<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 13, 1997
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
MISSOURI 1-11792 43-0951744
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
P.O. BOX 524
ST. LOUIS, MISSOURI 63166-0524
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 425-2525
===============================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
Effective April 25, 1997, Mercantile Bancorporation Inc.
("Corporation") acquired Mark Twain Bancshares, Inc. ("Mark Twain") in
a transaction accounted for as a pooling-of-interests. Audited
Supplemental Consolidated Financial Statements restating the
Corporation's historical consolidated financial statements as of
and for the years ended December 31, 1996, 1995 and 1994 to reflect
the Mark Twain transaction are included herein. In addition,
Unaudited Interim Consolidated Financial Statements restating the
Corporation'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 are included herein.
<PAGE> 3
[ MERCANTILE LOGO ]
MERCANTILE
BANCORPORATION INC.
SUPPLEMENTAL
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<PAGE> 4
MERCANTILE BANCORPORATION INC.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
Effective April 25, 1997, Mercantile Bancorporation Inc. ("Corporation")
acquired Mark Twain Bancshares, Inc. in a transaction accounted for as a
pooling-of-interests. The following Supplemental Consolidated Financial
Statements restate the Corporation's historical consolidated financial
statements as of and for the years ended December 31, 1996, 1995 and 1994 to
reflect this transaction.
1
<PAGE> 5
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
(Thousands except per common share data)
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $1,229,656 $1,201,046 $ 999,069
Investments in debt and equity securities
Trading 3,597 3,434 4,724
Taxable 280,174 264,857 264,649
Tax-exempt 22,571 25,141 26,537
---------- ---------- ----------
Total 306,342 293,432 295,910
Due from banks--interest bearing 4,107 2,487 2,862
Federal funds sold and repurchase agreements 12,758 19,191 14,087
---------- ---------- ----------
Total Interest Income 1,552,863 1,516,156 1,311,928
INTEREST EXPENSE
Interest bearing deposits 593,488 567,781 431,112
Foreign deposits 10,501 13,088 5,398
Short-term borrowings 81,399 94,457 57,630
Bank notes 15,333 13,674 780
Long-term debt 24,189 26,466 26,622
---------- ---------- ----------
Total Interest Expense 724,910 715,466 521,542
---------- ---------- ----------
NET INTEREST INCOME 827,953 800,690 790,386
PROVISION FOR POSSIBLE LOAN LOSSES<F1> 73,015 41,533 48,791
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 754,938 759,157 741,595
OTHER INCOME
Trust 86,616 77,115 71,972
Service charges 88,916 82,459 80,057
Credit card fees 27,962 20,366 27,352
Securitization revenue 16,008 23,005 --
Mortgage banking 10,707 11,063 12,188
Investment banking and brokerage 32,244 28,445 29,225
Securities gains (losses)<F1> (83) 4,338 2,888
Other 75,110 64,858 48,686
---------- ---------- ----------
Total Other Income 337,480 311,649 272,368
OTHER EXPENSE
Salaries 296,712 282,433 274,492
Employee benefits 69,017 63,723 61,934
Net occupancy 49,428 47,383 45,960
Equipment 54,287 48,513 45,795
Intangible asset amortization 12,026 10,194 12,150
Other<F1> 237,198 188,273 204,680
---------- ---------- ----------
Total Other Expense 718,668 640,519 645,011
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 373,750 430,287 368,952
INCOME TAXES<F1> 128,535 149,898 135,896
---------- ---------- ----------
NET INCOME $ 245,215 $ 280,389 $ 233,056
========== ========== ==========
PER COMMON SHARE DATA
Average shares outstanding 77,292,207 77,169,918 74,882,481
Net income<F2> $3.17 $3.62 $3.10
Dividends declared 1.64 1.32 1.12
<FN>
<F1> Includes the following acquisition charges and special SAIF assessment:
Provision for possible loan losses $13,666 $-- $ 7,775
Other income (securities losses) (3,114) -- --
Other expense 63,456 -- 12,664
Income tax benefit (23,697) -- (3,739)
---------- ----- ----------
Impact on Net Income $(56,539) $-- $(16,700)
========== ===== ==========
<F2> Earnings per common share is calculated by dividing net income, less dividends on preferred stock, by weighted average
common shares outstanding.
</TABLE>
2
<PAGE> 6
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(Thousands)
<CAPTION>
DECEMBER 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,296,053 $ 1,268,295 $ 1,003,933
Due from banks--interest bearing 96,453 51,056 29,420
Federal funds sold and repurchase agreements 265,498 278,998 215,181
Investments in debt and equity securities
Trading 31,272 67,256 47,208
Available-for-sale (Amortized cost of $4,139,525, $4,611,711 and
$965,006, respectively) 4,149,674 4,652,887 929,100
Held-to-maturity (Estimated fair value of $567,152, $245,355 and
$3,791,375, respectively) 565,045 244,094 3,919,177
----------- ----------- -----------
Total Investments in Debt and Equity Securities 4,745,991 4,964,237 4,895,485
Loans held-for-sale 66,373 94,877 21,383
Loans and leases, net of unearned income 14,886,257 13,607,949 12,742,878
----------- ----------- -----------
Total Loans and Leases 14,952,630 13,702,826 12,764,261
Reserve for possible loan losses (230,372) (232,288) (244,743)
----------- ----------- -----------
Net Loans and Leases 14,722,258 13,470,538 12,519,518
Bank premises and equipment 367,311 329,834 312,475
Due from customers on acceptances 5,019 2,893 6,766
Intangible assets 186,181 117,110 104,466
Other assets 345,615 400,438 309,932
----------- ----------- -----------
Total Assets $22,030,379 $20,883,399 $19,397,176
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 3,003,972 $ 2,594,734 $ 2,442,126
Interest bearing 14,080,592 13,367,748 12,475,686
Foreign 251,887 209,170 219,135
----------- ----------- -----------
Total Deposits 17,336,451 16,171,652 15,136,947
Federal funds purchased and repurchase agreements 1,781,011 1,716,909 1,612,330
Other short-term borrowings 206,253 212,558 373,869
Bank notes 175,000 250,000 100,000
Long-term debt 304,831 344,097 350,589
Bank acceptances outstanding 5,019 2,893 6,766
Other liabilities 276,163 269,797 173,936
----------- ----------- -----------
Total Liabilities 20,084,728 18,967,906 17,754,437
Commitments and contingent liabilities -- -- --
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
1996 1995 1994
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock--
no par value
Shares authorized 5,000 5,000 5,000
Shares issued and outstanding -- 15 15 -- 12,153 12,153
Common stock--
$5.00 par value
Shares authorized 100,000 100,000 100,000
Shares issued 79,214 79,257 75,187 396,072 396,287 375,935
Capital surplus 232,991 286,427 234,049
Retained earnings 1,392,218 1,255,848 1,053,628
Valuation on available-
for-sale securities 8,571 25,335 (30,072)
Treasury stock, at cost 1,728 1,380 94 (84,201) (60,557) (2,954)
----------- ----------- -----------
Total Shareholders' Equity 1,945,651 1,915,493 1,642,739
----------- ----------- -----------
Total Liabilities and Shareholders'
Equity $22,030,379 $20,883,399 $19,397,176
=========== =========== ===========
</TABLE>
The accompanying notes to supplemental consolidated financial statements are
an integral part of these statements.
3
<PAGE> 7
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ 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, 1993 74,448,501 $372,243 $ 12,153 $225,721 $ 900,098 $ -- $1,510,215
Net income 233,056 233,056
Common dividends declared:
Mercantile Bancorporation Inc.--$1.12 per
share (48,329) (48,329)
Pooled companies prior to acquisition (25,229) (25,229)
Preferred dividends declared (1,219) (1,219)
Issuance of common stock for:
Employee incentive plans 308,112 1,541 1,683 3,224
Convertible notes 284,413 1,422 4,999 6,421
Net fair value adjustment on
available-for-sale securities (34,927) (34,927)
Purchase of treasury stock (93,500) (2,954) (2,954)
Pre-merger transactions of pooled companies
and other 145,726 729 1,646 106 2,481
---------- -------- -------- -------- ---------- -------- -----------
BALANCE AT DECEMBER 31, 1994 75,093,252 375,935 12,153 234,049 1,023,556 (2,954) 1,642,739
Net income 280,389 280,389
Common dividends declared:
Mercantile Bancorporation Inc.--$1.32 per
share (68,542) (68,542)
Pooled companies prior to acquisition (32,235) (32,235)
Preferred dividends declared (1,020) (1,020)
Issuance of common stock in acquisitions of:
Southwest Bancshares, Inc. 674,975 3,375 625 9,797 13,797
AmeriFirst Bancorporation, Inc. 661,356 3,307 5,367 3,781 12,455
Plains Spirit Financial Corporation 1,301,180 2,639 22,930 27,701 53,270
Wedge Bank 969,954 4,850 1,649 7,314 13,813
Issuance of common stock for:
Employee incentive plans 664,748 3,300 10,932 170 14,402
Convertible notes 442,904 2,214 8,242 10,456
Net fair value adjustment on
available-for-sale securities 58,143 58,143
Purchase of treasury stock (2,064,600) (85,474) (85,474)
Pre-merger transactions of pooled companies
and other 133,316 667 2,633 3,300
---------- -------- -------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1995 77,877,085 396,287 12,153 286,427 1,281,183 (60,557) 1,915,493
NET INCOME 245,215 245,215
COMMON DIVIDENDS DECLARED:
MERCANTILE BANCORPORATION INC.--$1.64 PER
SHARE (101,499) (101,499)
POOLED COMPANIES PRIOR TO ACQUISITION (20,099) (20,099)
PREFERRED DIVIDENDS DECLARED (408) (408)
REDEMPTION OF PREFERRED STOCK (12,153) (531) (12,684)
ISSUANCE OF COMMON STOCK IN ACQUISITIONS OF:
TODAY'S BANCORP, INC. 1,127,058 (2,195) 52,321 50,126
FIRST FINANCIAL CORPORATION OF AMERICA 258,742 (1,226) 12,954 11,728
PEOPLES STATE BANK 325,837 849 14,791 15,640
METRO SAVINGS BANK, F.S.B. 197,902 57 14 8,983 9,054
SECURITY BANK OF CONWAY, F.S.B. 321,964 75 14,614 14,689
FIRST STERLING BANCORP, INC. 521,417 2,607 1,876 13,772 18,255
ISSUANCE OF COMMON STOCK FOR:
EMPLOYEE INCENTIVE PLANS 274,517 1,091 (3,771) 2,397 (283)
CONVERTIBLE NOTES 292,001 1,460 3,411 4,871
NET FAIR VALUE ADJUSTMENT ON
AVAILABLE-FOR-SALE SECURITIES (17,217) (17,217)
PURCHASE OF TREASURY STOCK (3,926,951) (186,811) (186,811)
REISSUANCE AND RETIREMENT OF TREASURY STOCK (6,458) (50,708) 57,166 --
PRE-MERGER TRANSACTIONS OF POOLED COMPANIES
AND OTHER 216,897 1,085 (1,804) 359 (59) (419)
---------- -------- -------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1996 77,486,469 $396,072 $ -- $232,991 $1,400,789 $(84,201) $1,945,651
========== ======== ======== ======== ========== ======== ==========
<FN>
<F*> Includes valuation on available-for-sale securities.
</TABLE>
4
<PAGE> 8
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
($ in Thousands)
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 245,215 $ 280,389 $ 233,056
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for possible loan losses 73,015 41,533 48,791
Depreciation and amortization 45,579 43,238 39,645
Provision for deferred income tax credits (23,948) (14,571) (11,274)
Net change in loans held-for-sale 28,504 (73,494) 232,389
Net change in accrued interest receivable 11,285 (9,687) (18,381)
Net change in accrued interest payable (12,941) 30,273 8,203
Other, net 120,776 (8,870) 1,311
---------- ---------- ----------
Net Cash Provided by Operating Activities 487,485 288,811 533,740
INVESTING ACTIVITIES
Investments in debt and equity securities, other than
trading securities
Purchases (1,651,663) (1,323,080) (1,780,650)
Proceeds from maturities 1,786,199 1,384,546 1,614,900
Proceeds from sales of:
Held-to-maturity securities -- -- 1,985
Available-for-sale securities 305,961 237,086 430,166
Net change in loans and leases (786,454) (1,014,059) (1,662,343)
Purchases of loans and leases (141,600) (128,361) (78,730)
Proceeds from sales of loans and leases 255,043 759,626 302,580
Purchases of premises and equipment (67,837) (62,828) (50,310)
Proceeds from sales of premises and equipment 4,928 8,279 5,908
Proceeds from sales of foreclosed property 31,212 25,656 48,955
Cash and cash equivalents from acquisitions, net of cash
paid 57,152 47,126 48,196
Other, net 7,013 8,637 36,605
---------- ---------- ----------
Net Cash Used by Investing Activities (200,046) (57,372) (1,082,738)
FINANCING ACTIVITIES
Net change in time certificates of deposit under $100,000 (395,839) 269,543 (23,491)
Net change in time certificates of deposit $100,000 and
over (5,620) 204,535 22,344
Net change in other time deposits 192,526 446 (10,745)
Net change in foreign deposits 42,717 (9,965) 193,050
Net change in other deposits 371,640 (141,670) (533,653)
Net change in short-term borrowings 2,702 (154,084) 621,831
Issuance of bank notes 25,000 150,000 100,000
Principal payments on bank notes (100,000) -- --
Issuance of long-term debt 2,607 14,676 82,151
Principal payments on long-term debt (37,413) (31,320) (64,492)
Cash dividends paid (122,006) (101,797) (74,234)
Net proceeds from issuance of common stock from
employee incentive plans and pre-merger transactions of
pooled companies (18,554) (525) 2,729
Purchase of treasury stock (175,036) (85,474) (2,954)
Redemption of preferred stock (12,684) -- --
Other, net 2,176 4,011 (3,306)
---------- ---------- ----------
Net Cash Provided (Used) by Financing Activities (227,784) 118,376 309,230
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,655 349,815 (239,768)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,598,349 1,248,534 1,488,302
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,658,004 $1,598,349 $1,248,534
========== ========== ==========
</TABLE>
The accompanying notes to supplemental consolidated financial statements are
an integral part of these statements.
5
<PAGE> 9
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") and its
subsidiaries follow generally accepted accounting principles and reporting
practices applicable to the banking industry. The significant accounting
policies are summarized below.
Basis of Presentation:
Consolidation: The Supplemental Consolidated Financial Statements include the
accounts of Mercantile Bancorporation Inc. and its subsidiaries. Material
intercompany transactions are eliminated.
Restatement: Effective April 25, 1997, the Corporation acquired Mark Twain
Bancshares, Inc. ("Mark Twain"), in a transaction accounted for as a
pooling-of-interests.
The Supplemental Consolidated Financial Statements give retroactive effect to
the transaction and, as a result, the Supplemental Consolidated Statement of
Income, Balance Sheet and Statement of Cash Flows are presented as if the
combining companies had been consolidated for all periods presented. (As
required by generally accepted accounting principles, the Supplemental
Consolidated Financial Statements become the historical consolidated financial
statements upon issuance of the financial statements for the period that
includes the date of the transaction.) The Supplemental Consolidated Statement
of Changes in Shareholders' Equity reflects the accounts of Mercantile
Bancorporation Inc. as if the common stock issued in the Mark Twain acquisition
had been outstanding during all periods presented. The Supplemental
Consolidated Financial Statements, including the notes thereto, should be read
in conjunction with the historical consolidated financial statements of the
Corporation included in its 1996 Annual Report on Form 10-K.
Reclassification: Certain reclassifications have been made to the 1995 and
1994 historical financial statements to conform with the 1996 presentation.
New Accounting Standards:
Financial Accounting Standard ("FAS") 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective
for fiscal years ending after December 15, 1995, provides separate guidelines
for establishing carrying values of long-lived assets and certain identifiable
intangible assets based on intent to either hold and use an asset or dispose of
an asset. The adoption of FAS 121 had no material effect on Mercantile's
financial condition or results of operations.
FAS 123, "Accounting for Stock Based Compensation," encourages an optional
accounting method for stock based compensation based on the estimated fair
value of employee stock options. The Corporation continues to use the current
accounting methodology for stock based compensation plans. The Corporation has
complied with the expanded footnote disclosures as set forth in FAS 123 which
is included in Note M to the Supplemental Consolidated Financial Statements.
The FASB issued Statement 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires an entity
to recognize the financial and servicing assets it controls and the liabilities
it has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the Statement. The
Corporation has applied the new rules prospectively to transactions beginning
in the first quarter of 1997.
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 shares such as stock
options or convertible notes. The Corporation does not anticipate a significant
impact when reporting diluted earnings per share.
Use of Estimates:
Management of the Corporation has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the Supplemental Consolidated
Financial Statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Earnings per Common Share:
Earnings per common share data is calculated by dividing net income, after
deducting dividends on preferred stock, by the weighted average number of
common shares outstanding during the period.
Investments in Debt and Equity Securities:
Trading securities, which include any security held primarily for near-term
sale, are valued at fair value. Gains and losses on trading securities, both
realized and unrealized, are recorded in investment banking and brokerage
income.
Available-for-sale securities, which include any security for which the
Corporation has no immediate plan to sell but which may be sold in the future,
are valued at fair value. Realized gains and losses, based on the amortized
cost of the specific security, are included in other income as securities gains
(losses). Unrealized gains and losses are recorded, net of related income tax
effects, in retained earnings.
Held-to-maturity securities, which include any security for which the
Corporation has the positive intent and ability to hold until maturity, are
valued at historical cost adjusted for amortization of premiums and accretion
of discounts computed by the level-yield method. Realized gains and losses,
based on the amortized cost of the specific security, are included in other
income as securities gains (losses).
6
<PAGE> 10
Loans Held-for-Sale:
In its lending activities, the Corporation originates residential and student
loans with the intent to be sold in the secondary market. Loans held-for-sale
are carried at the lower of cost or fair value, which is determined on an
aggregate basis. Gains or losses on the sale of loans held-for-sale are
determined on a specific identification method.
Loans and Leases:
Interest income on loans is generally accrued on a simple interest basis.
Loan fees and direct costs of loan originations are deferred and amortized over
the life of the loans under methods approximating the interest method.
The finance method is used to account for direct and leveraged equipment
lease contracts. Income is recorded over the lease periods in proportion to the
unrecovered investment in the leases after consideration of investment tax
credits and other related income tax effects.
When, in management's opinion, the collection of interest on a loan
(exclusive of certain consumer and credit card loans) is unlikely, or when
either principal or interest is past due over 90 days, that loan is generally
placed on non-accrual status. When a loan is placed on non-accrual status,
accrued interest for the current year is reversed and charged against current
earnings, and accrued interest from prior years is charged against the reserve
for possible loan losses. Interest payments received on non-accrual loans are
applied to principal if there is doubt as to the collectibility of such
principal; otherwise, these receipts are recorded as interest income. A loan
remains on non-accrual status until the loan is current as to payment of both
principal and interest, and/or the borrower demonstrates the ability to pay and
remain current.
All non-accrual and renegotiated commercial-related loans are considered
impaired. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate.
Mortgage servicing rights associated with loans originated and sold, where
servicing is retained, are capitalized and amortized using the level-yield
method over the estimated lives of the loans. The carrying value of such rights
is subject to periodic adjustment based upon changing market conditions.
Reserve for Possible Loan Losses:
The reserve for possible loan losses is increased by provisions charged to
expense and reduced by loans charged off, net of recoveries. The reserve is
maintained at a level considered adequate to provide for potential loan losses
based on management's evaluation of current economic conditions, changes in the
character and size of the portfolio, past experience, expected future losses
and other pertinent factors. Mercantile charges off credit card loans after six
cycles of nonpayment, or within 15 days of receipt of personal bankruptcy
notice, if earlier.
Foreclosed Assets:
Foreclosed assets include real estate and other assets acquired through
foreclosure or other proceedings, and are included in other assets in the
Supplemental Consolidated Balance Sheet.
Foreclosed assets are valued at the lower of cost or fair value less
estimated costs to sell. Losses arising at the time of transfer from loans are
charged to the reserve for possible loan losses. Subsequent reductions in
valuation based upon periodic appraisals are charged against current earnings.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed principally by the straight-line
method and are based on estimated useful lives of the assets. The carrying
values of assets sold or retired and the related accumulated depreciation are
eliminated from the accounts, and the resulting gains or losses are reflected
in income.
Expenditures for maintenance and repairs are charged to expense, while
expenditures for major renewals are capitalized.
Intangible Assets:
Intangible assets consist primarily of goodwill and core deposit premium.
Goodwill, the excess of cost over the net assets acquired in business
combinations accounted for as purchases, is amortized using the straight-line
method over the estimated period to be benefited, most recently 15 years, but
not exceeding 40 years.
Core deposit premium represents the premiums paid, net of any rebate on
assets acquired, plus the insurance funds' entrance and exit fees, for deposits
acquired from failed thrift institutions in Resolution Trust
Corporation-assisted transactions. This intangible asset is amortized, on an
accelerated basis, over the estimated life of the core deposit base acquired,
but not exceeding 10 years.
Income Taxes:
Deferred income taxes, computed using the liability method, are provided on
temporary differences between the financial reporting basis and the tax basis
of the assets and liabilities of the Corporation.
Treasury Stock:
The purchase of the Corporation's common stock is recorded at cost. Upon
subsequent reissuance, the treasury stock account is reduced by the average
cost basis of such stock.
7
<PAGE> 11
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Cash Equivalents:
Cash and due from banks, due from banks--interest bearing, and federal funds
sold and repurchase agreements are considered cash equivalents for purposes of
the Supplemental Consolidated Statement of Cash Flows.
Financial Instruments:
Financial instruments include cash, evidence of an ownership interest in an
entity or a contract that both (a) imposes on the Corporation a contractual
obligation, (1) to deliver a financial instrument to another party, or (2) to
exchange other financial instruments on potentially unfavorable terms with
another party; and (b) conveys to another party a contractual right, (1) to
receive a financial instrument from the Corporation, or (2) to exchange other
financial instruments on potentially favorable terms with the Corporation.
NOTE B
SUBSIDIARIES
As described in Note A, effective April 25, 1997, the Corporation acquired
Mark Twain, a $3.2 billion-asset bank holding company headquartered in St.
Louis, Missouri. The consideration for this acquisition was 16,059,142 shares
of Mercantile common stock. The Mark Twain acquisition was accounted for as a
pooling-of-interests. Net income and net income per common share for the
Corporation and Mark Twain prior to this restatement was as follows:
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
($ in thousands except per common
share data)
<S> <C> <C> <C>
Corporation
Net income $191,947 $232,676 $192,074
Net income per common share $3.10 3.74 3.19
Mark Twain
Net income 53,268 47,713 40,982
Primary earnings per share 3.23 2.93 2.54
</TABLE>
- ------------------------------------------------------------------------
The Corporation expects to record a one-time pre-tax expense approximating
$40,000,000 to $50,000,000 in the second quarter of 1997 related to the merger
with Mark Twain. These charges include accruals to substantially conform the
accounting policies of Mark Twain as well as to account for one-time expenses
associated with the transaction.
Mark Twain completed two mergers in 1996. On December 27, 1996, Mark Twain
acquired First City Bancshares, Incorporated of Springfield, Missouri, for an
equivalent of 231,961 shares of Mercantile common stock. The acquisition of
First City Bancshares, Incorporated was accounted for as a purchase. Mark Twain
acquired Northland Bancshares, Inc., owner of the First National Bank of Platte
County in the Kansas City, Missouri metropolitan area, on September 10, 1996.
The acquisition of Northland Bancshares, Inc. was accounted for as a
pooling-of-interests. However, Mark Twain did not restate prior period
financial statements due to the immateriality of the financial condition and
results of operations of Northland Bancshares, Inc. to that of Mark Twain. An
equivalent of 345,541 shares of Mercantile common stock was issued in the
acquisition.
8
<PAGE> 12
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Listed below are the acquisitions completed by Mercantile during the years
ended December 31, 1996, 1995 and 1994:
($ in Thousands)
<CAPTION>
ORIGINAL CONSIDERATION
INTANGIBLE ------------------------ ACCOUNTING
DATE ASSETS ASSET CASH SHARES METHOD
-------------- ---------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
Today's Bancorp, Inc. Nov. 7, 1996 $ 501,418 $ 46,854 $34,912 1,127,058 Purchase
First Financial Corporation of
America Nov. 1, 1996 87,649 5,137 3,253 258,742 Purchase
Peoples State Bank Aug. 22, 1996 95,657 7,552 -- 325,837 Purchase
Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 3,016 5 197,902 Purchase
Security Bank of Conway,
F.S.B. Feb. 9, 1996 102,502 6,000 1 321,964 Purchase
Hawkeye Bancorporation
("Hawkeye") Jan. 2, 1996 1,978,540 N/A 80 7,892,196 Pooling
First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 N/A 1 521,417 Pooling<F1>
Southwest Bancshares, Inc. Aug. 1, 1995 187,701 N/A 1 674,975 Pooling<F1>
AmeriFirst Bancorporation,
Inc. Aug. 1, 1995 155,521 N/A 1 661,356 Pooling<F1>
Plains Spirit Financial
Corporation July 7, 1995 400,754 17,820 6,697 1,301,180 Purchase
TCBankshares, Inc. ("TCB") May 1, 1995 1,422,798 N/A -- 4,749,999<F2> Pooling
Central Mortgage Bancshares,
Inc. ("Central") May 1, 1995 654,584 N/A 8 2,537,723 Pooling
UNSL Financial Corp ("UNSL") Jan. 3, 1995 508,346 N/A 11 1,578,107 Pooling
Wedge Bank Jan. 3, 1995 195,716 N/A 1 969,954 Pooling<F1>
United Postal Bancorp, Inc. Feb. 1, 1994 1,260,765 N/A 39 5,631,953 Pooling
Metro Bancorporation Jan. 3, 1994 370,175 N/A 6 1,638,278 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 that of Mercantile.
<F2> In addition to Mercantile common stock issued, the Corporation assumed,
through an exchange, the outstanding, non-convertible preferred stock
of TCB. The preferred stock was redeemed in the first quarter of 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first and fourth quarters of 1996, certain adjustments were
recorded by the Corporation to conform accounting and credit policies regarding
loan, other real estate and other asset valuations of recently acquired
companies to those of the Corporation. These adjustments consisted of a
$13,666,000 increase in provision for loan losses, $3,114,000 in losses on
securities sold in portfolio restructurings, a $51,071,000 charge to other
expense and a related tax benefit of $19,362,000, resulting in an after-tax
reduction to net income of $48,489,000.
During the fourth quarter of 1994, certain adjustments were recorded by UNSL,
Central and TCB to conform their accounting and credit policies regarding loan,
other real estate and other asset valuations to those of the Corporation. These
adjustments consisted of an increase in the provision of $7,775,000, an
increase in other expense of $12,664,000 and a related tax benefit of
$3,739,000, for a total of $16,700,000 on an after-tax basis.
For all acquisitions accounted for as purchases, the unamortized excess of
cost over the fair value of assets acquired was $157,788,000, $95,631,000 and
$82,770,000 at December 31, 1996, 1995 and 1994, respectively.
The Hawkeye, Central, TCB, and UNSL acquisitions were accounted for as
poolings-of-interests. Net income and net income per common
share for the Corporation, Central, TCB, UNSL and Hawkeye prior to restatement
was as follows:
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
(Thousands
except per
common share data)
<S> <C> <C>
Corporation prior to restatement
Net income $216,835 $161,029
Net income per common share 4.00 3.74
Central
Net income 2,851
Net income per common share .69
TCB
Net income 8,729
Net income per common share 3,616.30
UNSL
Net loss (4,280)
Net loss per common share (2.71)
Hawkeye
Net income 15,841 23,745
Net income per common share 1.18 1.78
</TABLE>
- -----------------------------------------------------------------------------
9
<PAGE> 13
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Other Pending Acquisitions at December 31, 1996:
On December 22, 1996, Mercantile and Roosevelt Financial Group, Inc.
("Roosevelt") signed a definitive merger agreement. Roosevelt is a $7.5
billion-asset thrift holding company headquartered in St. Louis, Missouri. The
Roosevelt acquisition is expected to be consummated in the second half of 1997,
and will be accounted for as a purchase. A pre-tax charge of $38,000,000 to
$45,000,000 is estimated relative to the Roosevelt transaction. This charge
includes accruals to substantially conform the accounting and credit policies
of Roosevelt as well as to account for one-time expenses associated with the
transaction. The ultimate amount of one-time expenses may vary significantly
from those included in the estimate above due to the substantial market
overlaps and the associated final decisions affecting branch closings and
severance.
Unaudited pro forma combined consolidated financial data including the
Corporation and Roosevelt for 1996 and 1995 is listed 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 purchase consideration; and 2) interest on debt which may be
issued to finance the Roosevelt acquisition. There is no estimate of potential
cost savings included in the following table.
<TABLE>
- -----------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
(Thousands except per
common share data)
<S> <C> <C>
Total assets $30,210,572 $30,438,906
Net interest income 955,137 930,453
Other income 299,808 255,299
Net income 182,933 235,543
Net income per common share 2.21 2.84
- -----------------------------------------------------------------------------------
</TABLE>
Mercantile entered into an agreement dated August 23, 1996 to acquire the
capital stock of Regional Bancshares, Inc., a $172 million-asset bank holding
company based in Alton, Illinois. The acquisition, which was accounted for as a
purchase transaction, was consummated on March 5, 1997.
NOTE C
CASH FLOWS
The Corporation paid interest on deposits, short-term borrowings, bank notes
and long-term debt of $737,862,000, $681,559,000 and $513,339,000 in 1996, 1995
and 1994, respectively. The Corporation paid Federal income taxes of
$142,404,000, $132,347,000 and $139,435,000 in 1996, 1995 and 1994,
respectively.
The following details cash and cash equivalents from acquisitions accounted
for as purchases, net of cash paid:
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Fair value of assets purchased $(1,260,315) $(952,585) $(52,979)
Fair value of liabilities assumed 1,090,663 851,875 58,561
Issuance of common stock 136,124 95,490 835
----------- --------- --------
Net Cash Received (Paid)
for Acquisitions (33,528) (5,220) 6,417
Cash and cash equivalents
acquired 90,680 52,346 41,779
----------- --------- --------
Cash and Cash Equivalents from
Acquisitions, Net of Cash Paid $ 57,152 $ 47,126 $ 48,196
=========== ========= ========
</TABLE>
- ----------------------------------------------------------------------------
NOTE D
CASH AND DUE FROM BANKS RESTRICTIONS
The Corporation's subsidiary banks are required to maintain average reserve
balances which place withdrawal and/or usage restrictions on cash and due from
banks balances. The average amount of these restricted balances for the year
ended December 31, 1996 was $221,098,000.
10
<PAGE> 14
NOTE E
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-Sale:
The amortized cost, estimated fair values, and unrealized gains and losses of
available-for-sale securities were as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. government $3,469,884 $19,900 $15,789 $3,473,995
State and political subdivisions
Tax-exempt 396,544 8,285 896 403,933
Taxable 112,158 490 469 112,179
---------- ------- ------- ----------
Total State and Political Subdivisions 508,702 8,775 1,365 516,112
Other 160,939 457 1,829 159,567
---------- ------- ------- ----------
Total $4,139,525 $29,132 $18,983 $4,149,674
========== ======= ======= ==========
DECEMBER 31, 1995
U.S. government $3,917,631 $48,574 $16,955 $3,949,250
State and political subdivisions
Tax-exempt 417,133 11,545 1,042 427,636
Taxable 134,400 1,034 714 134,720
---------- ------- ------- ----------
Total State and Political Subdivisions 551,533 12,579 1,756 562,356
Other 142,547 211 1,477 141,281
---------- ------- ------- ----------
Total $4,611,711 $61,364 $20,188 $4,652,887
========== ======= ======= ==========
DECEMBER 31, 1994
U.S. government $876,826 $ 830 $36,152 $841,504
State and political subdivisions--tax-exempt 13,983 161 33 14,111
Other 74,197 1,468 2,180 73,485
---------- ------- ------- ----------
Total $965,006 $2,459 $38,365 $929,100
========== ======= ======= ==========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 15
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Held-to-Maturity:
The amortized cost, estimated fair values, and unrealized gains and losses of
held-to-maturity securities were as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. government $556,696 $ 9,770 $7,748 $558,718
State and political subdivisions--tax-exempt 4,180 85 15 4,250
Other 4,169 190 175 4,184
---------- ------- -------- ----------
Total $565,045 $10,045 $7,938 $567,152
========== ======= ======== ==========
DECEMBER 31, 1995
U.S. government $241,339 $1,940 $682 $242,597
State and political subdivisions--tax-exempt 2,269 14 12 2,271
Other 486 1 -- 487
---------- ------- -------- ----------
Total $244,094 $1,955 $694 $245,355
========== ======= ======== ==========
DECEMBER 31, 1994
U.S. government $3,239,928 $ 9,170 $120,405 $3,128,693
State and political subdivisions
Tax-exempt 446,602 4,504 10,806 440,300
Taxable 165,551 164 9,102 156,613
---------- ------- -------- ----------
Total State and Political Subdivisions 612,153 4,668 19,908 596,913
Other 67,096 14 1,341 65,769
---------- ------- -------- ----------
Total $3,919,177 $13,852 $141,654 $3,791,375
========== ======= ======== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In December 1995, the Corporation reclassified approximately $3.1 billion in
held-to-maturity securities to the available-for-sale category. The unrealized
gain on the securities transferred was approximately $31 million. The Financial
Accounting Standards Board issued a Special Report titled, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, Questions and Answers," which stated that
reclassifications made no later than December 31, 1995 from the
held-to-maturity category will not call into question the intent to hold other
securities to maturity in the future.
During the third quarter of 1996, the Corporation transferred securities from
the available-for-sale classification to the held-to-maturity classification.
The securities transferred had an amortized cost basis of $370,014,000 and an
estimated fair value of $373,557,000 on the transfer date. The unrealized gain
on the date of the transfer remained in shareholders' equity and is being
amortized over the remaining life of the transferred securities. The
unamortized balance as of December 31, 1996 was $3,475,000.
Securities with a carrying value of $2,979,248,000 at December 31, 1996,
$2,502,207,000 at December 31, 1995 and $2,691,192,000 at December 31, 1994
were pledged to secure public and trust deposits, securities sold under
agreements to repurchase, and for other purposes required by law.
12
<PAGE> 16
The following table presents proceeds from sales of securities and the
components of net securities gains. There were no securities classified as
held-to-maturity during 1994 that were transferred to available-for-sale
securities or sold; the only transfer of securities from the held-to-maturity
category to available-for-sale during 1995 and 1996 was the December 1995
reclassification discussed above. Held-to-maturity securities gains and losses
resulted from portfolio restructurings in connection with subsidiary bank
acquisitions or calls by the security issuer prior to maturity.
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Proceeds from sales of:
Held-to-maturity securities $ -- $ -- $ 1,985
Available-for-sale securities 305,961 237,086 430,166
Securities gains on:
Held-to-maturity securities $ 14 $ 111 $ 471
Available-for-sale securities 3,077 4,519 5,869
-------- -------- --------
Total Securities Gains 3,091 4,630 6,340
Securities losses on:
Held-to-maturity securities -- 1 262
Available-for-sale securities 3,174 291 3,190
-------- -------- --------
Total Securities Losses 3,174 292 3,452
-------- -------- --------
Net Securities Gains (Losses) Before Income
(Taxes) Benefit (83) 4,338 2,888
Applicable income (taxes) benefit 29 (1,518) (1,011)
-------- -------- --------
Net Securities Gains (Losses) $ (54) $ 2,820 $ 1,877
======== ======== ========
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE F
LOANS AND LEASES
Loans and leases consisted of the following:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Commercial $ 4,185,755 $ 3,757,802 $ 3,545,468
Real estate--commercial 2,822,580 2,775,992 2,351,443
Real estate--construction 391,167 501,840 545,007
Real estate--residential 4,801,207 4,092,443 3,785,569
Consumer 1,841,275 1,715,550 1,671,187
Credit card 910,646 859,199 865,587
----------- ----------- -----------
Total Loans and Leases $14,952,630 $13,702,826 $12,764,261
=========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Changes in the reserve for possible loan losses were as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Beginning Balance $232,288 $244,743 $232,958
Provision 73,015 41,533 48,791
Charge-offs (104,589) (73,441) (72,851)
Recoveries 19,852 17,623 35,398
-------- -------- --------
Net Charge-offs (84,737) (55,818) (37,453)
Acquired Reserves 9,806 13,830 447
Transfer to Mercantile Credit Card
Master Trust -- (12,000) --
-------- -------- --------
Ending Balance $230,372 $232,288 $244,743
======== ======== ========
- ------------------------------------------------------------------------------------------------------
</TABLE>
Non-performing loans consisted of the following:
<TABLE>
- -----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Non-accrual $66,959 $92,868 $37,463
Renegotiated 5,260 3,203 6,847
------- ------- -------
Non-performing Loans $72,219 $96,071 $44,310
======= ======= =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
Effective January 1, 1995, the Corporation adopted FAS 114, "Accounting by
Creditors for Impairment of a Loan," as amended by FAS 118, which requires an
impaired loan to be measured based upon the present value of expected future
cash flows discounted at the loan's effective interest rate. By the
Corporation's definition, all non-accrual and renegotiated commercial-related
loans are considered impaired. As of December 31, 1996, impaired loans totaled
$41,713,000, for which the related reserve for possible loan losses was
$8,870,000. As of December 31, 1995, impaired loans totaled $40,222,000, for
which the related reserve for possible loan losses was $16,795,000. For 1996
and 1995, the average recorded investment in impaired loans was $45,558,000 and
$45,410,000, respectively. In 1996 and 1995, the Corporation recognized
approximately $452,000 and $312,000, respectively, of interest income on
impaired loans outstanding.
Certain directors and executive officers of the Corporation were loan
customers of the Corporation's banks during 1996, 1995 and 1994. Such loans
were made in the ordinary course of business at normal terms, including
interest rate and collateralization, and did not represent more than a normal
risk. Loans to those persons, their immediate families and companies in which
they were principal owners were $19,525,000, $35,240,000 and $32,978,000, at
December 31, 1994, 1995 and 1996, respectively. During 1996, $24,755,000 of new
loans were made to these persons and repayments totaled $27,017,000.
13
<PAGE> 17
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE G
BANK PREMISES AND EQUIPMENT
Bank premises and equipment were as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Land $ 59,502 $ 57,631 $ 53,099
Bank premises 322,630 295,129 290,056
Leasehold improvements 50,300 46,572 42,709
Furniture and equipment 314,473 278,723 244,778
-------- -------- --------
Total Cost 746,905 678,055 630,642
Accumulated depreciation (379,594) (348,221) (318,167)
-------- -------- --------
Net Carrying Value $367,311 $329,834 $312,475
======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the Corporation had certain long-term leases, none of
which were considered to be capital leases, which were principally related to
the use of land, buildings and equipment. The following table summarizes the
future minimum rental commitments for all noncancelable operating leases which
had initial or remaining noncancelable lease terms in excess of one year:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD MINIMUM RENTAL
(Thousands)
<S> <C>
1997 $13,435
1998 11,235
1999 9,667
2000 7,771
2001 6,103
2002 and later 26,898
-------
Total $75,109
=======
</TABLE>
- -------------------------------------------------------------------------------
The minimum rental amounts listed above represent the Corporation's total
obligation, including Mark Twain, as of December 31, 1996. This obligation may
be reduced in the future due to branch closings in which facilities could be
sublet. Net rental expense for all operating leases was $15,184,000 in 1996,
$15,010,000 in 1995 and $14,908,000 in 1994.
NOTE H
DEPOSITS
Deposits consisted of the following:
<TABLE>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Non-interest bearing $ 3,003,972 $ 2,594,734 $ 2,442,126
Interest bearing demand 2,562,065 2,420,273 2,467,329
Money market accounts 2,791,848 2,500,400 2,370,133
Savings 1,090,563 1,115,692 1,202,063
Consumer time certificates under $100,000 6,195,651 6,130,094 5,493,523
Other time 231,268 38,742 38,717
----------- ----------- -----------
Total Core Deposits 15,875,367 14,799,935 14,013,891
Time certificates $100,000 and over 1,209,197 1,162,547 903,921
Foreign 251,887 209,170 219,135
----------- ----------- -----------
Total Purchased Deposits 1,461,084 1,371,717 1,123,056
----------- ----------- -----------
Total Deposits $17,336,451 $16,171,652 $15,136,947
=========== =========== ===========
- -------------------------------------------------------------------------------------------------------
</TABLE>
The scheduled maturities of Mercantile's consumer time certificates under
$100,000, time certificates $100,000 and over and other time deposits were as
follows:
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
SCHEDULED MATURITY
AMOUNT
PERIOD (Thousands)
<S> <C>
1997 $5,372,579
1998 1,366,903
1999 515,481
2000 237,538
2001 113,829
2002 and later 29,786
----------
Total $7,636,116
==========
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTE I
SHORT-TERM BORROWINGS
Short-term borrowings were as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Federal funds purchased and
repurchase agreements $1,781,011 $1,716,909 $1,612,330
Treasury tax and loan notes 117,750 118,183 172,362
Commercial paper 19,405 16,950 36,255
Other short-term borrowings 69,098 77,425 165,252
---------- ---------- ----------
Total Short-term Borrowings $1,987,264 $1,929,467 $1,986,199
========== ========== ==========
- ---------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 18
The average balance of total short-term borrowings was $1,519,802,000,
$1,704,149,000 and $1,373,793,000 during 1996, 1995 and 1994, respectively. The
average rate on total short-term borrowings was 5.36% in 1996, 5.54% in 1995
and 4.19% in 1994.
The maximum balances at month-end are listed below:
<TABLE>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Federal funds purchased and
repurchase agreements $1,781,011 $1,854,611 $1,790,086
Treasury tax and loan notes 435,780 555,761 617,584
Commercial paper 21,660 31,157 46,861
Other short-term borrowings 102,007 84,456 165,252
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation had unused lines of credit arrangements with unaffiliated
banks for support of commercial paper and for other uses totaling $122,000,000
at December 31, 1996.
NOTE J
LONG-TERM DEBT AND BANK NOTES
Long-term Debt:
Long-term debt consisted of the following:
<TABLE>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
(PARENT COMPANY ONLY)
7.625% subordinated notes,
due 2002 $150,000 $150,000 $150,000
8.000% convertible subordinated
capital notes, due 1995 -- -- 8,822
-------- -------- --------
Total 150,000 150,000 158,822
SECOND-TIER HOLDING COMPANIES 2,036 18,490 47,743
BANKS AND OTHER SUBSIDIARIES
6.375% subordinated debt, due 2004 75,000 75,000 75,000
9.000% mortgage-backed notes,
due 1999 53,450 53,450 53,450
Federal Home Loan Bank
advances 24,267 47,021 15,501
Other 78 136 73
-------- -------- --------
Total 152,795 175,607 144,024
-------- -------- --------
Total Long-term Debt $304,831 $344,097 $350,589
======== ======== ========
- -------------------------------------------------------------------------------------------------------
</TABLE>
On October 15, 1992, the Corporation issued $150,000,000 of non-callable
subordinated notes with a 10-year maturity and a coupon rate of 7.625% to yield
7.741%. These notes qualify as Tier II capital under current regulatory
guidelines.
As of December 31, 1994, $16,035,000 of the debt issued by second-tier
holding companies was a term loan of Hawkeye, which was paid in full on
December 26, 1995. Other second-tier holding company long-term debt consisted
of 8.500% debentures and 7.000% convertible subordinated capital notes, both
issued by Mark Twain. The 8.500% debentures due in 1999, were called for
redemption at a premium over par of 1% effective March 1, 1996. The 7.000%
convertible subordinated capital notes, which are due in 1999, were issued
on June 23, 1987, and are convertible into common stock at a conversion price
equivalent to $15.13 per Mercantile share.
On January 25, 1994, Mercantile Bank N.A. issued $75,000,000 of 6.375%
10-year, non-callable subordinated debt, due January 15, 2004. This debt
qualifies as Tier II capital. The Corporation used the proceeds of this
subordinated debt issue to: (1) prepay in full on February 23, 1994 the
$30,550,000 8.500% unsecured debentures of the Corporation; and (2) prepay in
full on February 1, 1994 the $23,653,000 8.250% mortgage secured by the
Corporation's headquarters building.
The 9.000% mortgage-backed notes were collateralized by U.S. government
securities at December 31, 1996, and mature in July 1999.
Federal Home Loan Bank advances at December 31, 1996 consisted of various
debt instruments with rates varying from 5.000% to 7.070%. This debt was
collateralized by certain loans and securities, with maturities through June
2010.
A summary of annual principal reductions of long-term debt is presented
below:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL
PRINCIPAL REDUCTIONS
PERIOD (Thousands)
<S> <C>
1997 $ 8,002
1998 5,876
1999 57,226
2000 1,359
2001 1,239
2002 and later 231,129
--------
Total $304,831
========
- ----------------------------------------------------------------------------------------------------
</TABLE>
On January 29, 1997, the Corporation formed Mercantile Capital Trust I.
Through this trust, the Corporation obtained $150,000,000 of floating-rate debt
which for regulatory purposes is part of Tier I capital. Proceeds are expected
to be utilized for share repurchases relating to the Roosevelt transaction as
well as for general corporate purposes. On April 24, 1997, the Corporation
filed a Registration Statement on Form S-3, in which up to $500 million in
senior and/or subordinated debt will be issued, primarily to finance the
Roosevelt acquisition.
15
<PAGE> 19
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Bank Notes:
Beginning in 1994, certain subsidiary banks could offer unsecured bank notes.
Note maturities can range from 30 days to 15 years from the date of issue and
may be issued with fixed or floating interest rates. Each bank note issued will
be an obligation solely of that issuing bank and will not be an obligation of,
or otherwise guaranteed by, the other issuing banks or the Corporation. The
bank notes are being offered and sold only to institutional investors, and are
not insured by the Federal Deposit Insurance Corporation or any other
governmental agency. It is anticipated that the bank note program will be
restructured in 1997.
Bank notes are presented below with December 31, 1996 coupon rates:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
MERCANTILE BANK N.A.
5.693% floating-rate bank notes, due 1998 $150,000 $150,000 $ --
6.000% floating-rate bank notes, due 1996 -- 100,000 100,000
5.650% floating-rate bank notes, due 1999 25,000 -- --
-------- -------- --------
Total Bank Notes $175,000 $250,000 $100,000
======== ======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE K
INCOME TAXES
The Corporation's results include income tax expense as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
CURRENT DEFERRED TOTAL
(Thousands)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
U.S. FEDERAL $136,751 $(22,936) $113,815
STATE AND LOCAL 15,732 (1,012) 14,720
-------- -------- --------
TOTAL $152,483 $(23,948) $128,535
======== ======== ========
Year ended December 31, 1995
U.S. Federal $145,976 $(11,272) $134,704
State and local 18,493 (3,299) 15,194
-------- -------- --------
Total $164,469 $(14,571) $149,898
======== ======== ========
Year ended December 31, 1994
U.S. Federal $130,835 $(10,575) $120,260
State and local 16,335 (699) 15,636
-------- -------- --------
Total $147,170 $(11,274) $135,896
======== ======== ========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that gave rise to the deferred tax
assets and deferred tax liabilities are presented below.
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Deferred tax assets
Reserve for possible loan losses $ 73,097 $ 78,177 $ 80,882
Foreclosed property 1,448 720 2,560
Deferred compensation 5,869 5,451 3,240
Net operating losses from pooled
subsidiary -- -- 1,494
Expenses not currently allowable
for tax purposes 22,327 12,732 11,079
State tax liabilities 1,595 2,554 2,239
Investments in debt and equity
securities--FAS 115 -- -- 17,598
Retirement expenses in excess of
tax deduction 11,209 8,930 7,287
Other 7,154 3,496 7,445
-------- -------- --------
Total Gross Deferred Tax
Assets 122,699 112,060 133,824
Deferred tax liabilities
Leasing (29,956) (39,828) (58,420)
Pension settlement gain (6,005) (6,079) (6,005)
Intangible assets (5,637) (6,466) (9,865)
Depreciation (1,718) (2,281) (2,803)
Investments in debt and equity
securities--FAS 115 (3,231) (14,577) --
Other (11,257) (13,228) (9,526)
-------- -------- --------
Total Gross Deferred Tax Liabilities (57,804) (82,459) (86,619)
-------- -------- --------
Net Deferred Tax Assets $ 64,895 $ 29,601 $ 47,205
======== ======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense as reported differs from the amounts computed by applying
the statutory U.S. Federal income tax rate to pretax income as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense $130,813 $150,600 $129,133
Increase (reduction) in income taxes resulting from
Tax-exempt income (9,856) (10,783) (10,876)
State and local income taxes, net of federal income tax
benefit 9,568 9,882 10,131
Thrift bad debt recapture -- -- 3,615
Other, net (1,990) 199 3,893
-------- -------- --------
Total Tax Expense $128,535 $149,898 $135,896
======== ======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 20
NOTE L
RETIREMENT PLANS
Pension Plans:
The Corporation maintains both qualified and nonqualified noncontributory
pension plans that cover all employees meeting certain age and service
requirements.
The qualified plan provides pension benefits based on the employee's length
of service and the five highest consecutive years of compensation. The
Corporation's funding policy is to contribute annually at least the minimum
amount required by government funding standards but not more than is tax
deductible. No contribution was required during 1996, 1995 or 1994.
The net periodic pension expense related to the qualified plan included in
the Supplemental Consolidated Statement of Income is summarized as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during
the period $ 9,849 $ 6,922 $ 7,461
Interest cost on projected benefit
obligation 11,515 10,223 9,137
Actual (return) loss on plan assets (15,928) (28,628) 2,099
Net amortization and deferral 1,401 15,547 (14,557)
-------- -------- --------
Net Periodic Pension Expense $ 6,837 $ 4,064 $ 4,140
======== ======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The table below sets forth the funded status and amounts recognized in the
Supplemental Consolidated Balance Sheet for the qualified plan:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Actuarial present value of
Vested benefit obligation $123,641 $109,550 $ 86,258
======== ======== ========
Accumulated benefit obligation $136,399 $121,169 $ 95,262
======== ======== ========
Projected benefit obligation $167,082 $150,929 $116,164
Plan assets at fair value 171,879 154,890 128,339
-------- -------- --------
Projected benefit obligation in
excess of plan assets (4,797) (3,961) (12,175)
Unrecognized net loss (10,196) (15,311) (9,643)
Unrecognized prior service cost 1,228 1,405 1,603
Unrecognized net asset 1,532 2,342 3,398
-------- -------- --------
Prepaid Pension Expense $(12,233) $(15,525) $(16,817)
======== ======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used were as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate in determining benefit
obligations 7.50% 7.50% 8.50%
Rate of increase in compensation levels 5.00 5.00 5.00
Expected long-term rate on assets 9.50 9.50 9.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, approximately 59% of the plan's assets was invested in
listed common stocks, 38% was invested in government and corporate bonds rated
A or better, and the remaining 3% was invested in short-term cash equivalents.
A nominal amount of common stock of the Corporation was held by the plan.
The nonqualified plans provide pension benefits which would have been
provided under the qualified plan in the absence of limits placed on qualified
plan benefits by the Internal Revenue Service. The Corporation's funding policy
is to fund benefits as they are paid. Contributions under the nonqualified
plans were not material for the years ended December 31, 1996, 1995 and 1994.
The expense related to these plans was $2,517,000 in 1996, $2,228,000 in 1995
and $2,279,000 in 1994.
Other Postretirement Benefits:
In addition to the pension plans described above, the Corporation provides
other postretirement benefits, largely medical benefits and life insurance, to
its retirees.
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requires the recording of the unrecognized transition obligation
for postretirement benefits other than pensions. That liability is being
amortized over a 20-year period. The net periodic postretirement benefit
expense included in the Supplemental Consolidated Statement of Income is
summarized as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during
the period $ 820 $ 610 $ 734
Interest cost on accumulated postretirement benefit
obligation 2,748 2,716 2,539
Net amortization and deferral 1,713 1,475 1,633
------ ------ ------
Net Periodic Postretirement Benefit Cost $5,281 $4,801 $4,906
====== ====== ======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 21
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The table below sets forth the funded status and the amount recognized in the
Supplemental Consolidated Balance Sheet regarding other postretirement
benefits:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation ("APBO")
Retirees $ 26,736 $ 27,041 $ 24,493
Active employees fully eligible for benefits 1,446 1,301 1,085
Other active employees 10,028 7,862 6,609
-------- -------- --------
Total 38,210 36,204 32,187
Assets at fair value -- -- --
-------- -------- --------
APBO in excess of assets 38,210 36,204 32,187
Unrecognized net gain (loss) (1,988) (1,241) 2,436
Unrecognized prior service cost (140) (147) (155)
Unrecognized transition obligation (25,308) (26,889) (28,470)
-------- -------- --------
Accrued Postretirement Benefit Obligation $ 10,774 $ 7,927 $ 5,998
======== ======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used were as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate in determining benefit obligations 7.50% 7.50% 8.50%
Health care cost trend
First year 9.50 10.50 11.00
Ultimate (2001 and after) 5.50 5.50 6.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
An increase in the health care cost trend of one percent would increase the
aggregate of service and interest cost components of net periodic
postretirement benefit costs by $112,000 in 1996, and $120,000 in 1995 and
1994. The APBO would increase by $1,542,000 as of December 31, 1996, $1,448,000
as of December 31, 1995 and $1,443,000 as of December 31, 1994.
NOTE M
SHAREHOLDERS' EQUITY
Common Stock:
The authorized common stock of the Corporation consisted of 100,000,000
shares, $5.00 par value, of which 77,486,469, 77,877,085 and 75,093,252 shares
were outstanding at December 31, 1996, 1995 and 1994, respectively. At
Mercantile's Annual Meeting on April 24, 1997, the Corporation's shareholders
approved an amendment to its Restated Articles of Incorporation which reduced
the par value of the Corporation's common stock from $5.00 per share to $.01
per share and increased the authorized number of shares to 200,000,000.
The Corporation's Dividend Reinvestment Plan ("Plan") allows shareholders
of record to reinvest dividends and/or make voluntary cash contributions to
purchase additional shares of the Corporation's common stock. Under the Plan,
stock is purchased in the open market by the Plan Trustee with no service
charge to the shareholder.
Preferred Stock:
The authorized preferred stock of the Corporation consists of 5,000,000
shares, no par value, of which 14,806 shares were issued and outstanding at
December 31, 1995 and 1994. As of December 31, 1995 and 1994, there were two
series of non-voting preferred stock issued. Series B-1 consisted of 5,306
shares which had non-cumulative dividends as declared by Mercantile's Board of
Directors. Series B-2 represented 9,500 shares with a cumulative annual
dividend at the rate of $85 per share. The Series B-1 and B-2 preferred shares
were redeemed by the Corporation in March 1996. At December 31, 1996, 1,000,000
shares were reserved for issuance pursuant to the Preferred Share Purchase
Rights Plan.
Preferred Share Purchase Rights Plan:
One Preferred Share Purchase Right ("Right") is attached to each share of
common stock and trades automatically with such shares. The Rights, which can
be redeemed by the Board of Directors in certain circumstances and expire by
their terms on June 3, 1998, have no voting rights.
The Rights become exercisable and will trade separately from the common stock
10 days after a person or a group either becomes the beneficial owner or
announces an intention to commence a tender offer for 20% or more of the
Corporation's outstanding common stock. When exercisable, each Right entitles
the registered holder to purchase from the Corporation 1/100 of a share of
Series A Junior Participating Preferred Stock for $100 per 1/100 of a preferred
share.
In the event a person acquires beneficial ownership of 20% or more of the
Corporation's common stock, holders of Rights (other than the acquiring person
or group) may purchase, at the Rights' then current exercise price, common
stock of the Corporation having a value at that time equal to twice the
exercise price. In the event the Corporation merges into or otherwise transfers
50% or more of its assets or earnings power to any person after the Rights
become exercisable, holders of Rights may purchase, at the then current
exercise price, common stock of the acquiring entity having a value at that
time equal to twice the exercise price.
18
<PAGE> 22
Stock Options:
The Corporation had stock options outstanding under various plans at December
31, 1996, including plans assumed in acquisitions. The original Mercantile
plans provide for the granting to employees of the Corporation and its
subsidiaries of options to purchase shares of common stock of the Corporation
over periods of up to 10 years at a price not less than the market value of the
shares at the date the options are granted. The plans provide for the granting
of options which either qualify or do not qualify as Incentive Stock Options as
defined by Section 422 of the Internal Revenue Code of 1986, as amended. As of
December 31, 1996, there were 1,487,171 options available for grant. The per
share price range for options exercisable was $5.41 to $45.25 as of December
31, 1996.
The following table summarizes stock options outstanding as of December 31,
1996:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
-------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$ 5.41-14.61 218,661 4.30 $ 8.14
14.62-32.42 1,491,355 2.91 23.01
32.43-32.50 1,046,161 6.62 32.50
32.51-45.63 640,103 6.23 38.38
45.64-53.38 322,674 9.11 46.14
---------
5.41-53.38 3,718,954 5.15 29.46
=========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Changes in options outstanding were as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1993 3,095,367 $18.16
Granted 956,151 31.22
Exercised (390,692) 11.04
Canceled (62,224) 27.36
---------
BALANCE AT DECEMBER 31, 1994 3,598,602 22.25
Granted 648,319 33.89
Exercised (639,747) 13.50
Canceled (71,995) 31.32
Assumed 98,358 15.80
---------
BALANCE AT DECEMBER 31, 1995 3,633,537 25.44
GRANTED 616,216 43.74
EXERCISED (495,563) 15.64
CANCELED (86,228) 37.83
ASSUMED 50,992 22.91
---------
BALANCE AT DECEMBER 31, 1996 3,718,954 29.46
=========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The number of shares exercisable under stock options as of December 31, 1996,
1995 and 1994 were 1,998,675, 1,817,820 and 1,668,919, respectively, with a
weighted average exercise price of $23.80, $19.53 and $16.02, respectively.
The fair value of the option grants excluding options from Mark Twain was
estimated on the date of grant using an option-pricing model based upon the
following assumptions: dividend yield of 3.30%; expected volatility of 31.7%;
average risk-free interest rate of 5.15% and 7.28% for the 1996 and 1995
grants, respectively; and expected option life of 1.26 years from the vesting
date. The weighted average fair value of stock options granted in 1995 and 1996
was $9.48 and $10.72, respectively.
The fair value of Mark Twain's stock options was estimated on the date of
grant using an option-pricing model based upon the following assumptions:
dividend yield of 3.28%; expected volatility of 17%; average risk-free interest
rate of 6%; and expected option life of 4.5 years from the vesting date. The
weighted average fair value of stock options granted in 1995 and 1996 was $5.14
and $7.34, respectively.
The Corporation applies Accounting Principles Board Opinion 25 in accounting
for its stock option plans. The compensation cost that has been charged against
income for stock based compensation plans was $1,438,000, $3,628,000 and
$4,081,000 for 1994, 1995 and 1996, respectively. Had the Corporation adopted
FAS 123's optional accounting method, the Corporation's net income and earnings
per common share would have been reduced to the pro forma amounts noted below:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EARNINGS
NET PER COMMON
INCOME SHARE
<S> <C> <C>
For the Year Ended December 31, 1996:
As Reported $245,215 $3.17
Pro Forma 242,030 3.13
For the Year Ended December 31, 1995:
As Reported $280,389 $3.62
Pro Forma 278,373 3.59
</TABLE>
- -------------------------------------------------------------------------------
Debt and Dividend Restrictions:
Consolidated retained earnings at December 31, 1996 were not restricted under
any agreement as to payment of dividends or reacquisition of common stock.
The primary source of funds for dividends paid by the Corporation to its
shareholders is dividends received from bank subsidiaries. At December 31,
1996, approximately $304,180,000 of the equity of bank subsidiaries was
available for distribution as dividends to the Parent Company without prior
regulatory approval or without reducing the capital of the respective
subsidiary banks below present minimum standards. An additional $172,150,000
would be available for loans to the Parent Company
19
<PAGE> 23
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
under Federal Reserve regulations. The remaining equity of bank subsidiaries
approximating $1,320,813,000 was restricted as to transfers to the Parent
Company.
NOTE N
REGULATORY MATTERS
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's Supplemental Consolidated
Financial Statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Mercantile and its subsidiary banks
must meet specific capital guidelines that involve quantitative measures of the
Corporation and its subsidiary banks' assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Mercantile and subsidiary banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Corporation and its subsidiary banks to maintain minimum amounts
and ratios, as set forth in the table below, of Tier I and Total capital to
risk-weighted assets, and of Tier I capital to average assets, the leverage
ratio. Management believes, as of December 31, 1996, the Corporation and its
subsidiary banks meet all capital adequacy requirements to which it is subject.
As of December 11, 1996, the date of the most recent notification from
regulatory agencies, the subsidiary banks were categorized as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the subsidiary banks' category.
The actual and required capital amounts and ratios as of December 31, 1996
for the Corporation and Mercantile Bank N.A. are listed in the following table:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
MINIMUM
CAPITAL
ACTUAL REQUIREMENTS
AMOUNT RATIO AMOUNT RATIO
($ in Thousands)
<S> <C> <C> <C> <C>
Tier I capital (to risk-
weighted assets):
Corporation $1,749,466 11.00% $636,225 4.00%
Mercantile Bank N.A. 499,602 9.51 210,225 4.00
Total capital (to risk-
weighted assets):
Corporation 2,175,712 13.68 1,272,450 8.00
Mercantile Bank N.A. 620,308 11.80 420,450 8.00
Leverage (to average
assets):
Corporation 1,749,466 8.12 861,990 4.00
Mercantile Bank N.A. 499,602 6.97 286,873 4.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE O
CONCENTRATIONS OF CREDIT
The Corporation's primary market area is the state of Missouri and the lower
Midwest. At December 31, 1996, approximately 94% of the total loan portfolio,
and 92% of the commercial and commercial real estate loan portfolio, were to
borrowers within this region. The diversity of the region's economic base tends
to provide a stable lending environment.
Real estate and credit card lending constituted the two other areas of
significant concentration of credit risk. Real estate-related financial
instruments (loans, commitments and standby letters of credit) comprised 37% of
all such instruments of the Corporation. However, of this total, approximately
59% was consumer-related in the form of residential real estate mortgages and
home equity lines of credit. Credit card-related financial instruments
comprised approximately 26% of all such instruments of the Corporation.
The Corporation is, in general, a secured lender. At December 31, 1996,
approximately 88% of the loan portfolio was secured. Collateral is required in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction.
20
<PAGE> 24
NOTE P
FINANCIAL INSTRUMENTS
Fair Values:
Fair values for financial instruments are management's estimates of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, certain
financial instruments and all non-financial instruments are excluded from the
fair value disclosure requirements of FAS 107, "Disclosures about Fair Value
of Financial Instruments." Therefore, the fair values presented below should
not be construed as the underlying value of the Corporation.
The following methods and assumptions were used in estimating fair values for
financial instruments.
Cash and Due from Banks, Short-term Investments and Short-term Borrowings: The
carrying values reported in the Supplemental Consolidated Balance Sheet
approximated fair values.
Investments in Debt and Equity Securities: Fair values for held-to-maturity
securities were based upon quoted market prices where available. Fair values
for trading and available-for-sale securities, which also were the amounts
reported in the Supplemental Consolidated Balance Sheet, were based on quoted
market prices where available. If quoted market prices were not available,
fair values were based upon quoted market prices of comparable instruments.
Loans and Leases: The fair values for most fixed-rate loans were estimated by
utilizing discounted cash flow analysis, applying interest rates currently
being offered for similar loans to borrowers with similar risk profiles. The
discount rates used, therefore, include a credit risk premium. The fair values
of variable-rate loans and all residential mortgages were estimated by
utilizing the same type of discounted cash flows, but over a range of interest
rate scenarios, in order to incorporate the value of the options imbedded in
these assets. Loans with similar characteristics were aggregated for purposes
of these calculations. The fair value of credit card loans was assumed to be
the same as the par value.
Deposits: The fair values disclosed for deposits generally payable on demand
(i.e., interest bearing and non-interest bearing demand, savings, and money
market accounts) were considered equal to their respective carrying amounts as
reported in the Supplemental Consolidated Balance Sheet. Fair values for
certificates of deposit and foreign deposits were estimated using a discounted
cash flow calculation that applied interest rates generally offered on similar
certificates to a schedule of aggregated expected monthly maturities of time
deposits. The fair value estimate of the deposit portfolio has not been
adjusted for any value derived from the retention of those deposits for an
expected future period of time. That component, commonly referred to as core
deposit premium, was estimated to be approximately $242,000,000 to
$509,000,000 at December 31, 1996, and was neither considered in the fair
value amounts below nor recorded as an intangible asset on the Supplemental
Consolidated Balance Sheet.
Bank Notes and Long-term Debt: The fair value of publicly traded debt was
based upon quoted market prices, where available, or upon quoted market prices
of comparable instruments. The fair values of bank notes and long-term debt
were estimated using discounted cash flow analysis, based on the Corporation's
current incremental borrowing rates for similar types of borrowing
arrangements.
Off-Balance-Sheet Instruments: Fair values of foreign exchange contracts and
interest rate contracts were determined from quoted market prices. Fair values
of commitments to extend credit, standby letters of credit and commercial
letters of credit were based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standings.
21
<PAGE> 25
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The estimated fair values of the Corporation's financial instruments were as
follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
------------------------- ------------------------- -------------------------
(Thousands)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks and
short-term investments $ 1,658,004 $ 1,658,004 $ 1,598,349 $ 1,598,349 $ 1,248,534 $ 1,248,534
Trading securities 31,272 31,272 67,256 67,256 47,208 47,208
Held-to-maturity securities 565,045 567,152 244,094 245,355 3,919,177 3,791,375
Available-for-sale securities 4,149,674 4,149,674 4,652,887 4,652,887 929,100 929,100
Net loans and leases 14,722,258 15,158,912 13,470,538 13,990,522 12,519,518 12,523,169
FINANCIAL LIABILITIES
Deposits 17,336,451 17,549,176 16,171,652 16,426,177 15,136,947 15,082,953
Short-term borrowings 1,987,264 1,987,264 1,929,467 1,929,467 1,986,199 1,986,199
Bank notes and long-term debt 479,831 484,283 594,097 613,277 450,589 428,286
OFF-BALANCE-SHEET
Foreign exchange contracts purchased $ (428) $ 2,389 $ 6,850
Foreign exchange contracts sold 39 (2,022) (6,239)
Interest rate contracts (143) 2,009 (184)
Commitments to extend credit (16,423) (12,349) (11,102)
Standby letters of credit (2,758) (2,842) (2,521)
Commercial letters of credit (5,102) (4,268) (4,109)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Off-Balance-Sheet Risk:
The Corporation is, in the normal course of business, a party to certain
off-balance-sheet financial instruments with inherent credit and/or market
risk. These instruments, which include commitments to extend credit, standby
letters of credit, interest options written, interest futures contracts and
foreign exchange contracts, are used by the Corporation to meet the financing
needs of its customers and, to a lesser degree, to reduce its own exposure to
interest rate fluctuations. These instruments involve, to varying degrees,
credit and market risk in excess of the amount recognized in the Supplemental
Consolidated Balance Sheet.
Financial instruments with off-balance-sheet credit risk for which the
contract amounts represent potential credit risk were as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Commitments to extend credit
Commercial $3,087,583 $2,392,878 $2,162,768
Consumer 6,126,854 5,613,283 4,534,262
---------- ---------- ----------
Total $9,214,437 $8,006,161 $6,697,030
========== ========== ==========
Standby letters of credit $ 444,347 $ 410,201 $ 305,795
========== ========== ==========
Interest rate contracts $ 391,000 $ 192,000 $ 21,000
========== ========== ==========
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's maximum exposure to credit loss under commitments to extend
credit and standby letters of credit is the equivalent of the contractual
amount of those instruments. The same credit policies are used by the
Corporation in granting commitments and conditional obligations as are used in
the extension of credit.
Commitments to extend credit are legally binding agreements to lend to a
borrower as long as the borrower performs in accordance with the terms of the
contract. Commitments generally have fixed expiration dates or other
termination clauses, and may require payment of a fee. As many of the
commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements.
Included in consumer commitments are the unused portions of lines of credit for
credit card and home equity credit line loans.
Standby letters of credit are commitments issued by the Corporation to
guarantee specific performance of a customer to a third party.
Collateral is required for both commitments and standby letters of credit in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction. Collateral held varies, but may include commercial real
estate, accounts receivable, inventory or equipment.
Included in interest rate contracts are interest rate exchange agreements
with major investment banking firms to convert long-term, fixed-rate
liabilities into short-term, variable-rate liabilities, to secure interest
margins and to hedge against interest rate movements.
22
<PAGE> 26
Derivative Financial Instruments:
Held or Issued for Trading Purposes:
In the normal course of business, the Corporation maintains minimal trading
positions in a variety of derivative financial instruments. Most of the
Corporation's trading activities are customer oriented, with trading positions
established to meet the financing and foreign exchange transaction needs of
customers. This activity complements the Corporation's traditional money and
capital markets trading business, which also exists to meet customers' demands.
Net revenue recognized on interest rate contracts and foreign exchange
contracts totaled $3,916,000, $3,084,000 and $2,670,000 in 1996, 1995 and 1994,
respectively. The notional amounts of interest options written, foreign
exchange contracts purchased and foreign exchange contracts sold were as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Interest options written $ 16,456 $ 25,225 $ 62,725
Foreign exchange contracts
purchased 243,800 219,526 246,845
Foreign exchange contracts sold 193,179 172,073 161,370
</TABLE>
- -------------------------------------------------------------------------------
These transactions are generally 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. Credit risk to the Corporation
could result from non-performance by a counterparty to a contract; however,
currently that credit risk is minimal.
Held or Issued for Purposes Other Than Trading:
Of the commitments to extend credit discussed in the preceding paragraphs,
$303,729,000, $129,627,000 and $88,368,000 were entered into with fixed rates
for commercial loan customers at December 31, 1996, 1995 and 1994,
respectively. Fixed-rate commitments for consumer (residential mortgage) loan
customers totaled $77,312,000 at December 31, 1996, $64,224,000 at December 31,
1995 and $38,825,000 at December 31, 1994. Fixed-rate commitments to extend
credit are defined as fixed-rate commercial loan commitments with remaining
maturities greater than one year, fixed-rate residential mortgage loan
commitments, and adjustable-rate residential mortgage loan commitments for loans
with adjustment periods greater than one year.
Fixed-rate mortgage loans held for resale are partially hedged with contracts
for forward delivery in the secondary mortgage market. This hedging activity is
designed to protect the Corporation from changes in interest rates. Gains and
losses from the hedging transactions on mortgage loans held for resale are
deferred and included in the cost of the loans for determining the gain or loss
when the loans are sold. Forward delivery contracts outstanding totaled
$62,823,000 as of December 31, 1996 and $68,000,000 as of December 31, 1995.
NOTE Q
CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against the Corporation and its subsidiaries. Management, after
consultation with legal counsel, is of the opinion that the ultimate resolution
of these proceedings will have no material adverse effect on the consolidated
financial condition or results of operations of the Corporation.
NOTE R
PARENT COMPANY FINANCIAL INFORMATION
Following are the condensed financial statements of Mercantile Bancorporation
Inc. (Parent Company Only) for the periods indicated.
For the Statement of Cash Flows (Parent Company Only), cash and short-term
investments were considered cash equivalents. Interest paid on commercial paper
and long-term debt was $12,420,000, $12,828,000 and $14,856,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
23
<PAGE> 27
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
STATEMENT OF INCOME
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $444,136 $215,580 $104,950
Other interest and dividends 4,359 4,355 4,644
Management fees 16,987 13,637 13,879
Other 5,159 11,702 3,546
-------- -------- --------
Total Income 470,641 245,274 127,019
EXPENSE
Interest on commercial paper 987 1,249 1,199
Interest on long-term debt 11,681 11,697 12,607
Personnel expense 18,503 16,869 14,463
Other operating expenses 46,372 12,410 16,019
-------- -------- --------
Total Expense 77,543 42,225 44,288
INCOME BEFORE INCOME TAX BENEFIT
AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 393,098 203,049 82,731
Income tax benefit 16,514 2,926 6,482
-------- -------- --------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES 409,612 205,975 89,213
Equity in undistributed income of
subsidiaries (164,397) 74,414 143,843
-------- -------- --------
NET INCOME $245,215 $280,389 $233,056
======== ======== ========
- ---------------------------------------------------------------------------------------------------
</TABLE>
BALANCE SHEET
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
ASSETS
Cash $ 33 $ 21 $ --
Short-term investments 128,480 40,358 82,405
Available-for-sale securities 30,167 22,669 12,539
Investment in subsidiaries 1,876,682 1,955,432 1,678,859
Goodwill 123,913 64,812 48,557
Loans and advances to
subsidiaries 19,405 16,950 26,849
Other assets 11,642 14,871 3,849
---------- ---------- ----------
Total Assets $2,190,322 $2,115,113 $1,853,058
========== ========== ==========
LIABILITIES
Commercial paper $ 19,405 $ 16,950 $ 26,800
Long-term debt 150,000 150,000 158,822
Other liabilities 75,266 32,670 24,697
---------- ---------- ----------
Total Liabilities 244,671 199,620 210,319
SHAREHOLDERS' EQUITY 1,945,651 1,915,493 1,642,739
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $2,190,322 $2,115,113 $1,853,058
========== ========== ==========
- ---------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 28
STATEMENT OF CASH FLOWS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 245,215 $ 280,389 $ 233,056
Adjustments to reconcile net income to net cash
provided by operating activities
Net income of subsidiaries (279,739) (289,994) (248,793)
Dividends from subsidiaries 421,299 211,485 98,666
Other, net 33,386 363 14,263
--------- --------- ---------
Net Cash Provided by Operating Activities 420,161 202,243 97,192
INVESTING ACTIVITIES
Investments in debt and equity securities
Purchases (8,339) (9,914) (948)
Proceeds from maturities -- 4,501 5,417
Contributions of capital to subsidiaries -- (70,352) (21,505)
Acquisitions (33,082) (6,700) --
Other, net (2,943) (3,601) 25,143
--------- --------- ---------
Net Cash Provided (Used) by Investing
Activities (44,364) (86,066) 8,107
FINANCING ACTIVITIES
Cash dividends paid (101,907) (69,562) (48,329)
Net issuance of common stock for employee
incentive plans (327) 6,839 2,923
Purchase of treasury stock (175,036) (85,474) (2,954)
Redemption of preferred stock (12,684) -- --
Principal payments on long-term debt -- (156) (30,552)
Net change in commercial paper 2,455 (9,850) 8,410
Other, net (164) -- (777)
--------- --------- ---------
Net Cash Used by Financing Activities (287,663) (158,203) (71,279)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88,134 (42,026) 34,020
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 40,379 82,405 48,385
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 128,513 $ 40,379 $ 82,405
========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
[KPMG LOGO]
KPMG PEAT MARWICK LLP
1010 Market Street Telephone 314 444 1400 Telefax 314 444 1470
St. Louis, MO 63101-2085
Shareholders and Board of Directors
Mercantile Bancorporation Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1996, 1995,
and 1994, and the related supplemental consolidated statements of income,
changes in shareholders' equity, and cash flows for the years then ended. These
supplemental consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these supplemental consolidated financial statements based on our audits. The
supplemental consolidated financial statements give retroactive effect to the
merger of Mark Twain Bancshares, Inc. on April 25, 1997, which has been
accounted for using the pooling of interests method as described in the notes
to the supplemental consolidated financial statements. Generally accepted
accounting principles prescribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the dates of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of Mercantile
Bancorporation Inc. and subsidiaries after financial statements covering the
date of consummation of the business combination are issued.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Mercantile Bancorporation Inc. and subsidiaries as of December 31, 1996, 1995,
and 1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles
applicable after financial statements are issued for a period which includes the
date of consummation of the business combination.
/S/ KPMG PEAT MARWICK LLP
May 13, 1997
26
<PAGE> 30
Note A to Supplemental Unaudited Interim Consolidated Financial Statements --
Basis of Presentation
Effective April 25, 1997, Mercantile Bancorporation Inc. ("Corporation")
acquired Mark Twain Bancshares, Inc. ("Mark Twain"), in a transaction accounted
for as a pooling-of-interests. These Unaudited Supplemental Interim
Consolidated Financial Statements restate the Corporation's historical
interim consolidated financial statements as of and for the three-month
periods ended March 31, 1997 and 1996 to reflect the Mark Twain transaction.
The Unaudited Supplemental Interim Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
<PAGE> 31
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS EXCEPT PER COMMON SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $321,271 $301,389
Investments in debt and equity securities
Trading 1,164 1,290
Taxable 66,764 68,643
Tax-exempt 5,354 5,950
-------- --------
Total 73,282 75,883
Due from banks--interest bearing 1,236 836
Federal funds sold and repurchase agreements 2,673 3,815
-------- --------
Total Interest Income 398,462 381,923
INTEREST EXPENSE
Interest bearing deposits 149,045 151,224
Foreign deposits 4,717 2,501
Short-term borrowings 22,872 17,262
Bank notes 2,540 3,972
Long-term debt 7,327 6,426
-------- --------
Total Interest Expense 186,501 181,385
-------- --------
NET INTEREST INCOME 211,961 200,538
PROVISION FOR POSSIBLE LOAN LOSSES<F1> 18,443 34,149
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 193,518 166,389
OTHER INCOME
Trust 22,801 21,059
Service charges 22,798 21,214
Credit card fees 5,399 1,561
Securitization revenue 7,292 4,502
Mortgage banking 2,778 3,168
Investment banking and brokerage 7,982 8,567
Securities gains (losses)<F1> 1,049 (2,722)
Other 18,001 12,446
-------- --------
Total Other Income 88,100 69,795
OTHER EXPENSE
Salaries 78,140 73,728
Employee benefits 19,582 18,532
Net occupancy 12,712 11,956
Equipment 13,816 12,472
Intangible asset amortization 4,379 2,822
Other<F1> 36,966 84,186
-------- --------
Total Other Expense 165,595 203,696
-------- --------
INCOME BEFORE INCOME TAXES 116,023 32,488
INCOME TAXES<F1> 41,028 15,403
-------- --------
NET INCOME $ 74,995 $ 17,085
======== ========
PER COMMON SHARE DATA
Average shares outstanding 76,574,752 78,483,581
Net income<F2> $ .98 $ .21
Dividends declared .43 .41
<FN>
<F1> Includes the following nonrecurring acquisition charges:
Provision for possible loan losses $ -- $ 10,851
Other income (securities losses) -- (3,082)
Other expense -- 41,678
Income tax benefit -- (15,599)
-------- --------
Impact on Net Income $ -- $(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>
<PAGE> 32
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(THOUSANDS)
<CAPTION>
MARCH 31 MARCH 31
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks $ 941,549 $ 1,029,832
Due from banks--interest bearing 112,905 77,671
Federal funds sold and repurchase agreements 200,011 242,849
Investments in debt and equity securities
Trading 65,934 85,797
Available-for-sale (Amortized cost of $4,253,823
and $4,750,945, respectively) 4,246,090 4,767,514
Held-to-maturity (Estimated fair value
of $533,648 and $247,921, respectively) 534,994 249,190
----------- -----------
Total Investments in Debt and Equity Securities 4,847,018 5,102,501
Loans held-for-sale 62,857 88,416
Loans and leases, net of unearned income 15,149,826 13,772,805
----------- -----------
Total Loans and Leases 15,212,683 13,861,221
Reserve for possible loan losses (231,496) (242,806)
----------- -----------
Net Loans and Leases 14,981,187 13,618,415
Bank premises and equipment 373,189 333,895
Due from customers on acceptances 2,954 6,458
Intangible assets 198,142 123,733
Other assets 421,346 397,634
----------- -----------
Total Assets $22,078,301 $20,932,988
=========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 2,896,268 $ 2,482,155
Interest bearing 14,180,186 13,780,174
Foreign 277,560 160,478
----------- -----------
Total Deposits 17,354,014 16,422,807
Federal funds purchased and repurchase agreements 1,675,864 1,475,982
Other short-term borrowings 197,905 223,025
Bank notes 175,000 275,000
Long-term debt 451,982 327,710
Bank acceptances outstanding 2,954 6,458
Other liabilities 338,662 319,441
----------- -----------
Total Liabilities 20,196,381 19,050,423
Commitments and contingent liabilities -- --
<CAPTION>
MARCH 31 MARCH 31
1997 1996
-------- --------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock--no par value
Shares authorized 5,000 5,000
Shares issued and outstanding -- -- -- --
Common stock--$5.00 par value
Shares authorized 100,000 100,000
Shares issued 79,392 78,576 396,963 392,884
Capital surplus 233,384 232,363
Retained earnings 1,435,417 1,254,409
Valuation on available-for-sale securities (2,593) 6,311
Treasury stock, at cost 3,377 87 (181,251) (3,402)
----------- -----------
Total Shareholders' Equity 1,881,920 1,882,565
----------- -----------
Total Liabilities and Shareholders'
Equity $22,078,301 $20,932,988
=========== ===========
</TABLE>
<PAGE> 33
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ 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 77,877,085 $396,287 $ 12,153 $286,427 $1,281,183 $ (60,557) $1,915,493
Net income 17,085 17,085
Common dividends declared:
Mercantile Bancorporation Inc.
--$.41 per share (25,885) (25,885)
Pooled companies prior to acquisition (5,066) (5,066)
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. 197,902 57 14 8,983 9,054
Security Bank of Conway, F.S.B. 321,964 75 14,614 14,689
First Sterling Bancorp, Inc. 521,417 2,607 1,876 13,772 18,255
Issuance of common stock for:
Employee incentive plans 103,533 486 (302) 276 460
Convertible notes 186,678 933 2,182 3,115
Net fair value adjustment for
available-for-sale securities (19,444) (19,444)
Purchase of treasury stock (525,000) (23,825) (23,825)
Reissuance and retirement of treasury
stock (6,458) (50,708) 57,166 --
Pre-merger transactions of pooled
companies and other (194,239) (971) (7,244) (59) (8,274)
---------- -------- -------- -------- ----------- --------- ----------
BALANCE AT MARCH 31, 1996 78,489,340 $392,884 $ -- $232,363 $1,260,720 $ (3,402) $1,882,565
========== ======== ======== ======== ========== ========= ==========
BALANCE AT DECEMBER 31, 1996 77,486,469 $396,072 $ -- $232,991 $1,400,789 $ (84,201) $1,945,651
Net income 74,995 74,995
Common dividends declared:
Mercantile Bancorporation Inc.
--$.43 per share (25,892) (25,892)
Pooled companies prior to acquisition (5,895) (5,895)
Issuance of common stock in acquisition
of Regional Bancshares, Inc. 600,417 (474) 361 28,813 28,700
Issuance of common stock for:
Employee incentive plans 99,247 200 (532) 2,596 2,264
Convertible notes 2,811 14 33 47
Net fair value adjustment for
available-for-sale securities (11,812) (11,812)
Purchase of treasury stock (2,309,033) (129,029) (129,029)
Pre-merger transactions of pooled
companies and other 135,533 677 1,366 278 570 2,891
---------- -------- -------- -------- ---------- --------- ----------
BALANCE AT MARCH 31, 1997 76,015,444 $396,963 $ -- $233,384 $1,432,824 $(181,251) $1,881,920
========== ======== ======== ======== ========== ========= ==========
<FN>
<F*>Includes valuation on available-for-sale securities.
</TABLE>
<PAGE> 34
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SUPPLEMENTAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 74,995 $ 17,085
Adjustments to reconcile net income to net cash provided by operating activities
Provision for possible loan losses 18,443 34,149
Depreciation and amortization 12,020 11,068
Provision for deferred income taxes 719 8,905
Net change in loans held-for-sale 3,516 6,461
Net change in accrued interest receivable 3,682 2,424
Net change in accrued interest payable 1,330 (11,008)
Other, net (19,731) 48,321
---------- ----------
Net Cash Provided by Operating Activities 94,974 117,405
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading securities
Purchases (601,357) (472,298)
Proceeds from maturities 464,866 317,043
Proceeds from sales of available-for-sale securities 167,779 95,610
Net change in loans and leases (256,495) (39,042)
Purchases of loans and leases (33,686) (16)
Proceeds from sales of loans and leases 39,806 43,779
Purchases of premises and equipment (14,534) (15,717)
Proceeds from sales of premises and equipment 1,444 2,714
Proceeds from sales of foreclosed property 7,322 7,616
Cash and cash equivalents from acquisitions, net of cash paid (8,132) 42,907
Other, net (3,899) 689
---------- ----------
Net Cash Used by Investing Activities (236,886) (16,715)
FINANCING ACTIVITIES
Net change in time certificates of deposit under $100,000 (91,306) (76,350)
Net change in time certificates of deposit $100,000 and over 87,832 57,366
Net change in other time deposits (68,066) 6,748
Net change in foreign deposits 25,673 (48,692)
Net change in other deposits (72,524) 25,009
Net change in short-term borrowings (122,950) (250,256)
Issuance of bank notes -- 25,000
Issuance of long-term debt 150,000 1,500
Principal payments on long-term debt (2,802) (13,286)
Cash dividends paid (31,787) (31,359)
Net proceeds from issuance of common stock from employee
incentive plans and pre-merger transactions of pooled
companies 1,934 (9,133)
Purchase of treasury stock (140,804) (23,825)
Redemption of preferred stock -- (12,684)
Other, net 3,174 1,275
---------- ----------
Net Cash Used by Financing Activities (261,626) (348,687)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (403,538) (247,997)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,658,003 1,598,349
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,254,465 $1,350,352
========== ==========
</TABLE>
<PAGE> 35
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
Not Applicable
(b) PRO FORMA FINANCIAL INFORMATION:
Not Applicable
(c) EXHIBITS:
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
* * *
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: May 13, 1997
MERCANTILE BANCORPORATION INC.
By: /s/ Michael T. Normile
----------------------------------------
Michael T. Normile
Senior Vice President Finance and Control
<PAGE> 37
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mercantile Bancorporation Inc.:
We consent to the incorporation by reference in the Registration Statements
No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139, No. 33-43694,
No. 33-48952, and No. 33-57543, each on Form S-8, and No. 33-45863,
No. 33-52986, No. 33-50579, No. 33-50981, No. 33-55439, No. 33-56603,
No. 33-58467, No. 33-63609, No. 33-65087, No. 333-09803, No. 333-17757
and No. 333-23607, each on Form S-4, of Mercantile Bancorporation Inc.
of our report dated May 13, 1997, relating to the supplemental consolidated
balance sheets of Mercantile Bancorporation Inc. and subsidiaries as of
December 31, 1996, 1995, and 1994, and the related supplemental
consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the Current Report on Form
8-K dated May 13, 1997 of Mercantile Bancorporation Inc.
s/ KPMG Peat Marwick LLP
St. Louis, Missouri
May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,296,053
<INT-BEARING-DEPOSITS> 96,453
<FED-FUNDS-SOLD> 265,498
<TRADING-ASSETS> 31,272
<INVESTMENTS-HELD-FOR-SALE> 4,149,674
<INVESTMENTS-CARRYING> 565,045
<INVESTMENTS-MARKET> 567,152
<LOANS> 14,952,630
<ALLOWANCE> 230,372
<TOTAL-ASSETS> 22,030,379
<DEPOSITS> 17,336,451
<SHORT-TERM> 1,987,264
<LIABILITIES-OTHER> 281,182
<LONG-TERM> 304,831
0
0
<COMMON> 311,871
<OTHER-SE> 1,633,780
<TOTAL-LIABILITIES-AND-EQUITY> 22,030,379
<INTEREST-LOAN> 1,229,656
<INTEREST-INVEST> 306,342
<INTEREST-OTHER> 16,865
<INTEREST-TOTAL> 1,552,863
<INTEREST-DEPOSIT> 603,989
<INTEREST-EXPENSE> 724,910
<INTEREST-INCOME-NET> 827,953
<LOAN-LOSSES> 73,015
<SECURITIES-GAINS> (83)
<EXPENSE-OTHER> 718,668
<INCOME-PRETAX> 373,750
<INCOME-PRE-EXTRAORDINARY> 373,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 245,215
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 3.17
<YIELD-ACTUAL> 4.34
<LOANS-NON> 66,959
<LOANS-PAST> 33,960
<LOANS-TROUBLED> 5,260
<LOANS-PROBLEM> 55,268
<ALLOWANCE-OPEN> 232,288
<CHARGE-OFFS> 104,589
<RECOVERIES> 19,852
<ALLOWANCE-CLOSE> 230,372
<ALLOWANCE-DOMESTIC> 230,372
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 51,338
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 941,459
<INT-BEARING-DEPOSITS> 112,905
<FED-FUNDS-SOLD> 200,011
<TRADING-ASSETS> 65,934
<INVESTMENTS-HELD-FOR-SALE> 4,246,090
<INVESTMENTS-CARRYING> 534,994
<INVESTMENTS-MARKET> 533,648
<LOANS> 15,212,683
<ALLOWANCE> 231,496
<TOTAL-ASSETS> 22,078,301
<DEPOSITS> 17,354,014
<SHORT-TERM> 1,873,769
<LIABILITIES-OTHER> 341,616
<LONG-TERM> 451,982
0
0
<COMMON> 215,712
<OTHER-SE> 1,666,208
<TOTAL-LIABILITIES-AND-EQUITY> 22,078,301
<INTEREST-LOAN> 321,271
<INTEREST-INVEST> 73,282
<INTEREST-OTHER> 3,909
<INTEREST-TOTAL> 398,462
<INTEREST-DEPOSIT> 153,762
<INTEREST-EXPENSE> 186,501
<INTEREST-INCOME-NET> 211,961
<LOAN-LOSSES> 18,443
<SECURITIES-GAINS> 1,049
<EXPENSE-OTHER> 165,595
<INCOME-PRETAX> 116,023
<INCOME-PRE-EXTRAORDINARY> 116,023
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,995
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 4.36
<LOANS-NON> 79,545
<LOANS-PAST> 31,856
<LOANS-TROUBLED> 5,196
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 230,372
<CHARGE-OFFS> 24,797
<RECOVERIES> 5,863
<ALLOWANCE-CLOSE> 231,496
<ALLOWANCE-DOMESTIC> 231,496
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1> Only reported at fiscal year-end date.
</TABLE>
