<PAGE> 1
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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER 1-11792
SEPTEMBER 30, 1996
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 ST. LOUIS, MISSOURI 63166-0524
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 425-2525
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
X
----- ------
YES NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $5.00 PAR VALUE, 60,139,229 SHARES OUTSTANDING AS OF THE CLOSE OF
BUSINESS ON OCTOBER 31, 1996.
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<PAGE> 2
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
------------
<S> <C>
Item 1--Financial Statements of Mercantile Bancorporation Inc. and Subsidiaries
Consolidated Statement of Income
Three months and nine months ended September 30, 1996 and 1995 3
Consolidated Balance Sheet
September 30, 1996 and 1995, and December 31, 1995 4
Consolidated Statement of Changes in Shareholders' Equity
Nine months ended September 30, 1996 and 1995 5
Consolidated Statement of Cash Flows
Nine months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations 8
PART II--OTHER INFORMATION
Item 6--Exhibits and Reports on Form 8-K 21
Signature 22
Exhibit Index 23
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $262,310 $259,097 $778,459 $757,284
Investments in debt and equity securities
Trading 20 57 161 328
Taxable 60,712 57,868 179,495 170,295
Tax-exempt 5,487 6,091 16,955 18,988
-------- -------- -------- --------
Total Investments in Debt and Equity
Securities 66,219 64,016 196,611 189,611
Due from banks--interest bearing 1,014 757 2,784 1,316
Federal funds sold and repurchase agreements 2,586 5,195 9,847 14,150
-------- -------- -------- --------
Total Interest Income 332,129 329,065 987,701 962,361
INTEREST EXPENSE
Interest bearing deposits 123,779 127,758 378,474 353,627
Foreign deposits 2,674 3,201 7,296 9,707
Short-term borrowings 20,315 22,414 50,186 68,002
Bank notes 4,070 4,017 11,979 9,774
Long-term debt 5,869 6,056 17,886 18,322
-------- -------- -------- --------
Total Interest Expense 156,707 163,446 465,821 459,432
-------- -------- -------- --------
NET INTEREST INCOME 175,422 165,619 521,880 502,929
PROVISION FOR POSSIBLE LOAN LOSSES<F1> 12,109 8,504 55,915 29,177
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 163,313 157,115 465,965 473,752
OTHER INCOME
Trust 19,388 17,831 59,491 52,142
Service charges 20,315 19,011 59,492 56,331
Credit card fees 8,936 3,855 18,515 15,622
Securitization revenue 4,198 8,397 12,025 12,920
Mortgage banking 2,421 2,342 7,793 6,760
Investment banking and brokerage 3,311 3,194 9,670 8,371
Securities gains (losses)<F1> 15 1,678 (2,843) 3,776
Other 15,904 15,697 47,786 43,694
-------- -------- -------- --------
Total Other Income 74,488 72,005 211,929 199,616
OTHER EXPENSE
Salaries 63,890 61,855 189,463 177,047
Employee benefits 15,565 13,950 47,984 42,493
Net occupancy 10,342 10,285 29,683 28,151
Equipment 12,654 10,954 36,386 32,220
Intangible asset amortization 2,728 2,618 8,114 6,990
Other<F1> 50,897 36,244 170,540 120,219
-------- -------- -------- --------
Total Other Expense 156,076 135,906 482,170 407,120
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 81,725 93,214 195,724 266,248
INCOME TAXES<F1> 26,049 30,450 70,407 90,164
-------- -------- -------- --------
NET INCOME<F1> $ 55,676 $ 62,764 $125,317 $176,084
======== ======== ======== ========
PER COMMON SHARE DATA
Average shares outstanding 60,665,457 63,024,965 62,160,601 61,497,977
Net income<F2> $.92 $.99 $2.01 $2.85
Dividends declared .41 .33 1.23 .99
<FN>
<S> <C> <C>
<F1> Includes the following nonrecurring amounts:
Provision for possible loan losses $ -- $ 10,851
Other income (securities losses) -- (3,082)
Other expense 12,385 54,063
Income tax benefit (4,335) (19,934)
------- --------
Impact on Net Income $(8,050) $(48,062)
======= ========
<F2> Earnings per common share is calculated by dividing net income, less dividends on preferred stock, by
weighted average common shares outstanding.
</TABLE>
3
<PAGE> 4
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30 DEC. 31 SEPT. 30
1996 1995 1995
-------- ------- --------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 909,350 $ 1,112,088 $ 919,766
Due from banks--interest bearing 74,713 51,056 97,673
Federal funds sold and repurchase agreements 183,227 271,098 281,782
Investments in debt and equity securities
Trading 804 3,677 4,696
Available-for-sale (Amortized cost of
$3,962,395, $4,167,560 and $1,061,581,
respectively) 3,959,361 4,207,079 1,055,704
Held-to-maturity (Estimated fair value
of $360,548 at September 30, 1996 and
$3,224,227 at September 30, 1995) 359,682 -- 3,202,108
----------- ----------- -----------
Total Investments in Debt and Equity
Securities 4,319,847 4,210,756 4,262,508
Loans held-for-sale 63,943 94,877 91,995
Loans and leases, net of unearned income 12,102,518 11,636,010 11,856,491
----------- ----------- -----------
Total Loans and Leases 12,166,461 11,730,887 11,948,486
Reserve for possible loan losses (202,149) (201,780) (209,428)
----------- ----------- -----------
Net Loans and Leases 11,964,312 11,529,107 11,739,058
Bank premises and equipment 325,261 309,070 307,230
Due from customers on acceptances 4,839 2,622 1,593
Intangible assets 120,279 110,529 110,845
Other assets 296,713 331,715 286,384
----------- ----------- -----------
Total Assets $18,198,541 $17,928,041 $18,006,839
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 2,659,811 $ 2,075,579 $ 2,003,217
Interest bearing 11,621,523 11,429,511 11,388,404
Foreign 328,717 209,170 160,736
----------- ----------- -----------
Total Deposits 14,610,051 13,714,260 13,552,357
Federal funds purchased and repurchase
agreements 1,022,995 1,552,945 1,626,395
Other short-term borrowings 201,052 210,791 401,406
Bank notes 275,000 250,000 250,000
Long-term debt 302,938 325,607 344,021
Bank acceptances outstanding 4,839 2,622 1,593
Other liabilities 246,794 232,229 219,081
----------- ----------- -----------
Total Liabilities 16,663,669 16,288,454 16,394,853
Commitments and contingent liabilities -- -- --
<CAPTION>
SEPT. 30 DEC. 31 SEPT. 30
1996 1995 1995
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock--no par value
Shares authorized 5,000 5,000 5,000
Shares issued and outstanding -- 15 15 -- 12,153 12,153
Common stock--$5.00 par value
Shares authorized 100,000 100,000 100,000
Shares issued 63,256 63,887 63,807 316,276 319,434 319,033
Capital surplus 232,873 283,288 282,647
Retained earnings 1,122,468 1,060,960 1,027,464
Valuation allowance on available-for-sale
securities (97) 24,309 (3,599)
Treasury stock, at cost 3,093 1,380 598 (136,648) (60,557) (25,712)
----------- ----------- -----------
Total Shareholders' Equity 1,534,872 1,639,587 1,611,986
----------- ----------- -----------
Total Liabilities and Shareholders'
Equity $18,198,541 $17,928,041 $18,006,839
=========== =========== ===========
</TABLE>
4
<PAGE> 5
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- TOTAL
OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS'
SHARES DOLLARS STOCK SURPLUS EARNINGS<F*> STOCK EQUITY
----------- ------- --------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994, AS
RESTATED 59,883,249 $299,885 $12,153 $230,940 $ 868,666 $ (2,954) $1,408,690
Net income 176,084 176,084
Common dividends declared:
Mercantile Bancorporation Inc.--$.99
per share (50,557) (50,557)
Pooled companies prior to acquisition (10,041) (10,041)
Preferred dividends declared (765) (765)
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 602,685 2,996 10,554 112 13,662
Convertible notes 331,075 1,655 6,935 8,590
Net fair value adjustment on
available-for-sale securities 19,586 19,586
Purchase of treasury stock (1,280,700) (50,571) (50,571)
Pre-merger transactions of pooled
companies and other 65,007 326 3,647 3,973
---------- -------- ------- -------- ---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1995 63,208,781 $319,033 $12,153 $282,647 $1,023,865 $ (25,712) $1,611,986
========== ======== ======= ======== ========== ========= ==========
BALANCE AT DECEMBER 31, 1995, AS
RESTATED 62,506,536 $319,434 $12,153 $283,288 $1,085,269 $ (60,557) $1,639,587
Net income 125,317 125,317
Common dividends declared--$1.23 per
share (76,234) (76,234)
Preferred dividends declared (408) (408)
Redemption of preferred stock (12,153) (531) (12,684)
Issuance of common stock in acquisitions
of:
Peoples State Bank 325,837 849 14,791 15,640
Metro Savings Bank, F.S.B. 197,902 57 14 8,983 9,054
Security Bank of Conway, F.S.B. 321,964 75 14,614 14,689
First Sterling Bancorp, Inc. 521,417 2,607 1,876 13,772 18,255
Issuance of common stock for employee
incentive plans 190,285 704 (2,470) 2,100 334
Net fair value adjustment on
available-for-sale securities (24,828) (24,828)
Purchase of treasury stock (3,898,600) (173,686) (173,686)
Reissuance and retirement of treasury
stock (6,458) (50,708) 57,166 --
Other (2,299) (11) (94) (59) (164)
---------- -------- ------- -------- ---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1996 60,163,042 $316,276 $ -- $232,873 $1,122,371 $(136,648) $1,534,872
========== ======== ======= ======== ========== ========= ==========
<FN>
<F*>Includes valuation allowance on available-for-sale securities.
</TABLE>
5
<PAGE> 6
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 125,317 $ 176,084
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for possible loan losses 55,915 29,177
Depreciation and amortization 32,200 28,848
Provision for deferred income taxes (9,077) 325
Net change in loans held-for-sale 30,934 (70,612)
Net change in accrued interest receivable 2,498 (12,056)
Net change in accrued interest payable (16,599) 27,166
Other, net 97,750 3,498
----------- ----------
Net Cash Provided by Operating Activities 318,938 182,430
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading
securities
Purchases (1,249,287) (865,953)
Proceeds from maturities 1,140,770 977,070
Proceeds from sales of available-for-sale securities 61,996 181,821
Net change in loans and leases (449,067) (871,632)
Purchases of loans and leases (91,349) (105,234)
Proceeds from sales of loans and leases 222,323 558,980
Purchases of premises and equipment (50,730) (43,708)
Proceeds from sales of premises and equipment 7,979 4,215
Proceeds from sales of foreclosed property 21,927 14,339
Cash and cash equivalents from acquisitions, net of cash paid 47,189 47,126
Other, net 5,866 914
----------- ----------
Net Cash Used by Investing Activities (332,383) (102,062)
FINANCING ACTIVITIES
Net change in non-interest bearing, savings, interest bearing demand
and money market deposit accounts 619,943 (406,759)
Net change in time certificates of deposit under $100,000 (312,673) 184,594
Net change in time certificates of deposit $100,000 and over (43,605) 159,937
Net change in other time deposits 192,982 96,280
Net change in foreign deposits 119,547 (58,399)
Net change in short-term borrowings (574,595) 97,368
Issuance of bank notes 25,000 150,000
Issuance of long-term debt 2,607 14,426
Principal payments on long-term debt (20,393) (17,624)
Cash dividends paid (76,642) (61,363)
Proceeds from issuance of common stock 856 2,209
Purchase of treasury stock (173,686) (50,571)
Redemption of preferred stock (12,684) --
Other, net (164) 1,822
----------- ----------
Net Cash Provided (Used) by Financing Activities (253,507) 111,920
----------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (266,952) 192,288
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,434,242 1,106,933
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,167,290 $1,299,221
=========== ==========
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The consolidated financial statements include all adjustments which are, in the
opinion of management, necessary for the fair statement of the results of these
periods and are of a normal recurring nature.
NOTE 2
Effective January 2, 1996, Mercantile Bancorporation Inc. (``Corporation'' or
``Mercantile'') acquired Hawkeye Bancorporation (``Hawkeye''), a $2
billion-asset holding company headquartered in Des Moines, Iowa. The Hawkeye
acquisition was accounted for as a pooling-of-interests. The historical
consolidated financial statements have been restated to reflect this
transaction.
Net income and net income per common share for Mercantile and Hawkeye prior to
restatement were as follows:
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER
COMMON SHARE DATA)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30 SEPT. 30
1995 1995
------------ -----------
<S> <C> <C>
MERCANTILE
Net income $56,697 $158,759
Net income per common share 1.02 2.95
HAWKEYE
Net income 6,067 17,325
Net income per common share .45 1.28
</TABLE>
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- -------------------------------------------------------------------------------
EXHIBIT 1
HIGHLIGHTS<F1>
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA) 1996 1995 CHANGE 1996 1995 CHANGE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income $ .92 $ .99 (7.1)% $ 2.01 $ 2.85 (29.5)%
Dividends declared .41 .33 24.2 1.23 .99 24.2
Book value at September 30 25.51 25.31 .8 25.51 25.31 .8
Market price at September 30 52 44 3/4 16.2 52 44 3/4 16.2
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS AND SELECTED RATIOS
EXCLUDING NONRECURRING EXPENSE<F2>
Net income $63,726 $62,764 1.5% $173,379 $176,084 (1.5)%
Net income per common share 1.05 .99 6.1 2.78 2.85 (2.5)
Return on assets 1.41% 1.41% 1.28% 1.35%
Return on equity 16.35 15.75 14.31 15.58
Efficiency ratio 56.66 56.22 57.21 56.92
Other expense to average assets 3.19 3.05 3.16 3.13
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS<F3>
Taxable-equivalent net interest income $179,123 $169,744 5.5% $533,270 $515,689 3.4%
Tax-equivalent adjustment 3,701 4,125 (10.3) 11,390 12,760 (10.7)
Net interest income 175,422 165,619 5.9 521,880 502,929 3.8
Provision for possible loan losses 12,109 8,504 42.4 55,915 29,177 91.6
Other income 74,488 72,005 3.4 211,929 199,616 6.2
Other expense 156,076 135,906 14.8 482,170 407,120 18.4
Income taxes 26,049 30,450 (14.5) 70,407 90,164 (21.9)
Net income 55,676 62,764 (11.3) 125,317 176,084 (28.8)
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS AND DATA<F3>
Return on assets 1.23% 1.41% .93% 1.35%
Return on equity 14.28 15.75 10.35 15.58
Efficiency ratio 61.54 56.22 64.70 56.92
Other expense to average assets 3.46 3.05 3.56 3.13
Net interest rate margin 4.30 4.12 4.29 4.29
Equity to assets 8.43 8.95
Tier I capital to risk-adjusted assets 11.15 12.37
Total capital to risk-adjusted assets 14.19 15.49
Leverage 7.73 8.48
Reserve for possible loan losses to
outstanding loans 1.66 1.75
Reserve for possible loan losses to
non-performing loans 348.56 366.62
Non-performing assets to outstanding loans and
foreclosed assets .58 .61
Banks 39 75
Banking offices 437 421
Full-time equivalent employees 7,690 7,643
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Total assets $18,038,973 $17,839,349 1.1% $18,035,465 $17,357,522 3.9%
Earning assets 16,655,904 16,495,402 1.0 16,569,222 16,035,719 3.3
Loans and leases 12,027,329 11,827,952 1.7 11,894,103 11,403,321 4.3
Deposits 14,482,723 13,911,956 4.1 14,383,825 13,554,324 6.1
Shareholders' equity 1,559,122 1,594,126 (2.2) 1,615,056 1,506,867 7.2
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> All previously reported financial information has been restated to reflect
the January 2, 1996 merger with Hawkeye Bancorporation, which was
accounted for as a pooling-of-interests.
<F2> Nonrecurring expense reduced net income and net income per common share by
$48,062,000 and $.77, respectively, in the first nine months of 1996.
<F3> Includes nonrecurring expense noted in (2) above.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PERFORMANCE SUMMARY
Net income for Mercantile Bancorporation Inc. (``Corporation'' or
``Mercantile'') for the third quarter of 1996 was $55,676,000, an 11.3%
decline from the $62,764,000 earned in the same period a year ago. On a per
common share basis, net income was $.92, down 7.1% from the $.99 earned in
last year's third quarter. Return on assets was 1.23% in the third quarter
compared with 1.43% in the second quarter of this year and 1.41% last year,
while return on average equity for the quarter was 14.28% versus 15.75% in
1995.
On September 30, 1996, legislation was enacted to recapitalize the Savings
Association Insurance Fund (``SAIF''), which called for a one-time
assessment of 65.7 basis points per $100 in thrift deposits held as of March
31, 1995. The assessment, recorded as a nonrecurring expense, totaled
$12,385,000. On an after-tax basis, this charge reduced earnings per common
share by $.13. Other operating results and selected ratios excluding this
assessment and first quarter 1996 nonrecurring merger-related expenses are
included in Exhibit 1 on Page 8.
Year-to-date 1996 net income was $125,317,000, down 28.8% from the
$176,084,000 earned last year, and on a per common share basis was $2.01, a
decline of 29.5% from the $2.85 recorded in the first nine months of 1996.
However, in the first quarter of 1996 the Corporation recorded nonrecurring
merger-related costs which reduced net income and net income per common
share by $40,012,000 and $.63, respectively. Excluding these merger-related
items and the third quarter 1996 nonrecurring SAIF assessment, net income
was $173,379,000 or $2.78 per common share, declines of 1.5% and 2.5%,
respectively, from the comparable figures of the first nine months of 1995.
Three additional items negatively impacted earnings for the first nine
months of 1996. In the first quarter of 1996, $10,000,000 was added to the
provision for loan losses in connection with an $11,000,000 loan charge-off
to a specialty retailer that declared bankruptcy in late 1995, thereby
reducing first quarter 1996 earnings per common share by $.10. Second, the
co-branded credit card launched in May 1995 by SBC Communications Inc.
(``SBC'') and Mercantile has
----------------------------------------------------------------------------
EXHIBIT 2
ACQUISITIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
CONSIDERATION
----------------- ACCOUNTING
DATE ASSETS DEPOSITS CASH SHARES METHOD
---- ------ -------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
Peoples State Bank Aug. 22, 1996 $ 95,657 $ 75,149 $ -- 325,837 Purchase
Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 73,843 5 197,902 Purchase
Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 321,964 Purchase
Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 7,892,196 Pooling
First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 521,417 Pooling<F1>
Southwest Bancshares, Inc. Aug. 1, 1995 187,701 155,628 1 674,975 Pooling<F1>
AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 130,179 1 661,356 Pooling<F1>
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<F2> Pooling
Central Mortgage Bancshares, Inc. May 1, 1995 654,584 571,105 8 2,537,723 Pooling
UNSL Financial Corp Jan. 3, 1995 508,346 380,716 11 1,578,107 Pooling
Wedge Bank Jan. 3, 1995 195,716 152,865 1 969,954 Pooling<F1>
ACQUISITIONS PENDING
Today's Bancorp, Inc. Nov. 7, 1996 519,103 446,573 <F3> <F3> Purchase
First Financial Corporation of America Nov. 1, 1996 87,661 76,379 <F4> <F4> Purchase
Mark Twain Bancshares, Inc. Early 1997 3,147,933 2,432,484 -- 17,200,000<F5> Pooling
Regional Bancshares, Inc. Early 1997 182,272 146,987 <F6> <F6> Purchase
<FN>
<F1> The historical financial statements of the Corporation were not restated
for the acquisition due to the immateriality of the acquiree's financial
condition and results of operations to those of Mercantile.
<F2> In addition to Mercantile common stock issued, the Corporation assumed,
through an exchange, the outstanding, non-convertible preferred stock of
TCBankshares, Inc. The preferred stock was redeemed in the first quarter
of 1996.
<F3> The value of the consideration will total $87,250,000, which includes up
to 1,177,066 shares of Mercantile common stock.
<F4> The value of the consideration will total $14,980,000, which includes up
to 258,783 shares of Mercantile common stock.
<F5> Estimated shares to be issued in acquisition.
<F6> The value of the consideration will total $41,000,000, which includes up
to 600,418 shares of Mercantile common stock.
</TABLE>
---------------------------------------------------------------------------
9
<PAGE> 10
negatively impacted earnings this year. Third, net credit losses on the
Corporation's core MasterCard(R) and VISA(R) credit card portfolios are
being realized at higher levels than in 1995.
All prior year figures have been restated to include the pre-acquisition
accounts and results of operations of Hawkeye Bancorporation (``Hawkeye''),
which was merged with Mercantile on January 2, 1996 in a transaction
accounted for as a pooling-of-interests. Also effective January 2, 1996,
Mercantile completed a merger with First Sterling Bancorp, Inc.
(``Sterling''), based in Sterling, Illinois. The Sterling transaction met
the requirements for treatment as a pooling-of-interests; however, due to
the immateriality of Sterling's financial condition and results of
operations to those of Mercantile, the historical financial statements of
the Corporation were not restated.
Three acquisitions accounted for as purchases were consummated in the first
nine months of 1996: 1) Security Bank of Conway, F.S.B. (``Conway''),
located in Conway, Arkansas, on February 9, 1996, 2) Metro Savings Bank,
F.S.B. (``Metro''), headquartered in Wood River, Illinois, on March 7, 1996,
and 3) Peoples State Bank (``Peoples''), in Topeka, Kansas, on August 22,
1996. Since the Conway, Metro and Peoples acquisitions were accounted for as
purchases, the results of operations were included in the Consolidated
Financial Statements from their respective acquisition dates.
Exhibit 2 details acquisitions completed during 1995 and 1996 as well as
four announced and pending acquisitions, the largest being the announcement
on October 28, 1996 that a definitive merger agreement had been signed with
Mark Twain Bancshares, Inc. (``Mark Twain''). The Mark Twain transaction is
the largest in Mercantile's history and is expected to close in the second
quarter of 1997, adding significantly to the Corporation's market share in
its three largest Missouri markets.
On August 16, 1996, Mercantile announced an agreement to sell its indenture
trustee and agency business to State Street Bank and Trust Company of
Missouri, a subsidiary of State Street Bank and Trust Company. The sale will
be finalized in the fourth quarter of 1996, when a gain of $.07 per common
share will be reported.
On April 3, 1996, the Corporation announced plans to reduce its bank
charters during the next 12 months by approximately 80% through
consolidations in order to achieve greater operational efficiencies. Through
September 30, 1996, five consolidation transactions were completed which
reduced 37 bank charters down to five.
Net interest income increased 5.9% to $175,422,000 for the third quarter of
1996 and 3.8% to $521,880,000 for the first nine months of 1996. The net
interest rate margin was 4.30% this quarter compared with 4.34% in the
second quarter of 1996 and 4.12% for the third quarter of 1995, while the
year-to-date margin was 4.29% in both 1996 and 1995. Average earning assets
for the first nine months of 1996 of $16.6 billion were 3.3% higher than
last year as average loan volume was up 4.3%. Loan growth was funded through
an increase in average core deposits.
Other income was $74,488,000 for the third quarter of 1996, an increase of
$2,483,000 or 3.4% from a year ago. Growth in core fee businesses largely
accounted for the increase. Also included in other income in the third
quarter of 1996 was a $4,000,000 reimbursement for start-up costs Mercantile
incurred in conjunction with the co-branded credit card program. A
$4,000,000 reimbursement was also received in the second quarter of 1996 and
a comparable amount is expected during the fourth quarter. Net gains of
$3,542,000 were recorded on the sale of portfolio leases in the third
quarter of 1996 compared with similar gains of $5,300,000 in the third
quarter of last year.
For the first nine months of 1996, other income was $211,929,000, an
improvement of $12,313,000 or 6.2% from last year. Included in 1996's first
quarter was $3,082,000 in nonrecurring merger-related securities losses,
while the first quarter of 1995 included a $5,155,000 gain on the sale of
the Corporation's interest in a joint venture that provided the St. Louis
market with ATM switching capabilities and $1,730,000 in equity securities
gains. Trust fees, service charges, investment banking and brokerage fees,
letters of credit fees and mortgage banking income were all strong in 1996
when compared with last year.
Third quarter non-interest expenses were up 14.8% from a year ago and
totaled $156,076,000 compared with $135,906,000 last year, and year-to-date
were $482,170,000, up 18.4%. Expenses for the third quarter of 1996
reflected the one-time
10
<PAGE> 11
SAIF assessment of $12,385,000 discussed earlier. Non-interest expenses in
the first quarter of 1996 included $41,678,000 in nonrecurring
merger-related costs. Excluding both these nonrecurring costs, the
year-to-date efficiency ratio was 57.21% compared with 56.92% last year, and
the other expense to average assets ratio was 3.16% versus 3.13% the prior
year.
The provision for possible loan losses for the third quarter of 1996 was
$12,109,000 compared with $8,504,000 the prior year, and was $55,915,000 for
the first nine months of 1996 compared with $29,177,000 in 1995. In addition
to the $10,851,000 in nonrecurring first quarter merger-related provision,
$10,000,000 was recorded in connection with a charge-off on a specialty
retailer credit as previously discussed. Net charge-offs for the first nine
months of 1996 and 1995 were $58,144,000 and $37,428,000, respectively, and
on an annualized basis were .65% of average loans compared with .44% last
year. At September 30, 1996, the reserve for possible loan losses was
$202,149,000 and provided coverage of 348.56% of non-performing loans
compared with 245.18% at year-end and 366.62% last year.
Non-performing assets as of September 30, 1996 were $70,060,000 or .58% of
total loans and foreclosed assets, compared with the year-end 1995 figures
of $94,890,000 or .81%, and $72,596,000 or .61% at September 30, 1995.
Foreclosed assets declined to $12,064,000 compared with $12,591,000 at
year's end and $15,472,000 last September 30.
Consolidated assets of $18.2 billion were up 1.1% from last September 30.
Core deposits increased by 7.5% to $13.3 billion, loans were $12.2 billion,
up 1.8% from last year, and shareholders' equity of $1.5 billion was 4.8%
lower than at September 30, 1995 as the result of treasury share purchases.
Tier I capital to risk-adjusted assets was 11.15% compared with 12.37% last
year, while Total capital to risk-adjusted assets at September 30, 1996 and
1995 was 14.19% and 15.49%, respectively.
The following financial commentary presents a more thorough discussion and
analysis of the results of operations and financial condition of the
Corporation for the third quarter and first nine months of 1996.
NET INTEREST INCOME
Net interest income for the third quarter of 1996 was $175,422,000, a 5.9%
increase from the $165,619,000 earned last year, and for the first nine
months of 1996 was $521,880,000, a 3.8% improvement from last year. For the
quarter, the net interest rate margin was 4.30% compared with 4.12% last
year, while the year-to-date margin was 4.29% in both 1996 and 1995.
Factors affecting the net interest rate margins during both years included
the May 1995 credit card securitization and continued competitive pricing
for both loans and deposits, offset by the benefits derived from repricing
the co-branded credit card loan portfolio and higher levels of non-interest
bearing funds in the current year.
Year-to-date average loans grew by $490,782,000 or 4.3%
and investment securities grew by 2.0%, as funding from
core deposit growth outpaced loan growth. The Corporation
redesignated selected investment held-to-maturity
during the third quarter of 1996 in conjunction with
the establishment of a real estate investment trust (``REIT'')
and investment subsidiaries. Short-term investments are primarily
used for short-term excess liquidity or balancing the interest rate
sensitivity of the Corporation, and on average decreased by 13.3%
during the first nine months of 1996.
----------------------------------------------------------------------
EXHIBIT 3
LOANS AND LEASES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30
1996 1995 CHANGE
---- ---- ------
<S> <C> <C> <C>
Commercial $ 3,094,434 $ 3,043,157 1.7%
Real estate--commercial 2,016,255 2,032,639 (.8)
Real estate--construction 389,127 304,747 27.7
Real estate--residential 4,096,684 4,110,346 (.3)
Consumer 1,715,479 1,699,025 1.0
Credit card loans managed 1,254,482 1,158,572 8.3
Securitized credit card
loans (400,000) (400,000) --
----------- -----------
Total Loans and Leases $12,166,461 $11,948,486 1.8
=========== ===========
</TABLE>
-----------------------------------------------------------------------
Year-to-date average commercial loan growth was $129,634,000, up
4.4%, and was broad-based across the system. Commercial real estate and
construction loans grew by $121,780,000 or 5.3%. When the effect of the
sale of $225,000,000 in mortgages in the fourth quarter of 1995 is
considered, average residential mortgage loans grew by $348,686,000 or
9.2%. Other consumer loans increased on average by $50,209,000 or 3.1%
due to growth in indirect auto loans. Excluding the impact of the
$400,000,000 in credit card loans securitized during May 1995, total
managed credit card
11
<PAGE> 12
loans increased on average by 27.4%. The SBC co-branded credit card added
significantly to this growth while the core MasterCard(R) and VISA(R)
portfolio declined as planned.
Average core deposits increased by $773,832,000 or 6.2% in the first nine
months of 1996. Mercantile remained substantially core funded at 91.97% of
total deposits and 79.84% of earning assets for the first nine months of
1996 versus 91.89% and 77.67%, respectively, in 1995. Changes in average
core deposits for the past seven quarters are shown in the Consolidated
Quarterly Average Balance Sheet on Pages 19 and 20 of this report.
Average non-interest bearing deposits increased by $242,769,000 or 10.9%
through the first nine months of 1996. The United States Government is a
significant cash management customer of Mercantile Bank N.A. and pays for
services rendered via compensating balances. In response to the lack of an
approved fiscal 1996 federal budget, the Government withdrew all balances
from the Corporation in November 1995 to help finance its funding
requirements. The withdrawal reduced average balances during the first
quarter by approximately $400,000,000. The funds were redeposited with
Mercantile Bank N.A. on April 9, 1996 and compensation via higher balances
has been made for the period of time the balances were missing.
Year-to-date average short-term borrowings decreased by $348,006,000, due
primarily to the credit card securitization, the growth in core deposits, an
increase in bank note funding and the return of the United States Government
deposits. Average shareholders' equity increased by $108,189,000 or 7.2%.
However, shareholders' equity as of September 30, 1996 was $77,114,000 or
4.8% lower than a year earlier. Increases in shareholders' equity due to net
earnings retained and stock issued in acquisitions were more than offset by
the repurchase of 3,898,600 common shares at a cost totaling $173,686,000.
The factors discussed above are consistent with Mercantile's overall
corporate policy relative to rate sensitivity and liquidity, which is to
produce the optimal yield and maturity mix consistent with interest rate
expectations and projected liquidity needs. The Consolidated Quarterly
Average Balance Sheet, with rates earned and paid, is summarized by quarter
on Pages 19 and 20.
OTHER INCOME
Non-interest income increased 3.4% during the third quarter of 1996 to
$74,488,000, and for the nine months was $211,929,000 compared with
$199,616,000 a year ago, an improvement of 6.2%. Year-to-date trust fees,
service charges, investment banking and brokerage fees, mortgage banking
income, credit card and letters of credit fees were at higher levels than
last year.
----------------------------------------------------------------------------
EXHIBIT 4
OTHER INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
1996 1995 CHANGE 1996 1995 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Trust $19,388 $17,831 8.7% $ 59,491 $ 52,142 14.1%
Service charges 20,315 19,011 6.9 59,492 56,331 5.6
Credit card fees 8,936 3,855 -- 18,515 15,622 18.5
Securitization revenue 4,198 8,397 (50.0) 12,025 12,920 (6.9)
Mortgage banking 2,421 2,342 3.4 7,793 6,760 15.3
Investment banking and brokerage 3,311 3,194 3.7 9,670 8,371 15.5
Letters of credit fees 2,195 1,862 17.9 5,991 4,705 27.3
Securities gains 15 1,678 (99.1) 239 3,776 (93.7)
Nonrecurring merger-related securities losses -- -- -- (3,082) -- --
Other 13,709 13,835 (.9) 41,795 38,989 7.2
------- ------- -------- --------
Total Other Income $74,488 $72,005 3.4 $211,929 $199,616 6.2
======= ======= ======== ========
</TABLE>
---------------------------------------------------------------------------
12
<PAGE> 13
Trust fees have been the largest source of non-interest income in 1996, and
were $59,491,000 compared with $52,142,000 during 1995, an increase of
14.1%. Personal trust fees earned by Mercantile Trust Company N.A. were the
largest source of trust revenue and increased 23.1% from last year. Income
from Mississippi Valley Advisors Inc., the investment management subsidiary
of Mercantile, rose by 29.0%. Mississippi Valley Advisors Inc. manages
eleven proprietary mutual funds--the ARCH funds, which had assets of $2.4
billion at September 30, 1996 compared with $1.9 billion a year earlier, a
growth of 24.5%. Increases in the value of assets managed as well as
repricing and successful new business development efforts largely accounted
for the growth in trust fees.
Service charge income of $20,315,000 was up 6.9% for the third quarter and
increased by 5.6% for the first nine months of 1996. The increase in deposit
service charges was due largely to selective fee increases and enhanced
pricing of low-balance, high-transaction accounts.
Year-to-date mortgage banking income increased by $1,033,000 or 15.3% as
servicing revenue and gains on the sale of loans both improved over 1995
levels. Also, $893,000 of the increase was attributable to the additional
servicing volume of Mercantile Bank, FSB, previously Plains Spirit Financial
Corporation, (``Plains Spirit'') which was acquired by Mercantile on July 7,
1995 in a purchase transaction. Mortgages serviced totaled $5.8 billion at
September 30, 1996 compared with $5.5 billion at September 30, 1995.
Year-to-date investment banking and brokerage fees were $9,670,000 compared
with $8,371,000 last year, an increase of 15.5%. This income is derived from
transaction fees for services performed for both individual and corporate
customers, including sales of annuities and mutual funds, profits earned on
trading positions and foreign exchange revenue. Mercantile Investment
Services, Inc., Mercantile's brokerage services subsidiary, has experienced
strong growth in fees from sales of investment products throughout 1996,
reflecting favorable market conditions and an increase in sales activity.
Credit card fee income was $8,936,000 for the third quarter of 1996, more
than double the 1995 level. For the first nine months of 1996, credit card
income was $18,515,000 or 18.5% higher than the comparable 1995 period. The
year-to-date 1996 results included the $8,000,000 co-branded credit card
start-up cost reimbursement discussed previously. Credit card income
primarily represents interchange fees received on transactions of Mercantile
cardholders, miscellaneous fees and fees charged merchants for processing
credit card transactions. Transaction-based rebates paid to SBC co-branded
cardholders are netted against credit card fee income; these rebates totaled
$16,996,000 in the first nine months of 1996 versus $6,472,000 in 1995.
Certain fees relating to the securitized loans were reclassified to
securitization revenue starting in the second quarter of 1995. Credit card
income related to the merchant processing business, which was sold late in
the second quarter of 1996 at a gain of $10,000,000, represented
approximately 18% of total credit card income for the first nine months of
1996.
Securitization revenue for the first nine months of 1996 was $12,025,000
compared with $12,920,000 last year, and represents amounts accruing to
Mercantile on the $400,000,000 in credit card loans securitized in the
Mercantile Credit Card Master Trust. For securitized loans, amounts that
would otherwise 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. 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.
Securities losses of $3,082,000 were the result of merger-related investment
portfolio restructurings by recently acquired banks in the first quarter of
1996. During 1995, the Corporation recorded gains of $1,730,000 on the sale
of equity securities. Included in miscellaneous income were gains on the
sales of leases during the third quarter of both 1996 and 1995, which
totaled $3,542,000 and $5,300,000, respectively.
13
<PAGE> 14
OTHER EXPENSE
Expenses other than interest expense and the provision for possible loan
losses for the third quarter of 1996 were $156,076,000, an increase of
14.8% from the third quarter of 1995. For the first nine months of 1996,
total other expenses were $482,170,000, an 18.4% increase from the 1995
level. The Corporation recorded FDIC insurance expense in the third quarter
of 1996 of $12,385,000 for the nonrecurring SAIF assessment.
Included in other expense in the first quarter of 1996 was $41,678,000 in
expenses associated with mergers, largely for investment banking and other
professional services, change in control and severance payments, and
obsolete equipment write-offs. Other expense also increased as a result of
purchase acquisitions which were not included in prior period financial
statements. Excluding nonrecurring merger and FDIC insurance costs,
year-to-date operating expenses increased by 5.2% over 1995. The efficiency
ratio, defined as operating expenses as a percentage of taxable-equivalent
net interest income and other income, was 56.66% in the current quarter
versus 55.41% last quarter, while the efficiency ratio was 57.21% for the
first nine months of 1996 compared with 56.92% last year.
Salary expense increased 3.3% and 7.0%, respectively, during the third
quarter and first nine months of 1996, largely reflecting the costs of merit
increases and employees added in acquisitions accounted for as purchases or
poolings without restatement. Year-to-date benefit costs were up by 12.9%
due to higher costs of most employee benefit programs. In 1996, the
Corporation lowered the discount rate used in pension and postretirement
actuarial assumptions by one percent, which increased pension expense by
21.7% this year in comparison with 1995. Occupancy and equipment costs grew
by 9.4% during the first nine months of 1996, reflecting the costs of
maintaining additional offices and a consistent program of upgrading systems
and equipment to further enhance productivity.
----------------------------------------------------------------------------
EXHIBIT 5
OTHER EXPENSE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
1996 1995 CHANGE 1996 1995 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 63,890 $ 61,855 3.3% $189,463 $177,047 7.0%
Employee benefits 15,565 13,950 11.6 47,984 42,493 12.9
-------- -------- -------- --------
Total Personnel Expense 79,455 75,805 4.8 237,447 219,540 8.2
Net occupancy 10,342 10,285 .6 29,683 28,151 5.4
Equipment 12,654 10,954 15.5 36,386 32,220 12.9
Marketing/business development 2,685 3,192 (15.9) 7,973 9,634 (17.2)
Postage and freight 5,351 4,899 9.2 16,526 14,658 12.7
Office supplies 2,948 3,221 (8.5) 9,419 9,610 (2.0)
Communications 2,713 2,958 (8.3) 8,132 7,760 4.8
Legal and professional 2,407 3,155 (23.7) 7,765 8,515 (8.8)
Credit card 4,069 4,374 (7.0) 11,310 9,625 17.5
FDIC insurance 1,185 791 49.8 3,726 15,215 (75.5)
Nonrecurring FDIC insurance 12,385 -- -- 12,385 -- --
Foreclosed property expense (232) 42 -- (593) 722 --
Intangible asset amortization 2,728 2,618 4.2 8,114 6,990 16.1
Nonrecurring merger-related expense -- -- -- 41,678 -- --
Other 17,386 13,612 27.7 52,219 44,480 17.4
-------- -------- -------- --------
Total Other Expense $156,076 $135,906 14.8 $482,170 $407,120 18.4
======== ======== ======== ========
RATIOS EXCLUDING NONRECURRING EXPENSE
Efficiency ratio 56.66% 56.22% 57.21% 56.92%
Other expense to average assets 3.19 3.05 3.16 3.13
</TABLE>
---------------------------------------------------------------------------
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. Due to this refund and the special SAIF assessment in the third
quarter of 1996, FDIC insurance increased by $896,000 from last year.
14
<PAGE> 15
Exhibit 5 details the composition of all other operating expenses. The
increases in year-to-date credit card, communications and postage expenses
were due primarily to the costs of servicing SBC co-branded credit card
customers. Intangible asset amortization increased by $1,124,000 or 16.1%,
due primarily to the amortization of the goodwill recorded on the Plains
Spirit, Metro, Conway and Peoples acquisitions.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses was $202,149,000 or 1.66% of loans
outstanding at September 30, 1996. This compared with $201,780,000 or 1.72%
at year's end and $209,428,000 or 1.75% at September 30, 1995. The reserve
for possible loan losses as a percentage of non-performing loans was
348.56% compared with 245.18% at year-end and 366.62% last year.
----------------------------------------------------------------------------
EXHIBIT 6
RESERVE FOR POSSIBLE LOAN LOSSES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
BEGINNING BALANCE $205,687 $200,987 $201,780 $215,849
PROVISION 12,109 8,504 55,915 29,177
Charge-offs (21,061) (16,568) (73,116) (50,347)
Recoveries 4,954 4,802 14,972 12,919
-------- -------- -------- --------
NET CHARGE-OFFS (16,107) (11,766) (58,144) (37,428)
Acquired reserves 460 11,703 2,598 13,830
Transfer to Mercantile Credit Card Master
Trust -- -- -- (12,000)
-------- -------- -------- --------
ENDING BALANCE $202,149 $209,428 $202,149 $209,428
======== ======== ======== ========
LOANS AND LEASES
September 30 balance $12,166,461 $11,948,486 $12,166,461 $11,948,486
=========== =========== =========== ===========
Average balance $12,027,329 $11,827,952 $11,894,103 $11,403,321
=========== =========== =========== ===========
RATIOS
Reserve balance to outstanding loans 1.66% 1.75% 1.66% 1.75%
Reserve balance to non-performing loans 348.56 366.62 348.56 366.62
Net charge-offs to average loans .54 .40 .65 .44
Earnings coverage of net charge-offs 5.83X 8.65x 4.33X 7.89x
</TABLE>
---------------------------------------------------------------------------
The year-to-date 1996 provision for possible loan losses was $55,915,000
compared with $29,177,000 last year. The first quarter of 1996 included a
nonrecurring merger-related provision of $10,851,000 which was recorded
largely to conform the credit policies of recently acquired entities to
those of Mercantile; an additional $10,000,000 in provision was recorded
during the first quarter of 1996 in connection with an $11,000,000
charge-off of a credit to a St. Louis-based specialty retailer that
declared bankruptcy in late 1995.
The annualized ratio of net charge-offs to average loans for the first nine
months of 1996 was .65% compared with .44% last year, while the
corresponding net charge-off figures were $58,144,000 and $37,428,000,
respectively. The $11,000,000 charge-off mentioned above increased the 1996
annualized ratio of net charge-offs to average loans by 12 basis points.
Excluding securitized credit cards, net credit card charge-offs were
$42,968,000 in 1996 versus $28,225,000 last year, and represented 6.84% of
average credit card loans compared with 4.87% in 1995. Approximately 36% of
the 1996 credit card losses were a result of bankruptcy claims. In the
second quarter of 1995, $12,000,000 of the Corporation's loan loss reserve
was transferred with the securitized loans to the Mercantile Credit Card
Master Trust in conjunction with the May 17, 1995 securitization. Excluding
credit card net charge-offs and the $11,000,000 nonrecurring loss, net
charge-offs were only $4,176,000 or .05% of average loans for the first nine
months of 1996.
15
<PAGE> 16
Mercantile evaluates the reserves of all banks on a quarterly basis to
ensure the timely charge-off of loans and to determine the adequacy of each
bank's reserve for possible loan losses. Management believes the
consolidated reserve of 1.66% of total loans and 348.56% of non-performing
loans as of September 30, 1996 was adequate based on the risks identified at
such date in the portfolios.
NON-PERFORMING ASSETS
Non-performing loans (non-accrual and renegotiated loans) were $57,996,000
or .48% of total loans outstanding at September 30, 1996 compared with
$63,738,000 or .53% at June 30, 1996 and $82,299,000 or .70% at December 31,
1995. Foreclosed assets at September 30, 1996 were $12,064,000 compared with
$8,061,000 at June 30, 1996 and $12,591,000 at year's end. The ratio of
non-performing assets to outstanding loans and foreclosed assets was .58% at
September 30, 1996 compared with .60% at June 30, 1996 and .81% at December
31, 1995.
Non-accrual loans decreased by $5,185,000 from the June 30, 1996 level,
which was caused primarily by the foreclosure of a St. Louis commercial real
estate mortgage loan. As of September 30, 1996, Mercantile had only three
non-accrual loans with balances in excess of $1,000,000, the largest
totaling $3,700,000.
- ---------------------------------------------------
EXHIBIT 7
NON-PERFORMING ASSETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30 DEC. 31 SEPT. 30
1996 1995 1995
-------- ------- --------
<S> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial $13,512 $39,222 $20,310
Real estate--commercial 15,656 17,953 16,717
Real estate--construction 666 342 326
Real estate--residential 20,917 17,327 12,999
Consumer 3,935 4,361 3,809
------- ------- -------
Total Non-accrual Loans 54,686 79,205 54,161
RENEGOTIATED LOANS 3,310 3,094 2,963
------- ------- -------
TOTAL NON-PERFORMING LOANS $57,996 $82,299 $57,124
======= ======= =======
FORECLOSED ASSETS
Foreclosed real estate $ 9,868 $ 9,951 $12,700
Other foreclosed assets 2,196 2,640 2,772
------- ------- -------
TOTAL FORECLOSED ASSETS $12,064 $12,591 $15,472
======= ======= =======
TOTAL NON-PERFORMING ASSETS $70,060 $94,890 $72,596
======= ======= =======
PAST-DUE LOANS
(90 DAYS OR MORE) $32,336 $27,242 $22,006
======= ======= =======
RATIOS
Non-performing loans to
outstanding loans .48% .70% .48%
Non-performing assets to
outstanding loans and
foreclosed assets .58 .81 .61
Non-performing assets to
total assets .38 .53 .40
</TABLE>
- --------------------------------------------------------------------
All loans classified as renegotiated were performing in accordance with
their modified terms at September 30, 1996. Foreclosed assets increased by
$4,003,000 from June 30, 1996 due to the foreclosure of the commercial real
estate mortgage non-accrual loan previously noted; this was the only
foreclosed property at September 30, 1996 with a book value exceeding
$1,000,000. Loans past due 90 days and still accruing interest were up
slightly from the June 30, 1996 level and consisted largely of credit card,
consumer and residential mortgage loans.
CAPITAL RESOURCES
Mercantile maintains a strong capital base which provides a solid foundation
for asset growth and promotes depositor and investor confidence. Capital
management is a continuous process at Mercantile and is focused on ensuring
that adequate capital is available for both current needs and anticipated
growth. This strategy has enabled the Corporation to profitably expand its
balance sheet, while maintain-
- ---------------------------------------------------
EXHIBIT 8
RISK-BASED CAPITAL
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30 DEC. 31 SEPT. 30
1996 1995 1995
-------- ------- --------
<S> <C> <C> <C>
Capital
Tier I $ 1,401,095 $ 1,509,061 $ 1,504,026
Total 1,783,750 1,890,362 1,883,065
Risk-adjusted assets 12,567,917 12,352,966 12,156,919
Tier I capital to risk-
adjusted assets 11.15% 12.22% 12.37%
Total capital to risk-
adjusted assets 14.19 15.30 15.49
Leverage 7.73 8.54 8.48
Double leverage 109.04 107.93 107.56
Long-term debt to total
capitalization 16.48 16.57 17.59
</TABLE>
- --------------------------------------------------------------------
ing capital ratios stronger than those of other quality banking
organizations, and well in excess of regulatory standards.
At September 30, 1996, shareholders' equity was $1.5 billion, a decrease of
4.8% from September 30, 1995. During the first nine months of 1996,
Mercantile repurchased 3,898,600 shares of its common stock via designated
broker dealers. A final
16
<PAGE> 17
settlement price has not been determined for 2,000,000 of those shares. Some
of the stock was reissued in the Conway, Metro and Peoples acquisitions
while some was held for reissuance in conjunction with the 1994 Stock
Incentive Plan. An estimated 2,036,000 in treasury shares will be reissued
in the Today's Bancorp, Inc., First Financial Corporation of America and
Regional Bancshares, Inc. transactions. Any remaining treasury shares will
likely be reissued in the Mark Twain transaction. Partially offsetting the
share buyback was net earnings retained, as well as stock issued under
various employee benefit plans and acquisitions accounted for as purchases
or poolings-of-interests without restatement. Equity represented 8.43% of
assets at September 30, 1996 compared with 8.95% a year ago.
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, was 109.04% at September 30, 1996 compared with
107.93% at year-end and 107.56% at September 30, 1995. Exhibit 8 details
significant capital ratios and intangible assets.
As interest rates declined during 1995, the Corporation recorded a favorable
adjustment to equity of $47,494,000 through December 31, 1995 on
available-for-sale investment securities held. In the first nine months of
1996, the net fair value adjustment lowered equity by $24,828,000, due
largely to an increase in longer-term interest rates, thus reducing the
equity to assets ratio at September 30, 1996 in comparison with year-end. In
conjunction with the acquisition of TCBankshares, Inc. on May 1, 1995, the
Corporation assumed, through an exchange, 14,806 shares of preferred stock
with a book value of $12,153,000. These preferred shares were redeemed in
March 1996.
On July 11, 1996, the Board of Directors authorized the repurchase of up to
6,000,000 shares of the Corporation's common stock over the next
twelve-month period. This authorization was inclusive of shares to be
repurchased in connection with the previously announced pending
acquisitions. On October 28, 1996, the Corporation rescinded all previously
announced share repurchase programs and stated it may repurchase up to
700,000 shares in the open market that would be reissued in the Mark Twain
transaction.
On July 11, 1996, the Board of Directors declared a cash dividend of $.41
per common share, which was paid October 1, 1996, representing a 44.57%
payout of third quarter 1996 earnings. Book value per common share was
$25.51 at September 30, 1996 compared with $25.31 a year earlier, an
increase of .8%. Public debt ratings of the Corporation and Mercantile Bank
N.A. are shown in Exhibit 9.
----------------------------------------------------------------------------
EXHIBIT 9
DEBT RATINGS
<TABLE>
<CAPTION>
THOMSON STANDARD
MOODY'S FITCH BANKWATCH & POOR'S
------- ----- --------- --------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer Rating B
Commercial Paper F1 TBW-1
7.625% Subordinated Notes, due 2002 Baa1 BBB+ BBB
MERCANTILE BANK N.A.
Bank Notes A1/P-1 A
6.375% Subordinated Notes, due 2004 A3 A A- BBB+
9.000% Mortgage-backed Notes, due 1999 AAA
Certificates of Deposit TBW-1 A-/A-2
Letters of Credit TBW-1 A-/A-2
</TABLE>
----------------------------------------------------------------------------
17
<PAGE> 18
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME
($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR.
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and
leases $246,749 $251,438 $259,097 $263,768 $257,044 $259,105 $262,310
Investments in debt and equity
securities 62,784 62,811 64,016 62,554 63,581 66,811 66,219
Short-term investments 4,663 4,851 5,952 5,261 4,615 4,416 3,600
-------- -------- -------- -------- -------- -------- --------
Total Interest Income 314,196 319,100 329,065 331,583 325,240 330,332 332,129
Tax-equivalent adjustment 4,405 4,230 4,125 3,810 3,921 3,768 3,701
-------- -------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INTEREST
INCOME 318,601 323,330 333,190 335,393 329,161 334,100 335,830
INTEREST EXPENSE
Deposits 110,577 121,798 130,959 132,529 131,386 127,931 126,453
Borrowed funds 31,706 31,905 32,487 28,573 24,118 25,679 30,254
-------- -------- -------- -------- -------- -------- --------
Total Interest Expense 142,283 153,703 163,446 161,102 155,504 153,610 156,707
-------- -------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT NET
INTEREST INCOME 176,318 169,627 169,744 174,291 173,657 180,490 179,123
PROVISION FOR POSSIBLE LOAN LOSSES 13,990 6,683 8,504 7,353 33,168 10,638 12,109
OTHER INCOME
Trust 16,717 17,594 17,831 18,609 19,354 20,749 19,388
Service charges 18,500 18,820 19,011 19,077 19,272 19,905 20,315
Credit card fees 7,069 4,698 3,855 4,068 1,449 8,130 8,936
Securitization revenue -- 4,523 8,397 10,085 4,502 3,325 4,198
Mortgage banking 2,078 2,340 2,342 4,062 3,120 2,252 2,421
Investment banking and brokerage 2,304 2,873 3,194 2,995 3,143 3,216 3,311
Securities gains (losses) (54) 2,152 1,678 266 (2,956) 98 15
Other 16,087 11,910 15,697 14,875 11,400 20,482 15,904
-------- -------- -------- -------- -------- -------- --------
Total Other Income 62,701 64,910 72,005 74,037 59,284 78,157 74,488
OTHER EXPENSE
Personnel expense 72,543 71,192 75,805 79,085 79,256 78,736 79,455
Net occupancy and equipment 19,391 19,741 21,239 22,303 21,316 21,757 22,996
Other 43,992 44,355 38,862 45,240 82,198 42,831 53,625
-------- -------- -------- -------- -------- -------- --------
Total Other Expense 135,926 135,288 135,906 146,628 182,770 143,324 156,076
-------- -------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INCOME BEFORE
INCOME TAXES 89,103 92,566 97,339 94,347 17,003 104,685 85,426
INCOME TAXES
Income taxes 29,265 30,449 30,450 33,945 8,517 35,841 26,049
Tax-equivalent adjustment 4,405 4,230 4,125 3,810 3,921 3,768 3,701
-------- -------- -------- -------- -------- -------- --------
Adjusted Income Taxes 33,670 34,679 34,575 37,755 12,438 39,609 29,750
-------- -------- -------- -------- -------- -------- --------
NET INCOME $ 55,433 $ 57,887 $ 62,764 $ 56,592 $ 4,565 $ 65,076 $ 55,676
======== ======== ======== ======== ======== ======== ========
NET INCOME PER COMMON SHARE $.91 $.95 $.99 $.89 $.07 $1.04 $.92
SIGNIFICANT RATIOS
Return on assets 1.30% 1.35% 1.41% 1.27% .10% 1.43% 1.23%
Return on equity 15.35 15.64 15.75 13.91 1.09 16.15 14.28
</TABLE>
18
<PAGE> 19
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1995
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
------------------- ------------------- ------------------- -------------------
VOLUME RATE<F*> VOLUME RATE<F*> VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of
unearned income
Commercial $ 2,802,058 8.67% $ 2,951,939 8.85% $ 3,027,078 8.74% $ 2,994,035 8.66%
Real estate--commercial 1,905,988 8.75 1,938,588 9.08 2,017,018 9.04 2,070,714 8.99
Real estate--construction 323,263 8.62 343,408 8.75 331,093 8.99 309,843 9.27
Real estate--residential 3,570,859 7.83 3,675,443 7.98 4,062,840 8.11 4,023,306 8.15
Consumer 1,630,222 8.18 1,629,008 8.55 1,674,574 8.93 1,676,466 8.99
Credit card 874,007 16.16 729,319 15.21 715,349 11.95 788,126 13.45
----------- ----------- ----------- -----------
Total Loans and Leases 11,106,397 8.93 11,267,705 8.97 11,827,952 8.80 11,862,490 8.93
Investments in debt and
equity securities
Trading 12,375 5.27 6,907 6.25 4,203 5.42 7,646 5.39
Taxable 3,843,721 5.83 3,814,295 5.92 3,842,518 6.03 3,758,841 6.03
Tax-exempt 469,011 8.42 456,124 8.12 440,220 8.18 427,748 8.08
----------- ----------- ----------- -----------
Total Investments in Debt
and Equity Securities 4,325,107 6.11 4,277,326 6.16 4,286,941 6.25 4,194,235 6.24
Short-term investments 308,670 6.04 318,263 6.10 380,509 6.26 342,903 6.14
----------- ----------- ----------- -----------
Total Earning Assets 15,740,174 8.10 15,863,294 8.15 16,495,402 8.08 16,399,628 8.18
Non-earning assets 1,268,919 1,351,717 1,343,947 1,374,196
----------- ----------- ----------- -----------
Total Assets $17,009,093 $17,215,011 $17,839,349 $17,773,824
=========== =========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,114,066 $ 2,280,010 $ 2,275,567 $ 2,116,886
Interest bearing demand 2,217,850 2.08 2,123,323 2.22 2,088,349 2.24 2,133,652 2.22
Money market accounts 1,736,985 3.70 1,723,328 3.94 1,834,507 4.03 1,902,852 4.06
Savings 1,140,850 2.38 1,106,774 2.37 1,102,394 2.36 1,062,972 2.35
Consumer time certificates
under $100,000 4,881,040 4.94 5,011,839 5.41 5,311,979 5.64 5,307,637 5.67
Other time 135,037 5.51 139,721 5.69 135,658 5.76 78,808 9.80
----------- ----------- ----------- -----------
Total Core Deposits 12,225,828 3.82 12,384,995 4.16 12,748,454 4.34 12,602,807 4.37
Time certificates $100,000
and over 806,918 5.36 912,163 5.88 957,153 5.93 978,293 5.97
Foreign 206,123 6.20 207,590 6.38 206,349 6.21 223,291 6.06
----------- ----------- ----------- -----------
Total Purchased Deposits 1,013,041 5.53 1,119,753 5.97 1,163,502 5.98 1,201,584 5.99
----------- ----------- ----------- -----------
Total Deposits 13,238,869 3.98 13,504,748 4.34 13,911,956 4.50 13,804,391 4.54
Short-term borrowings 1,680,362 5.69 1,465,439 5.92 1,529,304 5.86 1,519,706 4.75
Bank notes 106,667 6.26 250,000 6.54 250,000 6.43 250,000 6.24
Long-term debt 327,972 7.52 321,633 7.62 341,550 7.09 338,135 7.85
----------- ----------- ----------- -----------
Total Acquired Funds 15,353,870 4.30 15,541,820 4.64 16,032,810 4.75 15,912,232 4.67
Other liabilities 210,451 193,131 212,413 234,157
SHAREHOLDERS' EQUITY 1,444,772 1,480,060 1,594,126 1,627,435
----------- ----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $17,009,093 $17,215,011 $17,839,349 $17,773,824
=========== =========== =========== ===========
SIGNIFICANT RATIOS
Net interest rate spread 3.80% 3.51% 3.33% 3.51%
Net interest rate margin 4.48 4.28 4.12 4.25
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
19
<PAGE> 20
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1996
1ST QTR. 2ND QTR. 3RD QTR.
------------------ ------------------ ------------------
VOLUME RATE<F*> VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of unearned
income
Commercial $ 3,006,310 8.38% $ 3,064,431 8.29% $ 3,101,229 8.35%
Real estate--commercial 2,133,882 8.69 2,119,736 8.60 2,045,926 8.70
Real estate--construction 300,847 8.99 289,408 9.48 336,511 9.14
Real estate--residential 3,833,423 8.14 3,857,914 8.21 3,993,186 8.18
Consumer 1,691,444 8.84 1,695,275 8.84 1,698,142 8.89
Credit card 832,458 12.77 828,395 13.30 852,335 12.69
----------- ----------- -----------
Total Loans and Leases 11,798,364 8.75 11,855,159 8.78 12,027,329 8.76
Investments in debt and equity
securities
Trading 7,610 4.99 3,475 5.29 1,473 5.43
Taxable 3,854,326 5.98 4,057,430 6.04 3,974,950 6.11
Tax-exempt 434,268 8.02 414,396 7.94 403,208 8.03
----------- ----------- -----------
Total Investments in Debt and
Equity Securities 4,296,204 6.19 4,475,301 6.21 4,379,631 6.29
Short-term investments 316,095 5.84 309,687 5.70 248,944 5.78
----------- ----------- -----------
Total Earning Assets 16,410,663 8.02 16,640,147 8.03 16,655,904 8.07
Non-earning assets 1,454,584 1,561,982 1,383,069
----------- ----------- -----------
Total Assets $17,865,247 $18,202,129 $18,038,973
=========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,037,439 $ 2,721,330 $ 2,639,046
Interest bearing demand 2,238,451 2.19 2,231,716 2.12 2,186,130 2.13
Money market accounts 1,971,778 3.89 2,030,992 3.81 2,061,211 3.90
Savings 1,073,847 2.29 1,077,854 2.25 1,051,874 2.26
Consumer time certificates under
$100,000 5,358,411 5.59 5,303,994 5.50 5,192,639 5.49
Other time 39,256 19.88 234,904 3.33 234,143 3.32
----------- ----------- -----------
Total Core Deposits 12,719,182 4.28 13,600,790 4.12 13,365,043 4.13
Time certificates $100,000 and over 1,027,545 5.63 993,405 5.51 928,385 5.56
Foreign 174,667 5.73 152,075 5.58 189,295 5.65
----------- ----------- -----------
Total Purchased Deposits 1,202,212 5.65 1,145,480 5.52 1,117,680 5.58
----------- ----------- -----------
Total Deposits 13,921,394 4.42 14,746,270 4.26 14,482,723 4.27
Short-term borrowings 1,434,235 3.94 1,030,693 6.12 1,165,000 6.98
Bank notes 265,385 5.99 275,000 5.73 275,000 5.92
Long-term debt 325,149 7.42 321,894 7.44 309,799 7.58
----------- ----------- -----------
Total Acquired Funds 15,946,163 4.47 16,373,857 4.50 16,232,522 4.61
Other liabilities 244,304 216,388 247,329
SHAREHOLDERS' EQUITY 1,674,780 1,611,884 1,559,122
----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $17,865,247 $18,202,129 $18,038,973
=========== =========== ===========
SIGNIFICANT RATIOS
Net interest rate spread 3.55% 3.53% 3.46%
Net interest rate margin 4.23 4.34 4.30
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
<TABLE>
<CAPTION>
1995 1996
NINE MONTHS NINE MONTHS
------------------ ------------------
VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of unearned
income
Commercial $ 2,927,854 8.75% $ 3,057,488 8.34%
Real estate--commercial 1,954,274 8.96 2,099,650 8.67
Real estate--construction 332,619 8.79 309,023 9.19
Real estate--residential 3,771,512 7.97 3,895,198 8.18
Consumer 1,644,755 8.55 1,694,964 8.86
Credit card 772,307 14.57 837,780 12.91
----------- -----------
Total Loans and Leases 11,403,321 8.90 11,894,103 8.76
Investments in debt and equity
securities
Trading 7,798 5.61 4,176 5.14
Taxable 3,833,511 5.93 3,962,287 6.05
Tax-exempt 455,013 8.25 417,237 8.00
----------- -----------
Total Investments in Debt and
Equity Securities 4,296,332 6.17 4,383,700 6.23
Short-term investments 336,076 6.14 291,419 5.78
----------- -----------
Total Earning Assets 16,035,719 8.11 16,569,222 8.04
Non-earning assets 1,321,803 1,466,243
----------- -----------
Total Assets $17,357,522 $18,035,465
=========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,223,804 $ 2,466,573
Interest bearing demand 2,142,701 2.18 2,218,650 2.15
Money market accounts 1,765,300 3.89 2,021,471 3.87
Savings 1,116,533 2.37 1,067,798 2.27
Consumer time certificates under
$100,000 5,069,864 5.34 5,284,676 5.53
Other time 136,805 5.65 169,671 4.59
----------- -----------
Total Core Deposits 12,455,007 4.11 13,228,839 4.18
Time certificates $100,000 and over 892,629 5.74 982,910 5.57
Foreign 206,688 6.26 172,076 5.65
----------- -----------
Total Purchased Deposits 1,099,317 5.84 1,154,986 5.58
----------- -----------
Total Deposits 13,554,324 4.28 14,383,825 4.32
Short-term borrowings 1,557,817 5.82 1,209,811 5.53
Bank notes 202,747 6.43 271,807 5.88
Long-term debt 329,988 7.40 318,914 7.48
----------- -----------
Total Acquired Funds 15,644,876 4.56 16,184,357 4.53
Other liabilities 205,779 236,052
SHAREHOLDERS' EQUITY 1,506,867 1,615,056
----------- -----------
Total Liabilities and
Shareholders' Equity $17,357,522 $18,035,465
=========== ===========
SIGNIFICANT RATIOS
Net interest rate spread 3.55% 3.51%
Net interest rate margin 4.29 4.29
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
20
<PAGE> 21
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Agreement and Plan of Reorganization dated October 27, 1996 by
and between Mercantile Bancorporation Inc., Ameribanc, Inc. and
Mark Twain Bancshares, Inc., filed as Exhibit 2.1 to Registrant's
Report on Form 8-K filed on November 6, 1996, is incorporated herein
by this reference.
10.2 Stock Option Agreement, dated October 27, 1996, by and between
Mercantile Bancorporation Inc., as grantee, and Mark Twain
Bancshares, Inc., as issuer, filed as Exhibit 2.2 to Registrant's
Report on Form 8-K filed on November 6, 1996, is incorporated herein
by this reference.
27 Financial Data Schedule
99 Form of Support Agreement entered into between certain officers
and directors of Mark Twain Bancshares, Inc. and Registrant, filed
as Exhibit 99.3 to Registrant's Schedule 13D filed on November 6,
1996, is incorporated herein by this reference.
(b) Reports on Form 8-K
Registrant filed one (1) Current Report on Form 8-K on November 6,
1996. In that Report, under Item 5, Registrant disclosed that on October
27, 1996, it had entered into, and briefly described certain of the terms
of, an Agreement and Plan of Reorganization (the "Merger Agreement") with
Mark Twain Bancshares, Inc. ("Mark Twain"). Pursuant to that Merger
Agreement, Mark Twain is to be merged with and into a wholly-owned
subsidiary of Registrant, with the shareholders of Mark Twain to receive
0.952 of a share of Registrant common stock, par value $5.00 per share,
for each share of Mark Twain common stock, par value $1.25 per share. An
aggregate of approximately 17,200,000 shares of Registrant's common stock
will be issued to Mark Twain shareholders in the transaction. The Current
Report also briefly described the terms of a Stock Option Agreement
between Registrant as grantee and Mark Twain as issuer, and Support
Agreements between Registrant and certain directors and officers of Mark
Twain, who in the aggregate have voting power over approximately 14.9% of
the outstanding shares of Mark Twain common stock, all entered into
simultaneously with execution of the Merger Agreement.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCANTILE BANCORPORATION INC.
(Registrant)
Date November 13, 1996 /s/ JOHN Q. ARNOLD
------------------------------- -----------------------------------
John Q. Arnold
Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
<S> <C> <C>
10.1 Agreement and Plan of Reorganization Incorporated herein
dated October 27, 1996 by and by reference
between Mercantile Bancorporation Inc.,
Ameribanc, Inc. and Mark Twain
Bancshares, Inc., filed as Exhibit 2.1
to Registrant's Report on Form 8-K
filed on November 6, 1996, is
incorporated herein by this
reference.
10.2 Stock Option Agreement, dated October 27, Incorporated herein
1996, by and between Mercantile by reference
Bancorporation Inc., as grantee, and Mark
Twain Bancshares, Inc., as issuer, filed as
Exhibit 2.2 to Registrant's Report on Form
8-K filed on November 6, 1996, is
incorporated herein by this reference.
27 Financial Data Schedule Included herein
99 Form of Support Agreement entered into Incorporated herein
between certain officers and by reference
directors of Mark Twain Bancshares, Inc.
and Registrant, filed as Exhibit
99.3 to Registrant's Schedule 13D
filed on November 6, 1996, is incorporated
herein by this reference.
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 909,350
<INT-BEARING-DEPOSITS> 74,713
<FED-FUNDS-SOLD> 183,227
<TRADING-ASSETS> 804
<INVESTMENTS-HELD-FOR-SALE> 3,959,361
<INVESTMENTS-CARRYING> 359,682
<INVESTMENTS-MARKET> 360,548
<LOANS> 12,166,461
<ALLOWANCE> 202,149
<TOTAL-ASSETS> 18,198,541
<DEPOSITS> 14,610,051
<SHORT-TERM> 1,224,047
<LIABILITIES-OTHER> 251,633
<LONG-TERM> 302,938
0
0
<COMMON> 179,628
<OTHER-SE> 1,355,244
<TOTAL-LIABILITIES-AND-EQUITY> 18,198,541
<INTEREST-LOAN> 778,459
<INTEREST-INVEST> 196,611
<INTEREST-OTHER> 12,631
<INTEREST-TOTAL> 987,701
<INTEREST-DEPOSIT> 385,770
<INTEREST-EXPENSE> 465,821
<INTEREST-INCOME-NET> 521,880
<LOAN-LOSSES> 55,915
<SECURITIES-GAINS> (2,843)
<EXPENSE-OTHER> 482,170
<INCOME-PRETAX> 195,724
<INCOME-PRE-EXTRAORDINARY> 125,317
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,317
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.01
<YIELD-ACTUAL> 4.29
<LOANS-NON> 54,686
<LOANS-PAST> 32,336
<LOANS-TROUBLED> 3,310
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 201,780
<CHARGE-OFFS> 73,116
<RECOVERIES> 14,972
<ALLOWANCE-CLOSE> 202,149
<ALLOWANCE-DOMESTIC> 202,149
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Only reported at fiscal year-end date.
</TABLE>
