<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 QUARTER ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 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 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, $.01 PAR VALUE, 130,143,195 SHARES OUTSTANDING AS OF THE CLOSE OF
BUSINESS ON JULY 31, 1997. THE NUMBER OF SHARES OUTSTANDING HAS BEEN RESTATED
TO GIVE EFFECT TO A THREE-FOR-TWO STOCK SPLIT DECLARED ON JULY 16, 1997, TO BE
DISTRIBUTED ON OCTOBER 1, 1997.
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<PAGE> 2
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
-------
<S> <C>
Item 1--Financial Statements
Consolidated Statement of Income
Three months and six months ended June 30, 1997 and 1996 4
Consolidated Balance Sheet
June 30, 1997 and 1996, and December 31, 1996 5
Consolidated Statement of Changes in Shareholders' Equity
Six months ended June 30, 1997 and 1996 6
Consolidated Statement of Cash Flows
Six months ended June 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
Item 2--Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II--OTHER INFORMATION
Item 6--Exhibits and Reports on Form 8-K 23
Signature 25
Exhibit Index 26
</TABLE>
SPECIAL NOTE
Certain statements in this report that relate to the plans, objectives or
future performance of Mercantile Bancorporation Inc. may be deemed to be
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on Management's
current expectations. Actual strategies and results in future periods may
differ materially from those currently expected because of various risks and
uncertainties.
3
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS EXCEPT PER COMMON SHARE DATA)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $331,688 $303,073 $652,959 $604,462
Investments in debt and equity securities
Trading 1,636 708 2,800 1,998
Taxable 67,185 71,984 133,949 140,627
Tax-exempt 5,164 5,642 10,518 11,592
-------- -------- -------- --------
Total 73,985 78,334 147,267 154,217
Due from banks--interest bearing 1,800 946 3,036 1,782
Federal funds sold and repurchase agreements 3,690 3,556 6,363 7,371
-------- -------- -------- --------
Total Interest Income 411,163 385,909 809,625 767,832
INTEREST EXPENSE
Interest bearing deposits 148,875 147,482 297,920 298,706
Foreign deposits 6,722 2,121 11,439 4,622
Short-term borrowings 27,888 18,753 50,760 36,015
Bank notes 2,633 3,937 5,173 7,909
Long-term debt 9,482 6,058 16,809 12,484
-------- -------- -------- --------
Total Interest Expense 195,600 178,351 382,101 359,736
-------- -------- -------- --------
NET INTEREST INCOME 215,563 207,558 427,524 408,096
PROVISION FOR POSSIBLE LOAN LOSSES(1) 27,695 11,152 46,138 45,301
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 187,868 196,406 381,386 362,795
OTHER INCOME
Trust 24,022 22,347 46,823 43,406
Service charges 22,591 21,967 45,389 43,181
Investment banking and brokerage 7,760 7,631 15,742 16,198
Credit card fees 5,373 8,322 10,772 9,883
Securitization revenue 4,725 3,325 12,017 7,827
Mortgage banking 2,728 2,293 5,506 5,461
Securities gains (losses)<F1> 1,818 98 2,867 (2,624)
Other 18,910 21,733 36,911 34,179
-------- -------- -------- --------
Total Other Income 87,927 87,716 176,027 157,511
OTHER EXPENSE
Salaries 80,599 73,342 158,739 147,070
Employee benefits 17,653 17,731 37,235 36,263
Net occupancy 12,434 11,873 25,146 23,829
Equipment 15,005 13,056 28,821 25,528
Intangible asset amortization 4,603 2,914 8,982 5,736
Other<F1> 90,181 43,929 127,147 128,115
-------- -------- -------- --------
Total Other Expense 220,475 162,845 386,070 366,541
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 55,320 121,277 171,343 153,765
INCOME TAXES<F1> 23,141 43,216 64,169 58,619
-------- -------- -------- --------
NET INCOME $ 32,179 $ 78,061 $107,174 $ 95,146
======== ======== ======== ========
PER COMMON SHARE DATA
Average shares outstanding 112,054,583 117,083,562 113,450,600 117,404,468
Net income<F2> $.29 $.67 $.94 $.81
Dividends declared .287 .273 .574 .546
<FN>
<F1> Includes the following nonrecurring amounts:
Provision for possible loan losses $ 6,540 $ -- $ 6,540 $ 10,851
Other income (securities losses) -- -- -- (3,082)
Other expense 51,863 -- 51,863 41,678
Income tax benefit (15,977) -- (15,977) (15,599)
-------- -------- -------- --------
Impact on Net Income $(42,426) $ -- $(42,426) $(40,012)
======== ======== ======== ========
<F2> Earnings per common share is calculated by dividing net income, less dividends on preferred stock, by weighted
average common shares outstanding.
</TABLE>
4
<PAGE> 4
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS)
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1997 1996 1996
------- ------- -------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,053,338 $ 1,296,053 $ 971,654
Due from banks--interest bearing 180,445 96,453 65,322
Federal funds sold and repurchase agreements 420,988 265,498 207,358
Investments in debt and equity securities
Trading 73,429 31,272 23,468
Available-for-sale (Amortized cost of $4,327,370,
$4,139,525, and $4,882,454, respectively) 4,336,067 4,149,674 4,860,378
Held-to-maturity (Estimated fair value
of $305,797, $567,152 and $229,934, respectively) 303,214 565,045 234,961
----------- ----------- -----------
Total Investments in Debt and Equity Securities 4,712,710 4,745,991 5,118,807
Loans held-for-sale 59,457 66,373 66,470
Loans and leases, net of unearned income 15,361,854 14,886,257 13,900,373
----------- ----------- -----------
Total Loans and Leases 15,421,311 14,952,630 13,966,843
Reserve for possible loan losses (234,684) (230,372) (236,885)
----------- ----------- -----------
Net Loans and Leases 15,186,627 14,722,258 13,729,958
Bank premises and equipment 388,524 367,311 340,073
Intangible assets 193,120 186,181 122,086
Other assets 443,857 350,634 358,607
----------- ----------- -----------
Total Assets $22,579,609 $22,030,379 $20,913,865
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 3,105,751 $ 3,003,972 $ 3,010,133
Interest bearing 13,577,786 14,080,592 13,588,873
Foreign 270,908 251,887 97,362
----------- ----------- -----------
Total Deposits 16,954,445 17,336,451 16,696,368
Federal funds purchased and repurchase agreements 2,057,710 1,781,011 1,327,683
Other short-term borrowings 391,816 206,253 167,592
Bank notes 175,000 175,000 275,000
Long-term debt 796,049 304,831 315,147
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 150,000 -- --
Other liabilities 294,337 281,182 252,373
----------- ----------- -----------
Total Liabilities 20,819,357 20,084,728 19,034,163
Commitments and contingent liabilities -- -- --
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1997 1996 1996
------- ------- -------
<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 -- -- -- -- -- --
Common stock--$.01 par value at June 30, 1997, and
$5.00 par value at December 31, 1996 and June 30,
1996
Shares authorized 200,000 200,000 200,000
Shares issued 117,885 118,821 117,774 1,179 594,107 588,871
Capital surplus 582,567 34,956 29,850
Retained earnings 1,428,844 1,392,218 1,301,775
Valuation on available-for-sale securities 7,797 8,571 (13,797)
Treasury stock, at cost 6,821 2,591 908 (260,135) (84,201) (26,997)
----------- ----------- -----------
Total Shareholders' Equity 1,760,252 1,945,651 1,879,702
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $22,579,609 $22,030,379 $20,913,865
=========== =========== ===========
</TABLE>
5
<PAGE> 5
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
<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, 1995 116,815,628 $594,430 $12,153 $ 88,284 $1,281,183 $ (60,557) $1,915,493
Net income 95,146 95,146
Common dividends declared:
Mercantile Bancorporation Inc.--$.546
per share (51,598) (51,598)
Pooled company prior to acquisition (10,048) (10,048)
Preferred dividends declared (408) (408)
Redemption of preferred stock (12,153) (531) (12,684)
Issuance of common stock in acquisitions
of:
Metro Savings Bank, F.S.B. 296,853 57 14 8,983 9,054
Security Bank of Conway, F.S.B. 482,946 75 14,614 14,689
First Sterling Bancorp, Inc. 782,126 3,911 572 13,772 18,255
Issuance of common stock for:
Employee incentive plans 266,283 1,235 (1,182) 534 587
Convertible notes 317,745 1,589 1,945 3,534
Net fair value adjustment on
available-for-sale securities (39,552) (39,552)
Purchase of treasury stock (1,575,000) (47,678) (47,678)
Reissuance and retirement of treasury
stock (9,688) (47,478) 57,166 --
Pre-merger transactions of pooled
company and other (520,964) (2,606) (12,423) (59) (15,088)
----------- -------- --------- -------- ----------- --------- -----------
BALANCE AT JUNE 30, 1996 116,865,617 $588,871 $ -- $ 29,850 $1,287,978 $ (26,997) $1,879,702
=========== ======== ========= ======== =========== ========= ===========
BALANCE AT DECEMBER 31, 1996 116,229,704 $594,107 $ -- $ 34,956 $1,400,789 $ (84,201) $1,945,651
Net income 107,174 107,174
Common dividends declared:
Mercantile Bancorporation Inc.--$.574
per share (57,738) (57,738)
Pooled company prior to acquisition (12,812) (12,812)
Issuance of common stock in acquisition
of
Regional Bancshares, Inc. 900,625 (474) 361 28,813 28,700
Change in par value of common stock from
$5.00 per share to $.01 per share (587,016) 587,016 --
Issuance of common stock for:
Employee incentive plans 369,993 388 2,157 3,387 5,932
Convertible notes 73,408 22 794 816
Net fair value adjustment on
available-for-sale securities (1,411) (1,411)
Purchase of treasury stock (6,724,699) (259,050) (259,050)
Reissuance and retirement of treasury
stock (7,396) (42,950) 50,346 --
Pre-merger transactions of pooled
company and other 214,484 1,074 1,068 278 570 2,990
----------- -------- --------- -------- ----------- --------- -----------
BALANCE AT JUNE 30, 1997 111,063,515 $ 1,179 $ -- $582,567 $1,436,641 $(260,135) $1,760,252
=========== ======== ========= ======== =========== ========= ===========
<FN>
<F*>Includes valuation on available-for-sale securities.
</TABLE>
6
<PAGE> 6
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 107,174 $ 95,146
Adjustments to reconcile net income to net cash provided by operating activities
Provision for possible loan losses 46,138 45,301
Depreciation and amortization 24,856 20,111
Provision for deferred income taxes (credits) (4,157) 5,483
Net change in loans held-for-sale 6,916 28,407
Net change in trading securities (42,157) 43,788
Net change in accrued interest receivable (6,983) (3,741)
Net change in accrued interest payable 741 (20,654)
Other, net (44,819) 67,782
---------- ----------
Net Cash Provided by Operating Activities 87,709 281,623
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading securities
Purchases (1,072,164) (1,157,490)
Proceeds from maturities 968,083 891,750
Proceeds from sales of available-for-sale securities 324,100 98,079
Net change in loans and leases (531,741) (279,796)
Purchases of loans and leases (98,135) (14,558)
Proceeds from sales of loans and leases 101,241 139,575
Purchases of premises and equipment (43,803) (34,283)
Proceeds from sales of premises and equipment 2,323 6,568
Proceeds from sales of foreclosed property 21,101 18,211
Cash and cash equivalents from acquisitions, net of cash paid (8,132) 41,782
Other, net 1,806 88
---------- ----------
Net Cash Used by Investing Activities (335,321) (290,074)
FINANCING ACTIVITIES
Net change in non-interest bearing, savings, interest bearing demand and
money market deposit accounts (115,082) 459,827
Net change in time certificates of deposit under $100,000 (249,982) (250,019)
Net change in time certificates of deposit $100,000 and over (97,923) (53,941)
Net change in other time deposits (73,995) 200,257
Net change in foreign deposits 19,021 (111,808)
Net change in short-term borrowings 452,807 (454,488)
Issuance of bank notes -- 25,000
Issuance of long-term debt 500,000 2,000
Issuance of company-obligated mandatorily
redeemable preferred securities 150,000 --
Principal payments on long-term debt (7,966) (25,429)
Cash dividends paid (70,550) (62,054)
Proceeds from issuance of common stock 8,936 541
Purchase of treasury stock (270,086) (63,934)
Redemption of preferred stock -- (12,684)
Other, net (801) 1,168
---------- ----------
Net Cash Provided (Used) by Financing Activities 244,379 (345,564)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (3,233) (354,015)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,658,004 1,598,349
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,654,771 $1,244,334
========== ==========
</TABLE>
7
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
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, with the exception of the
nonrecurring merger-related charges disclosed in Note 1 of the Consolidated
Statement of Income on Page 4.
Derivative Financial Instruments:
Mercantile Bancorporation Inc. ("Mercantile" or "Corporation") is a party
to certain financial instruments, primarily to stabilize interest rate margins
and to hedge against interest rate movements. An instrument designated to hedge
an asset or liability carried at cost is accounted for on an accrual basis, in
which interest income or interest expense of the related asset or liability is
adjusted for the net amount of any interest receivable or payable generated by
the hedging instrument. There is no market valuation on these interest rate
contracts. If the underlying assets or liabilities hedged are no longer recorded
on the Consolidated Balance Sheet (e.g., due to sale), the gain or loss related
to the interest rate contract is recognized through earnings immediately.
In the normal course of business, the Corporation does not maintain trading
positions in interest rate derivative financial instruments. The Corporation's
non-hedging transactions are entered into on behalf of customers and are
subsequently matched off by the Corporation. As a consequence, these
matched transactions do not represent exposure to market risk. The
Corporation manages the potential credit exposure through established
credit approvals, risk control limits and other monitoring procedures.
These contracts are recorded at their fair value with gains or losses included
in the Consolidated Statement of Income.
Mercantile has entered into foreign exchange forward contracts, primarily
to facilitate customers' foreign exchange requirements. The Corporation
maintains a generally matched position; therefore, exchange rate and
market risks are minimal. Credit risk to the Corporation could result from
non-performance by a counterparty to a contract. Credit risk is managed
as indicated in the previous paragraph. Unrealized gains and losses on
these foreign exchange forward contracts are reflected in the Consolidated
Statement of Income.
NOTE B
NEW ACCOUNTING STANDARDS
Financial Accounting Standard ("FAS") 128, "Earnings per Share," was issued
in February 1997. This statement is effective in the fourth quarter of 1997 and
requires additional reporting of earnings per share which gives effect to
dilutive common share equivalents such as stock options or convertible notes.
The Corporation does not anticipate a significant impact when reporting diluted
earnings per share.
FAS 130, "Reporting Comprehensive Income," and FAS 131, "Disclosures about
Segments of an Enterprise and Related Information," were issued in June 1997.
Disclosures prescribed in FAS 130 and FAS 131 will be required for periods
beginning after December 15, 1997. In January 1997, the Securities and Exchange
Commission issued Release No. 33-7386 relating to derivatives and exposures to
market risk from derivative and other financial instruments. The market risk
disclosures are required commencing with the Corporation's 1997 Annual Report
on Form 10-K. Mercantile is currently evaluating the impact of FAS 130, FAS 131
and Release No. 33-7386 on future financial statement disclosures.
8
<PAGE> 8
NOTE C
SUBSIDIARIES
Effective April 25, 1997, the Corporation acquired Mark Twain Bancshares, Inc.
("Mark Twain"), a $3.2 billion-asset bank holding company headquartered in
St. Louis, Missouri. The Mark Twain 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 Mark Twain prior
to the pooling-of-interests were as follows:
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER
COMMON SHARE DATA)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1996
------------ ----------
<S> <C> <C>
MERCANTILE
Net income $65,076 $69,641
Net income per common share .69 .73
MARK TWAIN
Net income $12,985 $25,505
Primary earnings per share .80 1.55
</TABLE>
On July 1, 1997, the Corporation acquired Roosevelt Financial Group, Inc.
("Roosevelt"), a $7.3 billion-asset thrift holding company headquartered in
St. Louis, Missouri. The Roosevelt acquisition was accounted for as a purchase.
Unaudited pro forma combined consolidated financial data including the
Corporation and Roosevelt for the six months ending June 30, 1997 and 1996 is
disclosed below. The unaudited pro forma combined consolidated financial data
provided includes the impact of goodwill amortization and the reduction in net
interest income due to: 1) interest lost on cash paid for share repurchases or
paid directly to Roosevelt shareholders as consideration; and 2) interest on
$650 million of senior debt, subordinated debt and redeemable preferred
securities issued in 1997 to finance the Roosevelt acquisition, offset by
interest earned on funds not utilized in the acquisition.
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER
COMMON SHARE DATA)
AS OF OR FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
------- --------
<S> <C> <C>
Total assets $29,961,999 $30,441,637
Net interest income 505,162 481,541
Other income 163,453 176,305
Net income 77,261 105,496
Net income per common share .58 .77
</TABLE>
NOTE D
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRRED SECURITIES OF MERCANTILE
CAPITAL TRUST I
Mercantile Capital Trust I is a wholly-owned subsidiary of the Corporation; its
sole assets are the $150,000,000 in mandatorily redeemable preferred
securities, and considered together, the back-up undertakings constitute a full
and unconditional guarantee by Mercantile Bancorporation Inc. of the trust's
obligations under the preferred securities.
9
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1
HIGHLIGHTS<F1>
<CAPTION>
SECOND QUARTER SIX MONTHS
($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA) 1997 1996 CHANGE 1997 1996 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $.29 $.67 (56.7)% $.94 $.81 16.0%
Dividends declared .287 .273 5.1 .574 .546 5.1
Book value at June 30 15.85 16.08 (1.4) 15.85 16.08 (1.4)
Market price at June 30 40 1/2 29 11/16 36.4 40 1/2 29 11/16 36.4
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS AND SELECTED RATIOS
EXCLUDING NONRECURRING MERGER-RELATED EXPENSE<F2>
Net income $74,605 $78,061 (4.4)% $149,600 $135,158 10.7%
Net income per common share .67 .67 -- 1.32 1.15 14.8
Return on assets 1.33% 1.48% 1.36% 1.29%
Return on equity 16.38 16.57 16.00 14.08
Efficiency ratio 54.83 54.40 54.66 56.31
Other expense to average assets 3.02 3.09 3.03 3.10
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS<F3>
Taxable-equivalent net interest income $219,577 $211,619 3.8% $435,395 $416,336 4.6%
Tax-equivalent adjustment 4,014 4,061 (1.2) 7,871 8,240 (4.5)
Net interest income 215,563 207,558 3.9 427,524 408,096 4.8
Provision for possible loan losses 27,695 11,152 -- 46,138 45,301 1.8
Other income 87,927 87,716 .2 176,027 157,511 11.8
Other expense 220,475 162,845 35.4 386,070 366,541 5.3
Income taxes 23,141 43,216 (46.5) 64,169 58,619 9.5
Net income 32,179 78,061 (58.8) 107,174 95,146 12.6
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS AND DATA<F3>
Return on assets .58% 1.48% .97% .91%
Return on equity 7.07 16.57 11.46 9.91
Efficiency ratio 71.70 54.40 63.14 63.87
Other expense to average assets 3.94 3.09 3.50 3.50
Net interest rate margin 4.30 4.39 4.33 4.34
Equity to assets 7.80 8.99
Tangible equity to tangible assets 7.00 8.45
Tier I capital to risk-adjusted assets 10.38 11.81
Total capital to risk-adjusted assets 14.19 14.60
Leverage 7.80 8.30
Reserve for possible loan losses to outstanding
loans 1.52 1.70
Reserve for possible loan losses to non-performing
loans 285.57 327.33
Non-performing assets to outstanding loans and
foreclosed assets .62 .61
Banks 28 65
Banking offices 513 471
Full-time equivalent employees 8,718 8,687
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Total assets $22,369,177 $21,107,134 6.0% $22,066,686 $20,955,279 5.3%
Earning assets 20,476,699 19,383,938 5.6 20,275,964 19,279,130 5.2
Loans and leases 15,288,972 13,860,141 10.3 15,141,515 13,823,509 9.5
Deposits 17,460,544 17,101,680 2.1 17,306,659 16,690,670 3.7
Shareholders' equity 1,821,411 1,884,208 (3.3) 1,870,271 1,919,310 (2.6)
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> All previously reported financial information has been restated to reflect
the April 25, 1997 merger with Mark Twain Bancshares, Inc., which was
accounted for as a pooling-of-interests. All per share amounts have been
restated to give effect to a three-for-two stock split declared on July
16, 1997, to be distributed on October 1, 1997.
<F2> Nonrecurring expense reduced net income in the first six months of 1997
and 1996 by $42,426,000 and $40,012,000, respectively.
<F3> Includes nonrecurring expense noted in (2) above.
</TABLE>
10
<PAGE> 10
PERFORMANCE SUMMARY
Net income for Mercantile Bancorporation Inc. ("Mercantile" or
"Corporation") was $32,179,000 in the second quarter of 1997 versus
$78,061,000 in the same period of 1996. Net income for the six months ended
June 30, 1997 was $107,174,000 compared with $95,146,000 last year.
To allow comparison of the fundamental financial performance of Mercantile,
it is helpful to exclude certain one-time charges from the results of
operations of both years. Exhibit 2 presents the results for both years
adjusted for such charges, which include Mark Twain Bancshares, Inc. ("Mark
Twain") and Regional Bancshares, Inc. in 1997, and the four acquisitions
noted in Exhibit 3 that closed in the first quarter of 1996.
After excluding nonrecurring items, adjusted net income for the second
quarter of 1997 was $74,605,000, 4.4% lower than 1996 quarterly net income
of $78,061,000. On a per common share basis, adjusted net income was $.67 in
both quarters; however, year-to-date 1997 adjusted net income was
$149,600,000, an improvement of $14,442,000 or 10.7% over last year.
Year-to-date earnings per common share totaled $1.32 versus $1.15 last year,
an increase of 14.8%. On July 16, 1997, the Board of Directors declared a
three-for-two stock split, in the form of a dividend, with a record date of
September 10, 1997, to be distributed October 1, 1997. All per common share
amounts in this Management's Discussion and Analysis have been restated to
reflect this stock split.
<TABLE>
- ----------------------------------------------------------------------------------
EXHIBIT 2
ADJUSTED RESULTS
<CAPTION>
EARNINGS
NET INCOME PER COMMON RETURN ON
(THOUSANDS) SHARE ASSETS
----------- ---------- ---------
<S> <C> <C> <C>
SECOND QUARTER ENDED
JUNE 30, 1997:
REPORTED $ 32,179 $ .29 .58%
NONRECURRING ACQUISITION EXPENSE 42,426 .38 .75
--------- ------ ----
ADJUSTED $ 74,605 $ .67 1.33%
========= ====== ====
SIX MONTHS ENDED JUNE 30, 1997:
REPORTED $ 107,174 $ .94 .97%
NONRECURRING ACQUISITION EXPENSE 42,426 .38 .39
--------- ------ ----
ADJUSTED $ 149,600 $ 1.32 1.36%
========= ====== ====
SIX MONTHS ENDED JUNE 30, 1996:
Reported $ 95,146 $ .81 .91%
Nonrecurring acquisition expense 40,012 .34 .38
--------- ------ ----
Adjusted $ 135,158 $ 1.15 1.29%
========= ====== ====
- -------------------------------------------------------------------------------
</TABLE>
All prior year figures have also been restated to include the
pre-acquisition accounts and results of operations of Mark Twain, a bank
holding company with assets totaling $3.2 billion, headquartered in St.
Louis, Missouri. Mark Twain was merged with Mercantile on April 25, 1997 in
a transaction accounted for as a pooling-of-interests. The dilution of
earnings per common share attributable to the Mark Twain acquisition was
$.03 in the first six months of 1997.
On July 1, 1997, the Corporation completed its merger with Roosevelt
Financial Group, Inc. ("Roosevelt"), also headquartered in St. Louis. The
Roosevelt acquisition will be accounted for under the purchase method of
accounting, where historical financial statements are not restated.
Roosevelt is a $7.3 billion-asset savings and loan holding company with 81
locations in Missouri, Kansas and Illinois. Pre-tax nonrecurring acquisition
charges associated with the Roosevelt transaction will be recorded in the
third quarter of 1997. Exhibit 3 details acquisitions completed during 1996
and 1997.
11
<PAGE> 11
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 3
ACQUISITIONS
($ IN THOUSANDS)
<CAPTION>
CONSIDERATION
-------------------
GROSS ACCOUNTING
DATE ASSETS DEPOSITS CASH SHARES METHOD
---- ------ -------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
Mark Twain Bancshares, Inc. Apr. 25, 1997 $3,227,972 $2,519,474 $ 73 24,088,713 Pooling
Regional Bancshares, Inc. Mar. 5, 1997 171,979 135,954 12,300 900,625 Purchase
Today's Bancorp, Inc. Nov. 7, 1996 501,418 432,104 34,912 1,690,587 Purchase
First Financial Corporation of America Nov. 1, 1996 87,649 76,791 3,253 388,113 Purchase
Peoples State Bank Aug. 22, 1996 95,657 75,149 -- 488,756 Purchase
Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 73,843 5 296,853 Purchase
Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 482,946 Purchase
Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 11,838,294 Pooling
First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 782,126 Pooling<F1>
ACQUISITIONS PENDING AT JUNE 30, 1997
Roosevelt Financial Group, Inc. Jul. 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase
Horizon Bancorp, Inc. 1st Qtr. 1998 550,673 466,700 -- 2,550,000<F2> Pooling
<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> Estimated shares to be issued in acquisition.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest income increased 3.9% to $215,563,000 for the second quarter of
1997 and was up 4.8% to $427,524,000 for the first six months of 1997. The
net interest rate margin was 4.30% this quarter compared with 4.36% in the
first quarter and 4.39% for the second quarter of 1996, while the
year-to-date margin was 4.33% compared with 4.34% last year. Average earning
assets for the first half of 1997 of $20.3 billion were 5.2% higher than the
$19.3 billion reported last year, as average loan volume increased by 9.5%.
This loan growth was funded through a decline in investment securities,
growth in core deposits and increased short-term borrowings.
For the first six months of 1997, other income was $176,027,000, an increase
of $18,516,000 or 11.8% from last year. Included in 1996's first quarter was
nonrecurring merger-related securities losses of $3,082,000. Growth in core
fee businesses, such as the trust and investment areas, deposit service
charges, and fees earned in the electronic funds transfer processing
business, as well as gains realized on the sale of available-for-sale
investment securities, accounted for the strong year-to-date growth.
Second quarter non-interest expenses were $220,475,000 compared with
$162,845,000 last year, an increase of 35.4%, and year-to-date were
$386,070,000, up 5.3%. Nonrecurring merger-related expenses during the first
six months of 1997 and 1996 were $51,863,000 and $41,678,000, respectively.
Excluding merger costs, year-to-date operating expenses grew by 2.9% and the
efficiency ratio was 54.66% compared with 56.31% last year. The other
expense to average assets ratio improved to 3.03% from 3.10% the prior year.
The provision for possible loan losses for the second quarter of 1997 was
$27,695,000 compared with $11,152,000 in the prior year, and was $46,138,000
for the first six months of 1997 compared with $45,301,000 in 1996. Included
in these totals was nonrecurring merger-related provision of $6,540,000 in
the second quarter of 1997 and $10,851,000 in the first quarter of 1996. Net
charge-offs for the first six months of 1997 and 1996 were $43,441,000 and
$42,842,000, respectively, and on an annualized basis were .57% of average
loans compared with .62% last year. At June 30, 1997, the reserve for
possible loan losses was $234,684,000 and provided coverage of 285.57% of
non-performing loans compared with 318.99% at year-end and 327.33% last
June 30.
12
<PAGE> 12
Non-performing loans as of June 30, 1997 were $82,182,000 or .53% of total
loans compared with $84,741,000 or .56% at March 31, 1997 and $72,368,000 or
.52% at June 30, 1996. Foreclosed assets declined to $13,497,000 compared
with $18,115,000 at March 31, 1997 and $12,307,000 last June 30.
Consolidated assets of $22.6 billion were up 8.0% from a year ago. On a pro
forma basis including Roosevelt, consolidated assets of Mercantile were $30
billion. Total deposits increased by 1.5% to $17.0 billion, loans were $15.4
billion, up 10.4% from last year, and shareholders' equity of $1.8 billion
was 6.4% lower than at June 30, 1996, reflecting the impact of treasury
share purchases. All measures of capital adequacy remained adequate. Tier I
capital to risk-adjusted assets was 10.38% while Total capital to
risk-adjusted assets at June 30, 1997 was 14.19%.
The following financial commentary presents a more thorough discussion and
analysis of the results of operations and financial position of the
Corporation for the first half and second quarter of 1997.
NET INTEREST INCOME
Net interest income for the second quarter of 1997 was $215,563,000, a 3.9%
increase from the $207,558,000 earned last year, and for the first six
months of 1997 was $427,524,000, or 4.8% higher than last year. For the
quarter, the net interest rate margin was 4.30% compared with 4.36% in the
first quarter of 1997 and 4.39% last year, while the year-to-date 1997
margin was 4.33%, generally at the same level as last year. The rate
margin's decline from the first quarter of 1997 was due to competitive
pricing for both loans and deposits, the interest expense incurred on recent
debt issues and a less favorable mix of liabilities. Average earning asset
growth in the first six months of 1997 was 5.2%, led by loan growth of 9.5%,
but offset by a contraction in the size of the investment portfolio.
<TABLE>
-----------------------------------------------------------------------------
EXHIBIT 4
LOANS AND LEASES
($ IN THOUSANDS)
<CAPTION>
JUNE 30
1997 1996 CHANGE
---- ---- ------
<S> <C> <C> <C>
Commercial $ 4,478,483 $ 3,923,981 14.1%
Real estate--commercial 2,878,332 2,796,087 2.9
Real estate--construction 660,981 490,012 34.9
Real estate--residential 4,812,741 4,160,370 15.7
Consumer 1,921,062 1,755,684 9.4
Credit card loans issued 1,069,712 1,240,709 (13.8)
Securitized credit card loans (400,000) (400,000) --
----------- -----------
Total Loans and Leases $15,421,311 $13,966,843 10.4
=========== ===========
-----------------------------------------------------------------------------
</TABLE>
Investment securities averaged $4.8 billion in the first six months of 1997,
and declined by 6.6% from 1996 due to both maturities and sales. The
held-to-maturity and available-for-sale portfolio as of June 30, 1997
consisted of 84.49% in U.S. and other government agency securities,
including 30.90% in mortgage-related issues, 10.18% in state and municipal
securities, and 5.33% of other miscellaneous securities. The comparable
distribution at June 30, 1996 was 86.42%, 31.76%, 10.68% and 2.90%,
respectively. Included in other miscellaneous securities as of June 30, 1997
was $85,028,000 transferred from the credit card loan portfolio in
accordance with FAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Mortgage-related
issues which are not guaranteed by the U.S. Government will likely increase
as a percentage of total investment securities as a result of the Roosevelt
acquisition.
Affecting loan growth figures from 1996 to 1997 is the amount of loans added
from acquisitions accounted for as purchases. Loans grew by approximately
6% excluding those from acquired companies. Including acquired balances,
year-to-date average commercial loans grew by $493,057,000 or 12.8%.
Commercial loan growth occurred on a system-wide basis. Average commercial
real estate mortgage loans increased by $87,432,000 or 3.1%. Residential real
estate mortgage loans averaged $4.7 billion in the first six months of 1997,
an increase of $571,733,000 or 13.9% from 1996. Residential mortgage loans
added from acquisitions, as well as continued customer preference for
adjustable-rate mortgages that Mercantile generally retained on the balance
sheet, accounted for the increase. The Roosevelt purchase acquisition will
add approximately $3.8 billion to the Corporation's residential real estate
mortgage loan portfolio. Average credit card loans were at $761,052,000 which
reflected a managed decline of 8.4%, while other consumer loans increased on
average by $130,963,000 or 7.5%, due primarily to growth in indirect loans
and leases.
13
<PAGE> 13
Average core deposits increased by $321,263,000 or 2.1% in the first six
months of 1997. Mercantile was substantially core funded at 90.41% of total
deposits and 77.17% of earning assets. Changes in average core deposits for
the past six quarters are shown in the Consolidated Quarterly Average
Balance Sheet on Pages 21 and 22 of this report.
Average non-interest bearing deposits increased by $133,836,000 or 4.8%
through the first six months of 1997. The United States Government is a
significant cash management customer of Mercantile Bank N.A. and pays for
services rendered via compensating balances. In the first quarter of 1996,
approximately $400,000,000 of such compensating balances was withdrawn by
the government to help finance its funding requests due to the lack of an
approved 1996 fiscal budget at that time. Revenue accruals were made in 1996
to record the benefit of those missing deposits to better match revenue with
services delivered. These balances were redeposited in the second quarter of
1996, but the average balances for the first six months of 1996 were lower
as a result.
Year-to-date average short-term borrowings increased by $477,406,000 or
32.3%, mainly to fund loan growth and to offset the decline in bank notes
outstanding. Average long-term debt increased by $133,237,000 due to the
issuance of $150,000,000 of floating-rate capital trust securities in
February 1997 and the June 1997 issuance of $500,000,000 in senior and
subordinated debt. Average shareholders' equity declined by $49,039,000 or
2.6%, due largely to share repurchases.
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 21 and 22.
OTHER INCOME
Non-interest income increased .2% during the second quarter of 1997 to
$87,927,000, and for the six months was $176,027,000 compared with
$157,511,000 a year ago, an improvement of 11.8%.
The first quarter of 1996 was negatively impacted by securities losses of
$3,082,000 incurred by recently acquired banks in investment portfolio
restructurings. Excluding non-interest income from companies acquired in
purchase transactions and the nonrecurring securities losses, other income
grew by approximately 8% from the first six months of 1996. In addition to
other income from acquired companies and merger-related securities losses,
the second quarter of 1996 was favorably impacted by a $10,000,000 gain on
the transfer of the Corporation's merchant processing business and a
$4,000,000 reimbursement for co-branded credit card start-up costs. In the
first quarter of 1997, a $2,300,000 gain was recognized on the sale of Mark
Twain's merchant credit card processing business.
Trust fees were the largest source of non-interest income in 1997, and were
$46,823,000 compared with $43,406,000 during 1996, an increase of 7.9%.
Personal trust fees earned by Mercantile Trust Company N.A. were the largest
source of trust revenue and increased 12.2% from last year. Income from
Mississippi Valley Advisors Inc., the investment management subsidiary of
Mercantile, rose by 20.1%. Mississippi Valley Advisors Inc. manages 16
proprietary mutual funds--the ARCH funds, which had assets of $3.2 billion at
June 30, 1997. Increases in the value of assets managed and successful new
business development efforts largely accounted for the growth in trust fees,
partially offset by the absence of fees from the indenture trust and agency
business, which was sold in the fourth quarter of 1996.
Year-to-date investment banking and brokerage fees were $15,742,000 compared
with $16,198,000 last year, a decrease of 2.8%; second quarter fees totaled
$7,760,000, 1.7% higher than the same period a year earlier. This income is
derived from transaction fees for services performed for both individual and
corporate customers, including sales of annuities and mutual funds, profits
earned on limited trading positions, the sale of fixed income securities to
institutional customers and foreign exchange revenue. There was a
substantial decline in commission income earned on fixed income securities
in 1997. The Mark Twain acquisition significantly increased this source of
revenue over Mercantile's previously reported results.
14
<PAGE> 14
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
EXHIBIT 5
OTHER INCOME
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Trust $24,022 $22,347 7.5% $ 46,823 $ 43,406 7.9%
Service charges 22,591 21,967 2.8 45,389 43,181 5.1
Investment banking and brokerage 7,760 7,631 1.7 15,742 16,198 (2.8)
Credit card fees 5,373 8,322 (35.4) 10,772 9,883 9.0
Securitization revenue 4,725 3,325 42.1 12,017 7,827 53.5
Mortgage banking 2,728 2,293 19.0 5,506 5,461 .8
Securities gains 1,818 98 -- 2,867 458 --
Nonrecurring merger-related securities losses -- -- -- -- (3,082) --
Other 18,910 21,733 (13.0) 36,911 34,179 8.0
------- ------- -------- --------
Total Other Income $87,927 $87,716 .2 $176,027 $157,511 11.8
======= ======= ======== ========
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Credit card fee income was $5,373,000 for the second quarter of 1997, down
$2,949,000 from last year. For the first six months of 1997, credit card
income was $10,772,000 or 9.0% higher than the comparable 1996 period. The
1996 quarterly results included the reimbursement of $4,000,000 for
co-branded start-up costs. Credit card income primarily represents
interchange fees received on transactions of Mercantile cardholders and
cardholders' miscellaneous fees. This source of income in 1996 included
$3,153,000 in fees charged to merchants for processing credit card
transactions. The Mercantile business was sold in the second quarter of 1996
and the Mark Twain operation was sold in the first quarter of 1997.
Transaction-based rebates paid to SBC and MercRewards VISA(R) cardholders
were netted against credit card fee income; these rebates totaled $2,446,000
in the first six months of 1997 versus $12,352,000 in 1996. The decrease in
these rebates was the reason for the growth in year-to-date credit card fees
over 1996.
Securitization revenue for the first six months of 1997 was $12,017,000
compared with $7,827,000 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 during May 1995, as well as
$3,052,000 recognized under FAS 125 for investor certificate loans that
were sold and reclassified to the investment portfolio. 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.
Mortgage banking income for the first six months of 1997 was at the same
level as last year. Mortgages serviced totaled $6.0 billion at June 30, 1997
compared with $5.7 billion at June 30, 1996. The Roosevelt transaction will
add approximately $8.4 billion to servicing volume, and should increase
servicing fees significantly in the second half of 1997.
Miscellaneous income of $36,911,000 was 8.0% higher than in 1996, which
included a $10,000,000 gain on the sale of the Mercantile merchant credit
card processing business. Significant revenue items in 1997 included a
$7,100,000 improvement in cash management fees, a $2,300,000 gain on the
sale of the Mark Twain merchant credit card processing business and $800,000
of loan syndication fees. Securities gains of $2,867,000 were realized on the
sale of available-for-sale investment securities during the first six months
of 1997.
15
<PAGE> 15
OTHER EXPENSE
For the first half of 1997, expenses other than interest expense and the
provision for possible loan losses were $386,070,000, a 5.3% increase from
the 1996 level. Included in other expense in the second quarter of 1997 was
$51,863,000 in expenses associated with mergers, largely for investment
banking and other professional services, change in control and severance
payments, and obsolete equipment write-offs. Nonrecurring merger-related
expense of a similar nature which totaled $41,678,000 was recorded in the
first quarter of 1996. Excluding nonrecurring merger costs, year-to-date
operating expenses increased by 2.9% over 1996, yet declined to 3.03% of
average assets compared with 3.10% last year. The efficiency ratio, defined
as operating expenses as a percentage of taxable-equivalent net interest
income and other income, was also improved, to 54.66% compared with 56.31%
last year.
Other expense from acquisitions accounted for as purchases increased the
Corporation's expenses by more than $8,000,000. If expense from acquired
banks and nonrecurring acquisition expense are excluded, non-interest expense
for the first six months of 1997 was approximately 1% higher than last year.
Year-to-date salary expenses were 7.9% higher than last year, largely
reflecting the costs of merit increases and compensation for employees added
in acquisitions. Benefit costs were up by 2.7% due to higher costs of
employee benefit programs, a larger salary base and more employees.
Occupancy and equipment costs through June 30, 1997 increased by 9.3% from
the prior year, reflecting the costs of maintaining additional offices,
costs associated with modifying computer application systems for the year
2000 and an ongoing program of upgrading systems and equipment to further
enhance productivity. Year-to-date expense of $1,823,000 was incurred
to ensure that systems are ready for the date transition to the year 2000.
<TABLE>
----------------------------------------------------------------------------------------------------------
EXHIBIT 6
OTHER EXPENSE
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 80,599 $ 73,342 9.9% $158,739 $147,070 7.9%
Employee benefits 17,653 17,731 (.4) 37,235 36,263 2.7
-------- -------- -------- --------
Total Personnel Expense 98,252 91,073 7.9 195,974 183,333 6.9
Net occupancy 12,434 11,873 4.7 25,146 23,829 5.5
Equipment 15,005 13,056 14.9 28,821 25,528 12.9
Postage and freight 5,804 6,233 (6.9) 12,010 12,261 (2.0)
Marketing/business development 3,619 3,346 8.2 6,907 6,059 14.0
Office supplies 3,357 3,251 3.3 6,629 6,707 (1.2)
Communications 3,416 3,091 10.5 6,609 6,196 6.7
Legal and professional 2,935 2,961 (.9) 5,739 6,220 (7.7)
Credit card 2,380 3,411 (30.2) 4,831 7,241 (33.3)
FDIC insurance 742 1,288 (42.4) 1,511 2,547 (40.7)
Foreclosed property expense (4,297) (717) -- (4,219) (503) --
Intangible asset amortization 4,603 2,914 58.0 8,982 5,736 56.6
Nonrecurring merger-related expense 51,863 -- -- 51,863 41,678 24.4
Other 20,362 21,065 (3.3) 35,267 39,709 (11.2)
-------- -------- -------- --------
Total Other Expense $220,475 $162,845 35.4 $386,070 $366,541 5.3
======== ======== ======== ========
----------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit 6 details the composition of all other operating expenses. Credit
card fees declined by $2,410,000 or 33.3%, due primarily to the absence of
the costs associated with the merchant processing businesses which were
sold. Recoveries related to foreclosed property were $4,219,000 in the first
six months of 1997, compared with recoveries of $503,000 in 1996.
Intangible asset amortization was $8,982,000 in the first six months of
1997, 56.6% higher than in 1996. The increase was caused by additional
amortization on goodwill recorded in 1996 purchase acquisitions. The
Roosevelt purchase acquisition
16
<PAGE> 16
will increase goodwill by approximately $600 million, which will be
reflected in significantly higher intangible asset amortization expense
during the second half of 1997.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses was $234,684,000 or 1.52% of loans
outstanding at June 30, 1997 compared with $230,372,000 or 1.54% at year's
end and 1.70% at June 30, 1996. The reserve coverage of non-performing loans
was 285.57% compared with 318.99% at year-end and 327.33% last year.
Approximately one-third of the Corporation's total loan portfolio is
invested in residential real estate loans for which the loan loss experience
averaged only .06% for the past five years. If those loans are excluded from
total loans, the reserve for possible loan losses represented 2.21% of loans
outstanding at June 30, 1997.
<TABLE>
------------------------------------------------------------------------------
EXHIBIT 7
RESERVE FOR POSSIBLE LOAN LOSSES
($ IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
BEGINNING BALANCE $231,496 $242,806 $230,372 $232,288
PROVISION<F*> 27,695 11,152 46,138 45,301
Charge-offs (30,329) (21,169) (55,126) (53,639)
Recoveries 5,822 4,096 11,685 10,797
----------- ----------- ----------- -----------
NET CHARGE-OFFS (24,507) (17,073) (43,441) (42,842)
Acquired Reserves -- -- 1,615 2,138
----------- ----------- ----------- -----------
ENDING BALANCE $234,684 $236,885 $234,684 $236,885
=========== =========== =========== ===========
LOANS AND LEASES
June 30 balance $15,421,311 $13,966,843 $15,421,311 $13,966,843
=========== =========== =========== ===========
Average balance $15,288,972 $13,860,141 $15,141,515 $13,823,509
=========== =========== =========== ===========
RATIOS
Reserve balance to
outstanding loans 1.52% 1.70% 1.52% 1.70%
Reserve balance to
non-performing loans 285.57 327.33 285.57 327.33
Net charge-offs to average
loans .64 .49 .57 .62
<FN>
<F*> Includes merger-related provision of $6,540,000 in the second quarter
and six months ended June 30, 1997, and $10,851,000 in the six months
ended June 30, 1996.
------------------------------------------------------------------------------
</TABLE>
The year-to-date 1997 provision for possible loan losses was $46,138,000
compared with $45,301,000 last year. The second quarter of 1997 and the
first quarter of 1996 included nonrecurring merger-related provisions of
$6,540,000 and $10,851,000, respectively, which were recorded largely to
conform the credit policies of recently acquired entities to those of
Mercantile; an additional $10,000,000 in provision was recorded in the first
quarter of 1996 to partially offset 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 six
months of 1997 was .57% compared with .62% last year, while the
corresponding net charge-off figures were $43,441,000 and $42,842,000,
respectively. The $11,000,000 charge-off in 1996 mentioned above increased
the annualized ratio of net charge-offs to average loans by 16 basis points.
Excluding securitized credit cards, net credit card charge-offs were
$32,098,000 in 1997 versus $27,859,000 last year, and represented 8.44% of
average credit card loans compared with 6.71% in 1996. Approximately 39% of
the 1997 credit card losses were a result of bankruptcy claims. On the
managed portfolio, the ratio of net charge-offs to average loans was 8.60%
versus 7.53% in the first six months of 1996. By credit policy, losses are
taken on credit card loans after six cycles of
17
<PAGE> 17
nonpayment, or within 15 days of receipt of personal bankruptcy notice, if
earlier. Excluding those related to credit card loans, net charge-offs were
$11,343,000, or .16% of average loans for the first six months of 1997.
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 those
reserves. Management believes the consolidated reserve of 1.52% of total
loans and 285.57% of non-performing loans as of June 30, 1997 was adequate
based on the risks identified at such date in the respective portfolios.
NON-PERFORMING ASSETS
Non-performing loans (non-accrual and renegotiated loans) were $82,182,000 or
.53% of total loans outstanding at June 30, 1997 compared with $84,741,000 or
.56% at March 31, 1997 and $72,368,000 or .52% at June 30, 1996. By the
Corporation's definition, all non-accrual and renegotiated
commercial-related loans are considered impaired as defined by FAS 114,
"Accounting by Creditors for Impairment of a Loan," as amended by FAS 118.
Impaired loans totaled $51,047,000 at June 30, 1997 and averaged
$47,716,000 during the first six months of 1997. Foreclosed assets at June 30,
1997 were $13,497,000 compared with $18,115,000 at March 31, 1997 and
$12,307,000 last year. The ratio of non-performing assets to outstanding loans
and foreclosed assets was .62% at June 30, 1997 compared with .68% at March 31,
1997 and .61% last year.
<TABLE>
- ----------------------------------------------------------------------------------
EXHIBIT 8
NON-PERFORMING ASSETS
($ IN THOUSANDS)
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1997 1996 1996
------- ------- -------
<S> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial $24,465 $21,577 $18,771
Real estate--commercial 20,923 15,739 19,366
Real estate--construction 3,018 1,346 1,001
Real estate--residential 23,103 23,286 23,084
Consumer 5,634 5,011 4,179
------- ------- -------
TOTAL NON-ACCRUAL LOANS 77,143 66,959 66,401
RENEGOTIATED LOANS 5,039 5,260 5,967
------- ------- -------
TOTAL NON-PERFORMING LOANS $82,182 $72,219 $72,368
======= ======= =======
FORECLOSED ASSETS
Foreclosed real estate $11,696 $13,942 $10,320
Other foreclosed assets 1,801 2,829 1,987
------- ------- -------
TOTAL FORECLOSED ASSETS $13,497 $16,771 $12,307
======= ======= =======
TOTAL NON-PERFORMING ASSETS $95,679 $88,990 $84,675
======= ======= =======
PAST-DUE LOANS
(90 DAYS OR MORE)<F*>
Commercial $ 4,508 $ 2,406 $ 1,942
Real estate--commercial 1,391 643 4,152
Real estate--construction 58 147 327
Real estate--residential 3,300 3,669 4,457
Consumer 2,108 5,487 3,221
Credit card 19,140 21,608 18,082
------- ------- -------
TOTAL PAST-DUE LOANS $30,505 $33,960 $32,181
======= ======= =======
RATIOS<F*>
Non-performing loans to
outstanding loans .53% .48% .52%
Non-performing assets to
outstanding loans and foreclosed
assets .62 .59 .61
Non-performing assets to
total assets .42 .40 .40
<FN>
<F*> Past-due loans 90 days or more are not included in non-performing asset
totals or ratios.
- ----------------------------------------------------------------------------------
</TABLE>
Non-accrual loans declined by $2,402,000 from the March 31, 1997 level.
Foreclosed property declined by $4,618,000 since March 31, 1997, due to the
sale of foreclosed commercial real estate at gains as previously mentioned. As
of June 30, 1997, Mercantile had only seven non-accrual loans with balances in
excess of $1,000,000, the largest totaling $5,400,000. As significant, the
Corporation held only two foreclosed assets with a book value in excess of
$1,000,000 with a cumulative book value of less than $3,000,000.
All loans classified as renegotiated were paying in accordance with their
modified terms at June 30, 1997. Loans past due 90 days and still accruing
interest consisted largely of credit card loans, consumer loans and residential
real estate mortgage loans. Exhibit 8 details the composition of loans past due
90 days and over.
CAPITAL RESOURCES
Mercantile maintains a capital base which provides a foundation for
anticipated future asset growth and promotes depositor and investor
confidence. Capital management is a continuous process at Mercantile, and is
focused on ensuring that adequate capital is provided for both current needs
and anticipated growth. This strategy has enabled Mercantile to profitably
expand its balance sheet, while maintaining capital ratios that exceed
minimum capital requirements.
18
<PAGE> 18
<TABLE>
- -----------------------------------------------------------------------
EXHIBIT 9
RISK-BASED CAPITAL
($ IN THOUSANDS)
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1997 1996 1996
------- ------- -------
<S> <C> <C> <C>
Capital
Tier I $ 1,730,337 $ 1,749,466 $ 1,760,999
Total 2,363,965 2,175,712 2,176,326
Risk-adjusted assets 16,664,157 15,905,622 14,906,255
Tier I capital to
risk-adjusted assets 10.38% 11.00% 11.81%
Total capital to
risk-adjusted assets 14.19 13.68 14.60
Leverage 7.80 8.12 8.30
Tangible equity to tangible
assets 7.00 8.05 8.45
Double leverage 114.69 104.57 105.93
- -----------------------------------------------------------------------
</TABLE>
At June 30, 1997, shareholders' equity was $1.8 billion, a managed decline
of 6.4% from June 30, 1996. Since December 31, 1996, the Corporation
repurchased 6.7 million shares of its common stock via designated
broker-dealers at an average cost of $38.52 per share. A small portion of
that stock was held for reissuance in conjunction with the 1994 Stock
Incentive Plan, while the remainder was reissued in the Roosevelt transaction
in July 1997. As of July 1, 1997, the Corporation held no tainted treasury
shares. To fund announced treasury share repurchases and to finance the
Roosevelt acquisition, the Corporation formed Mercantile Capital Trust I
on January 29, 1997. Through this trust, Mercantile obtained $150,000,000 of
floating-rate debt which, for regulatory purposes, is considered part of Tier
I capital. Senior and subordinated debt securities in the amount of $500
million were issued in June 1997, for the same 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, was 114.69% at June 30, 1997 compared with 104.57%
at year-end 1996. Exhibit 9 details significant capital ratios and
intangible assets.
On July 16, 1997, the Board of Directors declared a three-for-two stock
split, in the form of a dividend, payable October 1, 1997 to shareholders of
record as of September 10, 1997. The Board of Directors also declared a cash
dividend of $.287 per common share, which will be paid October 1, 1997. Book
value per common share was $15.85 at June 30, 1997 compared with $16.08 a
year earlier, a decrease of 1.4%. Public debt ratings of the Corporation and
Mercantile Bank N.A. are shown in Exhibit 10. Moody's Investor Service
raised ratings on Mercantile's capital trust securities, senior notes and
subordinated notes on July 31, 1997.
<TABLE>
---------------------------------------------------------------------------------------------------------------------
EXHIBIT 10
DEBT RATINGS
<CAPTION>
THOMSON STANDARD
MOODY'S FITCH BANKWATCH & POOR'S
------- ----- --------- --------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer Rating B
Commercial Paper F1 TBW-1
6.800% Senior Notes, due 2001 A2 BBB+
7.050% Senior Notes, due 2004 A2 BBB+
7.625% Subordinated Notes, due 2002 A3 BBB+ BBB
7.300% Subordinated Notes, due 2007 A3 BBB
Floating Rate Capital Trust Pass-Through
Securities(SM) a2 BBB-
MERCANTILE BANK N.A.
Bank Notes A1/P-1 A
6.375% Subordinated Notes, due 2004 A2 A A- BBB+
9.000% Mortgage-backed Notes, due 1999 AAA
Certificates of Deposit TBW-1 A-/A-2
Letters of Credit TBW-1 A-/A-2
---------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 19
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME
($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR.
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans and leases $301,389 $303,073 $307,512 $317,682 $321,271 $331,688
Investments in debt and
equity securities 75,883 78,334 77,342 74,783 73,282 73,985
Short-term investments 4,651 4,502 3,637 4,075 3,909 5,490
-------- -------- -------- -------- -------- --------
Total Interest
Income 381,923 385,909 388,491 396,540 398,462 411,163
Tax-equivalent
adjustment 4,179 4,061 4,023 4,090 3,857 4,014
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT
INTEREST INCOME 386,102 389,970 392,514 400,630 402,319 415,177
INTEREST EXPENSE
Deposits 153,725 149,603 148,472 152,189 153,762 155,597
Borrowed funds 27,660 28,748 33,402 31,111 32,739 40,003
-------- -------- -------- -------- -------- --------
Total Interest
Expense 181,385 178,351 181,874 183,300 186,501 195,600
TAXABLE-EQUIVALENT
NET INTEREST
INCOME 204,717 211,619 210,640 217,330 215,818 219,577
PROVISION FOR POSSIBLE
LOAN LOSSES 34,149 11,152 12,614 15,100 18,443 27,695
OTHER INCOME
Trust 21,059 22,347 21,058 22,152 22,801 24,022
Service charges 21,214 21,967 22,372 23,363 22,798 22,591
Investment banking and
brokerage 8,567 7,631 7,971 8,075 7,982 7,760
Credit card fees 1,561 8,322 9,427 8,652 5,399 5,373
Securitization revenue 4,502 3,325 4,198 3,983 7,292 4,725
Mortgage banking 3,168 2,293 2,458 2,788 2,778 2,728
Securities gains
(losses) (2,722) 98 15 2,526 1,049 1,818
Other 12,446 21,733 17,055 23,876 18,001 18,910
-------- -------- -------- -------- -------- --------
Total Other Income 69,795 87,716 84,554 95,415 88,100 87,927
OTHER EXPENSE
Personnel expense 92,260 91,073 91,303 91,093 97,722 98,252
Net occupancy and
equipment 24,428 24,929 26,114 28,244 26,528 27,439
Other 87,008 46,843 58,003 57,370 41,345 94,784
-------- -------- -------- -------- -------- --------
Total Other Expense 203,696 162,845 175,420 176,707 165,595 220,475
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INCOME
BEFORE INCOME TAXES 36,667 125,338 107,160 120,938 119,880 59,334
INCOME TAXES
Income taxes 15,403 43,216 33,995 35,921 41,028 23,141
Tax-equivalent
adjustment 4,179 4,061 4,023 4,090 3,857 4,014
-------- -------- -------- -------- -------- --------
Adjusted Income Taxes 19,582 47,277 38,018 40,011 44,885 27,155
-------- -------- -------- -------- -------- --------
NET INCOME $ 17,085 $ 78,061 $ 69,142 $ 80,927 $ 74,995 $ 32,179
======== ======== ======== ======== ======== ========
NET INCOME PER COMMON
SHARE $.14 $.67 $.61 $.70 $.65 $.29
SIGNIFICANT RATIOS
Return on assets .33% 1.48% 1.32% 1.51% 1.38% .58%
Return on equity 3.50 16.57 15.06 17.05 15.63 7.07
</TABLE>
20
<PAGE> 20
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN THOUSANDS)
<CAPTION>
1996
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 $ 3,809,367 8.52% $ 3,889,805 8.42% $ 3,913,530 8.39% $ 4,071,583 8.38%
Real estate--commercial 2,788,474 8.79 2,783,201 8.68 2,769,282 8.67 2,780,313 8.61
Real estate--construction 517,735 9.15 493,196 9.40 504,516 9.11 565,702 9.17
Real estate--residential 4,097,276 8.20 4,121,151 8.26 4,291,098 8.24 4,518,685 8.18
Consumer 1,741,215 8.93 1,744,060 8.93 1,745,806 8.88 1,815,552 8.78
Credit card 832,807 12.77 828,728 13.30 852,651 12.69 873,195 12.69
----------- ----------- ----------- -----------
Total Loans and Leases 13,786,874 8.78 13,860,141 8.78 14,076,883 8.78 14,625,030 8.73
Investments in debt and equity
securities
Trading 80,820 6.36 46,224 6.14 36,909 6.09 61,987 6.62
Taxable 4,549,195 6.04 4,741,940 6.08 4,637,674 6.15 4,457,449 6.13
Tax-exempt 438,975 8.02 419,012 7.94 407,746 8.03 408,634 7.85
----------- ----------- ----------- -----------
Total Investments in
Debt and Equity
Securities 5,068,990 6.22 5,207,176 6.23 5,082,329 6.30 4,928,070 6.28
Short-term investments 318,456 5.78 316,621 5.63 251,366 5.66 283,689 5.62
----------- ----------- ----------- -----------
Total Earning Assets 19,174,320 8.10 19,383,938 8.09 19,410,578 8.04 19,836,789 8.03
Non-earning assets 1,629,100 1,723,196 1,541,955 1,560,218
----------- ----------- ----------- -----------
Total Assets $20,803,420 $21,107,134 $20,952,533 $21,397,007
=========== =========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,436,622 $ 3,127,700 $ 3,049,048 $ 2,811,011
Interest bearing demand 2,466,330 2.18 2,463,727 2.12 2,404,524 2.11 2,488,966 2.12
Money market accounts 2,576,809 3.87 2,665,609 3.80 2,690,505 3.84 2,752,013 3.85
Savings 1,137,417 2.33 1,141,065 2.29 1,115,226 2.28 1,097,718 2.28
Consumer time
certificates under $100,000 6,224,647 5.64 6,132,446 5.55 6,027,972 5.49 6,141,077 5.47
Other time 41,415 19.18 237,030 3.35 235,903 3.31 229,722 3.25
----------- ----------- ----------- -----------
Total Core Deposits 14,883,240 4.33 15,767,577 4.18 15,523,178 4.15 15,520,507 4.15
Time certificates
$100,000 and over 1,221,758 5.63 1,182,028 5.52 1,127,078 5.49 1,194,693 5.48
Foreign 174,667 5.66 152,075 5.52 189,295 5.53 220,239 5.69
----------- ----------- ----------- -----------
Total Purchased Deposits 1,396,425 5.65 1,334,103 5.53 1,316,373 5.51 1,414,932 5.53
----------- ----------- ----------- -----------
Total Deposits 16,279,665 4.47 17,101,680 4.31 16,839,551 4.28 16,935,439 4.29
Short-term borrowings 1,683,491 4.06 1,275,348 5.82 1,415,786 6.47 1,703,705 5.05
Bank notes 265,385 5.92 275,000 5.66 275,000 5.79 227,174 5.78
Long-term debt 337,317 7.54 325,583 7.36 312,379 7.42 305,211 7.41
----------- ----------- ----------- -----------
Total Acquired Funds 18,565,858 4.52 18,977,611 4.53 18,842,716 4.58 19,171,529 4.46
Other liabilities 283,148 245,315 273,117 326,991
SHAREHOLDERS' EQUITY 1,954,414 1,884,208 1,836,700 1,898,487
----------- ----------- ----------- -----------
Total Liabilities
and Shareholders'
Equity $20,803,420 $21,107,134 $20,952,533 $21,397,007
=========== =========== =========== ===========
SIGNIFICANT RATIOS
Net interest rate spread 3.58% 3.56% 3.46% 3.57%
Net interest rate margin 4.29 4.39 4.32 4.36
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
21
<PAGE> 21
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN THOUSANDS)
<CAPTION>
1997 1996 1997
1ST QTR. 2ND QTR. SIX MONTHS SIX MONTHS
------------------- ------------------- ------------------- -----------------
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 $ 4,245,981 8.41% $ 4,438,250 8.56% $ 3,849,584 8.47% $ 4,342,641 8.48%
Real estate--commercial 2,853,272 8.63 2,893,046 8.78 2,785,836 8.73 2,873,268 8.70
Real estate--construction 580,920 8.89 638,771 8.93 505,468 9.27 610,005 8.91
Real estate--residential 4,640,759 8.06 4,720,701 8.10 4,109,216 8.23 4,680,949 8.08
Consumer 1,851,364 8.83 1,895,587 8.88 1,742,637 8.93 1,873,600 8.85
Credit card 820,140 13.31 702,617 13.33 830,768 13.03 761,052 13.32
----------- ----------- ----------- -----------
Total Loans and Leases 14,992,436 8.60 15,288,972 8.72 13,823,509 8.78 15,141,515 8.66
Investments in debt and
equity securities
Trading 68,823 6.81 93,156 7.00 63,522 6.28 81,057 6.92
Taxable 4,330,115 6.17 4,326,163 6.22 4,645,575 6.06 4,328,128 6.19
Tax-exempt 397,502 7.95 383,181 8.00 428,990 7.98 390,302 7.98
----------- ----------- ----------- -----------
Total Investments in
Debt and Equity
Securities 4,796,440 6.33 4,802,500 6.38 5,138,087 6.22 4,799,487 6.35
Short-term investments 284,131 5.50 385,227 5.64 317,534 5.70 334,962 5.58
----------- ----------- ----------- -----------
Total Earning Assets 20,073,007 8.13 20,476,699 8.13 19,279,130 8.10 20,275,964 8.13
Non-earning assets 1,687,833 1,892,478 1,676,149 1,790,722
----------- ----------- ----------- -----------
Total Assets $21,760,840 $22,369,177 $20,955,279 $22,066,686
=========== =========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,748,108 $ 3,082,060 $ 2,782,164 $ 2,916,000
Interest bearing demand 2,550,948 2.14 2,528,212 2.09 2,465,034 2.15 2,539,516 2.12
Money market accounts 2,791,936 3.89 2,783,727 3.95 2,621,211 3.84 2,787,812 3.92
Savings 1,091,994 2.27 1,103,230 2.27 1,139,235 2.31 1,097,645 2.27
Consumer time
certificates under
$100,000 6,181,763 5.48 6,113,801 5.48 6,178,540 5.60 6,147,595 5.48
Other time 155,230 4.71 160,942 4.25 139,223 5.71 158,102 4.47
----------- ----------- ----------- -----------
Total Core Deposits 15,519,979 4.18 15,771,972 4.18 15,325,407 4.25 15,646,670 4.18
Time certificates
$100,000 and over 1,286,701 5.49 1,219,901 5.52 1,201,892 5.58 1,253,116 5.50
Foreign 344,388 5.48 468,671 5.67 163,371 5.60 406,873 5.59
----------- ----------- ----------- -----------
Total Purchased
Deposits 1,631,089 5.50 1,688,572 5.58 1,365,263 5.59 1,659,989 5.54
----------- ----------- ----------- -----------
Total Deposits 17,151,068 4.33 17,460,544 4.34 16,690,670 4.39 17,306,659 4.34
Short-term borrowings 1,810,192 5.05 2,101,845 5.25 1,479,420 4.82 1,956,826 5.16
Bank notes 175,000 5.81 175,000 5.95 270,192 5.79 175,000 5.88
Long-term debt 398,052 7.36 530,593 7.07 331,452 7.45 464,689 7.19
----------- ----------- ----------- -----------
Total Acquired Funds 19,534,312 4.51 20,267,982 4.57 18,771,734 4.52 19,903,174 4.54
Other liabilities 306,844 279,784 264,235 293,241
SHAREHOLDERS' EQUITY 1,919,684 1,821,411 1,919,310 1,870,271
----------- ----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $21,760,840 $22,369,177 $20,955,279 $22,066,686
=========== =========== =========== ===========
SIGNIFICANT RATIOS
Net interest rate spread 3.62% 3.56% 3.58% 3.59%
Net interest rate margin 4.36 4.30 4.34 4.33
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
22
<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<S> <C>
(a) Exhibits
4.1 Supplemental Indenture of First Supplemental Indenture dated May 22, 1997, between Mercantile,
as Issuer, and The Chase Manhattan Bank, as Trustee, filed as Exhibit 4.12 to Amendment No. 1 to
Registrant's Registration Statement on Form S-4 (No. 333-25131), is incorporated herein by
reference.
4.2 Form of Indenture Regarding Senior Debt Securities, filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference.
4.3 Form of Indenture Regarding Subordinated Debt Securities, filed as Exhibit 4.2 to Registrant's
Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference.
10 Employment Agreement for Stanley J. Bradshaw dated December 22, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended June 30, 1997, Registrant filed two (2) Current Reports on Form 8-K and one
(1) Current Report on Form 8-K/A. In its Current Report on Form 8-K, dated May 2, 1997, under Item
2, Registrant disclosed that it had, effective April 25, 1997, consummated its acquisition of Mark
Twain Bancshares, Inc. ("Mark Twain") through the merger of Mark Twain with and into a wholly
owned subsidiary of Registrant, with the shareholders of Mark Twain to receive an aggregate of
approximately 24,088,713 shares of Registrant's common stock in exchange for their Mark Twain
shares.
In its Current Report on Form 8-K, dated May 13, 1997, under Item 5 and in connection with
Registrant's acquisition of Mark Twain, Registrant filed Audited Supplemental Consolidated Financial
Statements restating the Registrant's historical consolidated financial statements as of and for the
years ended December 31, 1996, 1995 and 1994 to reflect the Mark Twain transaction. In addition,
Registrant also filed Unaudited Interim Consolidated Financial Statements restating the Registrant's
historical consolidated financial statements as of and for the three-month periods ended March 31,
1997 and 1996 to reflect the Mark Twain transaction.
In its Current Report on Form 8-K/A, dated May 22, 1997, under Items 5 and 7 and in connection with
Registrant's acquisition of Mark Twain, Registrant incorporated by reference the following audited
financial statements of Mark Twain from Mark Twain's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996:
1. Independent Auditors' Report;
2. Consolidated Balance Sheets as of December 31, 1996 and 1995;
3. Consolidated Statements of Income for the Three Years Ended December 31, 1996, 1995 and 1994;
4. Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996, 1995 and 1994;
and
5. Notes to Consolidated Financial Statements.
23
<PAGE> 23
The following unaudited financial statements of Mark Twain and its subsidiaries were incorporated by
reference into Registrant's Form 8-K/A from Mark Twain's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997:
1. Condensed Consolidated Balance Sheets as of March 31, 1997 and 1996, and December 31, 1996;
2. Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996;
3. Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and
1996; and
4. Notes to Condensed Consolidated Financial Statements.
The following unaudited pro forma combined consolidated financial statements of Registrant
reflecting the merger with Mark Twain were incorporated by reference into the Registrant's Form
8-K/A from Registrant's Registration Statement on Form S-4 filed May 19, 1997:
1. Pro Forma Combined Consolidated Balance Sheet as of March 31, 1997;
2. Pro Forma Combined Consolidated Income Statements for the Three Years Ended December 31, 1996,
1995 and 1994 and the Three Months Ended March 31, 1997 and 1996; and
3. Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
24
<PAGE> 24
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 August 14, 1997 /s/ JOHN Q. ARNOLD
--------------------------- ---------------------------------
John Q. Arnold
Chief Financial Officer
25
<PAGE> 25
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
- ---------- ----------- --------
10 Employment Agreement for Stanley
J. Bradshaw dated December 22, 1996 Included herein
27 Financial Data Schedule Included herein
26
<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this 22 day of December, 1996, by and between Roosevelt Financial Group, Inc.
(the "Company"), Mercantile Bancorporation, Inc. ("Mercantile") and Stanley
J. Bradshaw (the "Employee").
WHEREAS, the Company has entered into an Agreement and Plan of
Reorganization of even date herewith (the "Definitive Agreement") with
Mercantile, pursuant to which Mercantile will acquire (the "Acquisition") the
Company and its wholly-owned subsidiary, Roosevelt Bank (the "Bank");
WHEREAS, the Acquisition represents a significant acquisition for
Mercantile;
WHEREAS, Mercantile has expressed a desire to retain the Employee as a
member of its Management Executive Committee and a belief that it is essential
for Mercantile to retain the Employee for the future management and growth of
the assets acquired in the Acquisition, and Mercantile has expressed the
intention that the Employee shall have a key role with respect to Mercantile's
strategic activities in the future;
WHEREAS, it is a condition of Mercantile's entering into the Definitive
Agreement that Mercantile be assured that the Employee will be available for
long term service with Mercantile after the Acquisition.
WHEREAS, it is appropriate to provide the Employee with a material
inducement to enter into this Agreement by which he will undergo a change in
status and undertake both to continue his chief executive responsibilities
with respect to the Bank and expanded duties with respect to Mercantile's
banking operations in the St. Louis, Missouri, area; and
WHEREAS, the board of directors of the Company and the Executive
Committee of the board of directors of Mercantile have approved and authorized
the execution of this Agreement with the Employee;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
-----------
(a) The term "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company (or its successors) that are part of the
consolidated group of the Company (or its successors) for federal income tax
reporting.
(b) The term "Date of Termination" means the date upon which
the Employee's employment with the Bank ceases, as specified in a notice of
termination pursuant to Section 8 of this Agreement.
<PAGE> 2
(c) The term "Effective Time" means immediately prior to the
consummation of the Acquisition as provided in the Definitive Agreement.
(d) The term "Effective Date" means the date on which the
Acquisition is consummated as provided in the Definitive Agreement.
(e) The term "Involuntarily Termination" means the termination
of the employment of Employee (i) by the Bank without his express written
consent; or (ii) by the Employee by reason of material diminution of or
interference with his duties, responsibilities or benefits, including (without
limitation) any of the following actions unless consented to in writing by the
Employee: (1) a requirement that the Employee be based at any place other than
Chesterfield, Missouri, or within 50 miles thereof, except for reasonable travel
on Company or Bank business; (2) a material demotion of the Employee; or (3) a
reduction in the Employee's salary or a material adverse change in the
Employee's perquisites, benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and with equitable effect to
all members of the senior management of the Bank or the Company. The term
"Involuntary Termination" does not include Termination for Cause or termination
of employment due to death or permanent disability, or suspension or temporary
or permanent prohibition from participation in the conduct of the affairs of a
depository institution under Section 8 of the Federal Deposit Insurance Act.
(f) The terms "Termination for Cause" and "Terminated For
Cause" mean termination of the employment of the Employee with the Bank because
of the Employee's personal dishonesty, incompetence, willful misconduct, breach
of a fiduciary duty involving personal profit, intentional failure to perform
material stated duties, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final cease-and-desist
order, or (except as provided below) material breach of any provision of this
Agreement. No act or failure to act by the Employee shall be considered willful
unless the Employee acted or failed to act with an absence of good faith and
without a reasonable belief that his action or failure to act was in the best
interest of the Company.
2. Term. The term of this Agreement shall be a period of three years
----
commencing on the Effective Time, subject to earlier termination as provided
herein (the "Employment Period").
3. Employment. The Employee is currently employed as Chief Executive
----------
Officer of the Bank. From and after the Effective Date, during the Employment
Period, the Employee shall serve as President and Chief Executive Officer of
the Bank, pending integration of the Bank with and into Mercantile's banking
and/or other affiliates, and thereafter as head of Mercantile's St. Louis-based
mortgage banking operations. As such, the Employee shall render administrative
and management services as are customarily performed by persons situated in
similar executive capacities, and shall have such other powers and duties as
the Chief Executive Officer of Mercantile may prescribe from time to time. The
Employee shall also serve as a member of the Management Executive Committee of
Mercantile. The Employee shall report solely to the chief executive officer of
Mercantile. The Employee shall devote his best efforts and reasonable time and
attention to the business and affairs of the Bank and/or other Consolidated
Subsidiaries to the extent necessary to discharge his responsibilities
hereunder. The Employee may (i) serve on
2
<PAGE> 3
corporate or charitable boards or committees, and (ii) manage personal
investments, so long as such activities do not interfere with performance of
his responsibilities hereunder.
4. Cash Compensation.
-----------------
(a) Salary. Mercantile agrees to pay, or cause the Bank or
------
appropriate other Consolidated Subsidiaries to pay, the Employee during the term
of this Agreement a base salary (the "Annual Base Salary") the annualized amount
of which shall be not less than FOUR HUNDRED TWENTY-FIVE THOUSAND DOLLARS
($425,000). The Annual Base Salary shall be paid no less frequently than
monthly and shall be subject to customary tax withholding.
(b) Annual Bonus. During the Employment Period, in addition
------------
to Annual Base Salary, the Employee will be eligible to receive, (I) for each
fiscal year of Mercantile during which the Employee is employed, an annual bonus
(the "Annual Bonus") in an amount to be determined by Mercantile's board of
directors, but in no event shall the amount of the Annual Bonus during the
first fiscal year during which the Employee is employed (the "First Fiscal
Year") be less than the product of (x) .55 and (y) the Annual Base Salary
(the "Minimum Bonus") and (II) for that portion of any fiscal year of Mercantile
other than the First Fiscal Year during which the Employee is employed for less
than twelve full months, an amount equal to the product of (x) the Annual Bonus
paid to the Employee during the Employment Period, and (y) a fraction, the
numerator of which is the number of days in such fiscal year during which the
Employee is employed by Mercantile, and the denominator of which is 365. Each
such Annual Bonus shall be paid in cash in a manner and at a time in accordance
with Mercantile's customary practices with respect to other peer employees of
Mercantile.
(c) Expenses. The Employee shall be entitled to receive
--------
prompt reimbursement for all reasonable expenses incurred by the Employee in
performing services under this Agreement in accordance with the policies and
procedures applicable to the executive officers of Mercantile, provided that the
-------- ----
Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
--------
(a) Participation in Benefit Plans. The Employee shall be
------------------------------
entitled to participate, to the same extent as executive officers of Mercantile
and the Consolidated Subsidiaries generally, in all qualified and nonqualified
plans of Mercantile and the Consolidated Subsidiaries relating to pension,
retirement, thrift, profit-sharing, savings, group or other life insurance,
hospitalization, medical and dental coverage, travel and accident insurance,
education, and other retirement or employee benefits or combinations thereof.
In addition, the Employee shall be entitled to be considered for benefits under
all of the stock and stock option related plans in which the executive officers
of Mercantile are eligible or become eligible to participate.
(b) Fringe Benefits. The Employee shall be eligible to
---------------
participate in, and receive benefits under, any other fringe benefit plans
or perquisites which are or may become generally available to the executive
officers Mercantile, including but not limited to supplemental retirement,
incentive compensation, supplemental medical or life insurance plans, physical
examinations, and tax preparation services.
3
<PAGE> 4
(c) Restricted Stock. At the Effective Time, the Company shall
----------------
grant to the Employee 100,000 shares of restricted stock of the Company, which
shares shall vest annually in equal portions over a period of three years
following the Effective Date, provided that vesting shall accelerate so that
-------------
all shares vest immediately in the event that the Employee dies or becomes
permanently disabled during such period but vesting shall not accelerate in the
event of a change in control of Mercantile.
(d) Credit for Prior Service. Following the Acquisition, the
------------------------
Employee shall receive full credit for prior service with the Company and the
Bank under employee benefit plans of Mercantile, all as more fully set out in
Section 5.08 of the Definitive Agreements for all purposes other than
determining the amount of benefit accruals under any defined benefit plans of
Mercantile.
6. Vacations; Leave. The Employee shall be entitled to annual paid
----------------
vacation in accordance with the policies established by the board of directors
of Mercantile and the board of directors of the Bank for executive officers, and
to voluntary leaves of absence, with or without pay, from time to time at such
times and upon such conditions as the Board of Directors may determine in its
discretion.
7. Termination of Employment.
-------------------------
(a) Involuntary Termination. If the Employee experiences an
-----------------------
Involuntary Termination at any time, (i) Mercantile shall pay to the Employee:
A. The sum of (1) the Employee's Annual Base Salary through
the Date of Termination to the extent not theretofore paid ("Accrued Salary")
and (2) the product of (x) the Annual Bonus paid or payable, including any bonus
or portion thereof which has been earned but deferred (and annualized for any
fiscal year of Mercantile consisting of less than twelve full months or during
which the Employee was employed for less than twelve full months) for the most
recently completed fiscal year during the Employment Period, if any, or, in
the event that a fiscal year of Mercantile has not been completed during the
Employment Period as of the Date of Termination, the Minimum Bonus, and (y)
a fraction, the numerator of which is the number of days in the current fiscal
year of Mercantile through the Date of Termination, and the denominator of which
is 365 (the sum of the amounts described in clauses (1) and (2) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. The greater of (1) the amount equal to the product of (i)
the number of months remaining in the Employment Period on the Date of
Termination (the "Continuation Period"), divided by twelve and (ii) the sum
of (x) the Employee's Annual Base Salary and (y) the Annual Bonus paid or
payable (but not less than the Minimum Bonus) for the most recently completed
fiscal year of Mercantile during the Employment Period (the "Recent Annual
Bonus"), or, in the event that a fiscal year has not been completed during
the Employment Period as of the Date of Termination, the Minimum Bonus, and
(2) the amount equal to the sum of (x) the Employee's Annual Base Salary and
(y) the Recent Annual Bonus, payable, in each case, in 24 equal semi-monthly
installments (the "Termination Payment"); and
4
<PAGE> 5
(ii) For the greater of (1) twelve months or (2) the number
of months remaining in the Employment Period on the Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy (the "Benefit Continuation Period"), Mercantile shall after
the Employee's Date of Termination continue benefits to the Employee at least
equal to those which would have been provided to him in accordance with the
plans, programs, practices and policies described in Section 5(a) of this
Agreement if the Employee's employment had not been terminated; provided,
---------
however, that if the Employee become reemployed with another employer and is
- -------------
eligible to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Employee for retiree benefits pursuant to such
plans, practices, programs, and policies, the Employee shall be considered to
have remained employed during the Benefit Continuation Period and to have
returned on the last day of such period; and
(iii) The Employee shall be deemed to be a continuing employee
of Mercantile for purposes of the vesting of the restricted stock referred to in
Section 5(d) of this Agreement until the third anniversary of the Effective
Date.
(b) Termination for Cause. In the event of Termination for
---------------------
Cause, Mercantile shall have no further obligation to the Employee under this
Agreement after the Date of Termination. In the event of a simultaneous
Termination for Cause and voluntary termination of employment or resignation
by the Employee, the Employee shall be considered to have been Terminated for
Cause.
(c) Voluntary Termination. The Employee may terminate his
---------------------
employment voluntarily at any time by a notice pursuant to Section 8 of this
Agreement. In the event that the Employee voluntarily terminates his
employment, Mercantile shall be obligated to the Employee for the amount of his
Annual Base Salary and benefits only through the Date of Termination, at the
time such payments are due, and Mercantile shall have no further obligation to
the Employee.
(d) Death. In the event of the death of the Employee while
-----
employed under this Agreement and prior to any termination of employment,
Mercantile shall pay to the Employee's estate, or such person as the Employee
may have previously designated in writing, an amount of cash equal to the
product of SIX HUNDRED FIFTY-EIGHT THOUSAND SEVEN HUNDRED FIFTY DOLLARS
($658,750) multiplied by a fraction with a numerator equal to the number of
days elapsed prior to the date of death during the calendar year in which death
occurs and a denominator of 365, reduced by (ii) the amount of Annual Base
Salary and bonus paid to the Employee prior to the date of death during such
calendar year.
8. Notice of Termination. In the event that Mercantile desires to
---------------------
terminate the employment of the Employee during the term of this Agreement,
Mercantile shall deliver to the Employee a written notice of termination,
stating whether such termination constitutes Termination for Cause or
Involuntary Termination, setting forth in reasonable detail the facts and
circumstances that are the basis for the termination, and specifying the date
upon which
5
<PAGE> 6
employment shall terminate, which date shall be at least 30 days after the date
upon which the notice is delivered, except in the case of Termination for
Cause. In the event that the Employee determines in good faith that he has
experienced an Involuntary Termination of his employment, he shall send a
written notice to Mercantile stating the circumstances that constitute such
Involuntary Termination and the date upon which his employment shall have
ceased due to such Involuntary Termination. In the event that the Employee
desires to effect a Voluntary Termination, he shall deliver a written notice to
Mercantile, stating the date upon which employment shall terminate, which date
shall be at least 30 days after the date upon which the notice is delivered,
unless the parties agree to a date sooner.
9. Attorneys Fees. From and after the Effective Date during the
--------------
Employment Period, Mercantile shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) when and as incurred by
the Employee as a result of (i) the Employee's contesting or disputing any
termination of employment, or (ii) the Employee's seeking to obtain or enforce
any right or benefit provided by this Agreement or by any other plan or
arrangement maintained by Mercantile under which the Employee is or may be
entitled to receive benefits; provided that Mercantile's obligation to pay such
-------- ----
fees and expenses is subject to the Employee's prevailing with respect to the
matters in dispute in any action initiated by the Employee or the Employee's
having been determined to have acted reasonably and in good faith with respect
to any action initiated by Mercantile.
10. No Assignments; Mercantile as Successor.
---------------------------------------
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that Mercantile shall require any successor or assignee
- -----------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that Mercantile would have been required to perform it if no
such succession or assignment had taken place. Failure of Mercantile to obtain
such an assumption agreement prior to the effectiveness of any succession or
assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation and benefits from Mercantile in the same amount and on the same
terms as the compensation pursuant to Section 7(b) hereof. For purposes of
implementing the provisions of this Section 10(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(c) Upon the consummation of the Acquisition, for all purposes
under this Agreement, the Company shall be deemed to be Mercantile and the
Consolidated Subsidiaries shall be those of Mercantile.
6
<PAGE> 7
11. Certain Reduction of Payments by Mercantile.
-------------------------------------------
(a) For purposes of this Section 11, (i) a "Payment" shall
mean any payment or distribution in the nature of compensation to or for the
benefit of the Employee, whether paid or payable pursuant to this Agreement
or otherwise; (ii) "Separation Payment" shall mean a Payment paid or payable
pursuant to this Agreement (disregarding this Section); (iii) "Net After Tax
Receipt" shall mean the Present Value of a Payment net of all taxes imposed on
the Employee with respect thereto under Sections 1 and 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), determined by applying the
highest marginal rate under Section 1 of the Code which applied to the
Employee's taxable income for the immediately preceding taxable year; (iv)
"Present Value" shall mean such value determined in accordance with Section
280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the greatest
aggregate amount of Separation Payments which (a) is less than the sum of all
Separation Payments and (b) results in aggregate Net After Tax Receipts which
are equal to or greater than the Net After Tax Receipts which would result if
the Employee were paid the sum of all Separation Payments.
(b) Anything in this Agreement to the contrary
notwithstanding, in the event KPMG Peat Marwick LLP or such other nationally
recognized certified public accounting firm designated by the Employee (the
"Accounting Firm") shall determine that receipt of all Payments would subject
the Employee to tax under Section 4999 of the Code, it shall determine whether
some amount of Separation Payments would meet the definition of a "Reduced
Amount." If the Accounting Firm determines that there is a Reduced Amount,
the aggregate Separation Payments shall be reduced to such Reduced Amount.
All fees payable to the Accounting Firm shall be paid solely by Mercantile.
(c) If the Accounting Firm determines that aggregate
Separation Payments should be reduced to the Reduced Amount, Mercantile shall
promptly give the Employee notice to that effect and a copy of the detailed
calculation thereof, and the Employee may then elect, in his sole discretion,
which and how much of the Separation Payments shall be eliminated or reduced
(as long as after election the Present Value of the aggregate Separation
Payments equals the Reduced Amount), and shall advise Mercantile in writing of
his election within ten days of his receipt of notice. If no such election is
made by the Employee within such ten-day period, Mercantile may elect which of
such Separation Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Separation Payments equals the
Reduced Amount) and shall notify the Employee promptly of such election. All
determinations made by the Accounting Firm under this Section 11 shall be
binding upon Mercantile and the Employee and shall be made within 60 days of a
termination of employment of the Employee. As promptly as practicable following
such determination, Mercantile shall pay to or distribute for the benefit of the
Employee such Separation Payments as are then due to the Employee under this
Agreement and shall promptly pay to or distribute for the benefit of the
Employee in the future such Separation Payments as become due to the Employee
under this Agreement.
(d) While it is the intention of Mercantile to reduce the
amounts payable or distributable to the Employee hereunder only if the
aggregate Net After Tax Receipts to an Employee would thereby be increased, as a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that amounts will have been paid or distributed by Mercantile to or for
7
<PAGE> 8
the benefit of the Employee pursuant to this Agreement which should not have
been so paid or distributed ("Overpayment") or that additional amounts which
will have not been paid or distributed by Mercantile to or for the benefit of
the Employee pursuant to this Agreement could have been so paid or distributed
("Underpayment"), in each case consistent with the calculation of the Reduced
Amount hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against Mercantile or
the Employee which deficiency the Accounting Firm believes has a high
probability of success, determines that an Overpayment has been made, any such
Overpayment paid or distributed by Mercantile to or for the benefit of the
Employee shall be treated for all purposes as a loan to the Employee which the
Employee shall repay to Mercantile together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
------------------
that no such loan shall be deemed to have been made and no amount shall be
- ----
payable by the Employee to Mercantile if and to the extent such deemed loan and
payment would not either reduce the amount on which the Employee is subject to
tax under Section 1 and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based upon controlling precedent
or substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by Mercantile to or for the benefit of the
Employee together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
12. Confidential Information. The Employee shall hold in a fiduciary
------------------------
capacity for the benefit of Mercantile and the Bank all secret or confidential
information, knowledge or data ("Confidential Information") relating to
Mercantile or the Bank or any of their affiliated companies, and their
respective businesses, which shall have been obtained by the Employee during
the Employee's employment by Mercantile or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Employee or representatives of the Employee in violation of this Agreement).
After termination of the Employee's employment, the Employee shall not, without
the prior written consent of Mercantile or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or data
to anyone other than Mercantile and those designated by it. In no event shall
an asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement. Confidential information shall not include information,
knowledge or data which (i) is in the Employee's possession at the date of
this Agreement which she has no reason to believe is subject to any
confidentiality agreement or other obligation of confidentiality to Mercantile
or another party, (ii) is or becomes generally available to the public other
than as a result of unauthorized disclosure by Mercantile or a Consolidated
Subsidiary thereof, or representative of either, (iii) is or becomes available
to Mercantile from a source other than Mercantile, provided that the Employee
-------------
does not know or have reason to believe that such source is bound by a
confidentiality agreement or other obligation of confidentiality to Mercantile,
(iv) is independently developed by the Employee without reference to any
information obtained from Mercantile, or (v) is required to disclosed by law.
13. Covenant Not To Engage in Competitive or Other Detrimental
----------------------------------------------------------
Activities.
----------
(a) The Employee covenants that from and after the Effective
Date he will not compete with Mercantile, the Bank and/or their affiliates and
further covenants that he will not take any action which is detrimental to
Mercantile, the Bank and/or the affiliated companies
8
<PAGE> 9
(i) during the Employment Period, and (ii) if the Employee's employment
terminates for any reason (other than the Employee's death) or no reason during
the Employment Period, until the later of (i) the third anniversary of the
Effective Date or (ii) the first anniversary of the Date of Termination.
(b) For purposes of paragraph (a) of this Section 13, the
Employee shall be deemed to be competing with Mercantile, Bank and/or their
affiliated companies at any time if the Employee accepts employment with, or
serves as an agent, employee, or director of, or a consultant to, a competitor
of Mercantile, Bank and/or their affiliated companies, or during such time the
Employee acquires or has an interest (direct or indirect) in any firm,
corporation or enterprise engaged in a business which is in competition with
Mercantile, Bank and/or their affiliated companies, or at any time, either
during employment or thereafter, the Employee divulges any information
concerning Mercantile, Bank and/or their affiliated companies which is or
could be of aid to any such competitor. The mere ownership of a less than a
3% debt and/or equity interest in a competing company whose stock is publicly
held shall not be considered as having the prohibited interest in a competitor,
and neither shall the mere ownership of a less than a 10% debt and/or equity
interest in a competing company whose stock is not publicly held. For purposes
of this Agreement, any commercial bank, savings and loan association, securities
broker or dealer, or other business or financial institution that is principally
engaged in the business of offering any service at the time offered by
Mercantile, Bank and/or their affiliated companies, and which conducts business
in any locations encompassed within the areas circumscribed by circles, of which
the radii are 50 miles and the mid-points are the geographic centers of any
community in which Mercantile and/or its affiliated companies conduct business
operations shall be deemed to be a competitor.
(c) Should Mercantile reasonably and in good faith believe
that the Employee has violated any of the foregoing provisions, it shall give
the Employee written notice to such effect, stating the reasons(s) for its
belief, and pending a final determination as to whether there has been a
violation may, without penalty or risk of claim for actual or punitive
damages, suspend payment of any further amount which might otherwise become
payable hereunder after thirty (30) days of giving such notice. Mercantile
shall, in an expeditious manner, determine from all information available
to it whether the Employee violated any of the foregoing covenants, and if
Mercantile in good faith concludes that the Employee has violated this
Agreement, the Employee shall not be entitled to any further payment hereunder.
(d) The Employee represents, acknowledges and agrees (i) that
his experience and capabilities are such that he can obtain employment in
activities which do not violate such agreement and that the enforcement by way
of injunction of the agreement not to compete will not prevent the Employee
from earning a livelihood, (ii) that Mercantile and Bank do not have an adequate
remedy at law for a breach or threatened breach by the Employee of the covenants
in this Section and may obtain injunctive and other equitable relief, in
addition to receiving its actual damages and any other remedies that may be
available to it hereunder or at law or by statute, (iii) that the covenants
herein contained are reasonable and necessary for the proper protection of
Mercantile, and (iv) that if any provision or part of any such covenant is
invalidated, the remainder shall nevertheless continue to be valid and fully
enforceable, and if a court determines that the term of the covenant is too
long or the area covered thereby too great,
9
<PAGE> 10
so that the covenant as written is unenforceable, the covenant shall be
modified to encompass the longest duration and largest geographic area
that the court deems enforceable under the law.
14. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Company at its home
office, to the attention of the Board of Directors with a copy to the
Secretary of Mercantile, or, if to the Employee, to such home or other address
as the Employee has most recently provided in writing to Mercantile.
15. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties, except as herein otherwise
provided.
16. Headings. The headings used in this Agreement are included solely
--------
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
17. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Missouri.
19. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Roosevelt Financial Group, Inc.
/s/Mark Ellebrecht /s/Gary W. Douglass
- --------------------------- --------------------------------
Secretary By:
Its:
Attest: Mercantile Bancorporation, Inc.
/s/Jon W. Bilstrom /s/Thomas H. Jacobsen
- --------------------------- --------------------------------
Secretary By:
Its:
Employee
/s/Stanley J. Bradshaw
--------------------------------
Stanley J. Bradshaw
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,053,338
<INT-BEARING-DEPOSITS> 180,445
<FED-FUNDS-SOLD> 420,988
<TRADING-ASSETS> 73,429
<INVESTMENTS-HELD-FOR-SALE> 4,336,067
<INVESTMENTS-CARRYING> 303,214
<INVESTMENTS-MARKET> 305,797
<LOANS> 15,421,311
<ALLOWANCE> 234,684
<TOTAL-ASSETS> 22,579,609
<DEPOSITS> 16,954,445
<SHORT-TERM> 2,449,526
<LIABILITIES-OTHER> 294,337
<LONG-TERM> 796,049
0
0
<COMMON> 1,179
<OTHER-SE> 1,759,073
<TOTAL-LIABILITIES-AND-EQUITY> 22,579,609
<INTEREST-LOAN> 652,959
<INTEREST-INVEST> 147,267
<INTEREST-OTHER> 9,399
<INTEREST-TOTAL> 809,625
<INTEREST-DEPOSIT> 309,359
<INTEREST-EXPENSE> 382,101
<INTEREST-INCOME-NET> 427,524
<LOAN-LOSSES> 46,138
<SECURITIES-GAINS> 2,867
<EXPENSE-OTHER> 386,070
<INCOME-PRETAX> 171,343
<INCOME-PRE-EXTRAORDINARY> 171,343
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,174
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 4.33
<LOANS-NON> 77,143
<LOANS-PAST> 30,505
<LOANS-TROUBLED> 5,039
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 230,372
<CHARGE-OFFS> 55,126
<RECOVERIES> 11,685
<ALLOWANCE-CLOSE> 234,684
<ALLOWANCE-DOMESTIC> 234,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>This amount is only reported at fiscal year-end date.
</TABLE>
