc.
Earl K. Dille<F3>,<F5>,<F6>
Retired President
Union Electric Company
Bernard A. Edison<F7>
Director Emeritus
Edison Brothers Stores, Inc.
William A. Hall<F1>
Assistant to the
Chairman
Hallmark Cards, Inc.
Thomas A. Hays<F2>,<F3>,<F4>
Deputy Chairman
The May Department
Stores Company
Thomas H. Jacobsen<F3>,<F4>
Chairman and
Chief Executive Officer
Mercantile
Bancorporation Inc.
Frank Lyon, Jr.
Chairman
Mercantile Bank of
Central Arkansas
James B. Malloy<F7>
Chairman
Smurfit Packaging
Corporation
Charles H. Price II<F6>
Chairman
Mercantile Bank of
Kansas City
Harvey Saligman<F2>
Managing Partner
Cynwyd Investments
Craig D. Schnuck<F5>
Chairman and
Chief Executive Officer
Schnuck Markets, Inc.
Robert L. Stark<F6>
Dean
University of Kansas
Regents Center
Patrick T. Stokes<F1>
President
Anheuser-Busch, Inc.
Francis A. Stroble<F1>
Retired Chief
Financial Officer
Monsanto Company
Joseph G. Werner<F7>
President
Werner Investments
John A. Wright<F1>
President and
Chief Executive Officer
Big River Minerals
Corporation
[FN]
<F1>Member of Audit Committee
<F2>Member of Compensation and Management Development Committee
<F3>Member of Executive Committee
<F4>Member of Nominating and Board Affairs Committee
<F5>Member of Community Relations Committee
<F6>Member of Credit Policy Committee
<F7>Advisory Director
EXECUTIVE OFFICERS
Thomas H. Jacobsen
Chairman and
Chief Executive Officer
W. Randolph Adams
Chairman and
Chief Executive Officer
Mercantile Bank
of St. Louis N.A. and
Mercantile Trust
Company N.A.
John Q. Arnold
Senior Executive
Vice President and
Chief Financial Officer
John H. Beirise
Group President--
Emerging Markets
Jon W. Bilstrom
General Counsel and
Secretary
Richard H. Goldberg
Chief Information
Officer
Richard C. King
President and
Chief Executive Officer
Mercantile Bank
of Kansas City and
Mercantile Bank of Kansas
John W. McClure
Group President--
Community Banking
Jon P. Pierce
Executive Vice President
Human Resources
Patrick Strickler
Executive Vice President
Public Affairs
60
<PAGE> 1
EXHIBIT NO. 21
<TABLE>
MERCANTILE BANCORPORATION INC.
SUBSIDIARIES
AS OF FEBRUARY 29, 1996
<CAPTION>
STATE OR
--------
SUBSIDIARY JURISDICTION
---------- ------------
<S> <C>
Mercantile Bank of Flora Illinois
Mercantile Bank of Poplar Bluff Missouri
Mercantile Bank of West Central Missouri Missouri
Mercantile Bank of Doniphan Missouri
Mercantile Bank of Memphis Missouri
Mercantile Bank of Ste. Genevieve Missouri
Mercantile Bank of Willow Springs Missouri
Mercantile Bank of East Central Missouri Missouri
Mercantile Bank of Mineral Area Missouri
Mercantile Bank of Wright County Missouri
Mercantile Bank of Perryville Missouri
Mercantile Bank of Stoddard/Bollinger Counties Missouri
Mercantile Card Services, Inc. Missouri
Franklin Finance Delaware
Supplemental Monetary Transfer System Missouri
Mercantile Insurance Services, Inc. Missouri
Mercantile Bancorporation Incorporated of Illinois Missouri
Alton Downtown Parking, Inc. Illinois
Mercantile Bank of Illinois National Association United States
Mercantile Bank of Illinois Illinois
Mercantile Bank of Centralia Illinois
Mercantile Bank of Carlyle Illinois
Mercantile Bank of Mt. Vernon Illinois
Mercantile Bank of Sterling-Rock Falls National Association United States
First Service Corporation Illinois
D.D. Development of Sterling, Limited Partnership Illinois
Ameribanc, Inc. Missouri
Mercantile Bank of St. Louis National Association United States
Manley Investment Company Missouri
Mercantile Bank International United States
Mercantile Trade Services Limited Missouri
Mercantile Business Credit, Inc. Missouri
Mercantile Investment Services, Inc. Missouri
Merc Mortgage Inc. Missouri
Mercantile Center Associates Missouri
Mercantile Center Redevelopment Corporation Missouri
Mercantile Properties Inc. Missouri
<PAGE> 2
<CAPTION>
STATE OR
--------
SUBSIDIARY JURISDICTION
---------- ------------
<S> <C>
Mississippi Valley Advisors Inc. Missouri
Sangamon Investment Company Missouri
Metropolitan Savings Service Corporation Missouri
Lending Express, L.P. Missouri
Mississippi Valley Life Insurance Company Arizona
Mercantile Bank of Kansas City Missouri
MBTC Services Inc. Kansas
Mercantile Bank of St. Joseph Missouri
Coffey Bancorporation Inc. Missouri
Mercantile Bank of Jefferson County Missouri
Mercantile Trust Company National Association United States
Mercantile Bank of Boone County Missouri
Mercantile Bank of Missouri Valley Missouri
Mercantile Bank of Trenton Missouri
Mercantile Bank of North Central Missouri Missouri
Mercantile Bank of Northwest Missouri Missouri
Mercantile Bank of Franklin County Missouri
Mercantile Bank of Pike County Missouri
Mercantile Bank of Plattsburg Missouri
American Property and Casualty Company Missouri
Mercantile Bank of Phelps County Missouri
Mercantile Bank of Lake of the Ozarks Missouri
Mercantile Bank of Lebanon Missouri
Southwest Realty Services Inc. Missouri
United Southwest Service Agency, Inc. Missouri
Mercantile Bank of Joplin Missouri
Mercantile Bank of Sikeston Missouri
Mercantile Bank of Monett Missouri
Mercantile Bank of Springfield Missouri
SoMo Investment Company Missouri
Mercantile Bank of Western Missouri Missouri
Mercantile Bank of Warrensburg Missouri
Mercantile Bank of Cape Girardeau Missouri
Mercantile Bank of Topeka Kansas
Mercantile Bank of Lawrence Kansas
Mercantile Bank of Kansas Kansas
Kaw Valley Building Corporation, Inc. Kansas
Kansas Trust Company Kansas
MidAmerican Building Corporation Kansas
MidAmerican Insurance Agency Inc. Kansas
Mercantile Bancorporation Inc. of Arkansas Arkansas
Mercantile Bank of Crawford County National Association United States
<PAGE> 3
<CAPTION>
STATE OR
--------
SUBSIDIARY JURISDICTION
---------- ------------
<S> <C>
Mercantile Bank of Conway County National Association United States
Mercantile Bank of North Central Arkansas
National Association United States
Mercantile Bank of Heber Springs National Association United States
Mercantile Bank of Batesville National Association United States
Mercantile Bank of Central Arkansas Arkansas
Twin City Capital Corp. Arkansas
Twin City Mortgage Company Arkansas
Mercantile Bancorporation Inc. of Iowa Iowa
Mercantile Bank of Northern Iowa Iowa
Mercantile Bank, FSB United States
S & L Service Corporation Iowa
Shafer Farm Joint Venture Iowa
Mercantile Bank of Marshalltown<F1> Iowa
Mercantile Bank of Centerville<F2> Iowa
Mercantile Bank of Clay County<F1> Iowa
Mercantile Bank of Onawa<F1> Iowa
Mercantile Bank of Ankeny<F3> Iowa
Mercantile Bank of Chariton<F1> Iowa
Mercantile Bank of Dubuque National Association<F1> United States
Mercantile Bank of Mount Ayr<F1> Iowa
Mercantile Bank of Pella<F2> Iowa
Mercantile Bank of Vinton<F3> Iowa
Mercantile Bank of Clinton County<F2> Iowa
Mercantile Bank of Boone Stratford<F1> Iowa
Mercantile Bank of Humboldt<F1> Iowa
Mercantile Bank of Mt. Pleasant<F1> Iowa
Mercantile Bank of Lyon County<F1> Iowa
Mercantile Bank of Washington County<F2> Iowa
Mercantile Bank of Tipton<F3> Iowa
Mercantile Bank of Cedar Rapids<F1> Iowa
Mercantile Bank of the Bluffs<F1> Iowa
Mercantile Bank of Maquoketa<F1> Iowa
Mercantile Bank of Jasper County<F1> Iowa
Mercantile Bank of Osceola County<F2> Iowa
Mercantile Bank of Polk County<F1> Iowa
Hawkeye Guaranteed Loans, Inc. Iowa
Hawkeye Leasing Corporation Iowa
<FN>
<F1> Name of bank following name change to be consummated in March, 1996.
<F2> Name of bank and jurisdiction following name change and change from
national to state charter to be consummated in March, 1996.
<F3> Bank to be merged into an affiliated institution in March, 1996.
</TABLE>
<PAGE> 1
EXHIBIT NO. 23
Independent Auditors' Consent
-----------------------------
The Board of Directors
Mercantile Bancorporation Inc.:
We consent to the incorporation by reference in the Registration Statements
No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139, No. 33-43694, 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 on Form S-4, of Mercantile Bancorporation Inc., of our report
dated January 11, 1996, relating to the consolidated balance sheets of
Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1995, 1994,
and 1993, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
Annual Report on Form 10-K of Mercantile Bancorporation Inc.
s/KPMG Peat Marwick LLP
-----------------------
St. Louis, Missouri
March 7, 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> 1,013,420
<INT-BEARING-DEPOSITS> 50,706
<FED-FUNDS-SOLD> 145,304
<TRADING-ASSETS> 3,677
<INVESTMENTS-HELD-FOR-SALE> 3,791,683
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 10,441,579
<ALLOWANCE> 179,055
<TOTAL-ASSETS> 15,934,370
<DEPOSITS> 11,974,448
<SHORT-TERM> 1,748,212
<LIABILITIES-OTHER> 212,222
<LONG-TERM> 299,191
0
12,153
<COMMON> 219,405
<OTHER-SE> 1,218,739
<TOTAL-LIABILITIES-AND-EQUITY> 15,934,370
<INTEREST-LOAN> 908,983
<INTEREST-INVEST> 226,549
<INTEREST-OTHER> 13,696
<INTEREST-TOTAL> 1,149,228
<INTEREST-DEPOSIT> 432,808
<INTEREST-EXPENSE> 553,829
<INTEREST-INCOME-NET> 595,399
<LOAN-LOSSES> 34,726
<SECURITIES-GAINS> 3,932
<EXPENSE-OTHER> 478,734
<INCOME-PRETAX> 331,023
<INCOME-PRE-EXTRAORDINARY> 216,835
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216,835
<EPS-PRIMARY> 4.00
<EPS-DILUTED> 4.00
<YIELD-ACTUAL> 4.25
<LOANS-NON> 76,200
<LOANS-PAST> 26,554
<LOANS-TROUBLED> 2,433
<LOANS-PROBLEM> 24,406
<ALLOWANCE-OPEN> 194,515
<CHARGE-OFFS> 67,688
<RECOVERIES> 15,753
<ALLOWANCE-CLOSE> 179,055
<ALLOWANCE-DOMESTIC> 179,055
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50,894
</TABLE>
