<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
Registration No. 333-57345
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSOURI 6712 43-0951744
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 418-2525
(Address, including ZIP code and telephone number, including area code, of
registrant's principal executive offices)
------------------------
JON W. BILSTROM, ESQ.
General Counsel and Secretary
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 418-2525
(Name, address, including ZIP code and telephone number, including area
code, of agent for service)
------------------------
Copy to:
<TABLE>
<S> <C> <C>
JOHN Q. ARNOLD ROBERT M. LaROSE, ESQ. RICHARD G. CLEMENS, ESQ.
Vice Chairman and Chief Financial Officer Thompson Coburn Sidley & Austin
Mercantile Bancorporation Inc. One Mercantile Center One First National Plaza
P.O. Box 524 St. Louis, Missouri 63101 Chicago, Illinois 60603
St. Louis, Missouri 63166-0524 (314) 552-6000 (312) 853-7642
(314) 418-2525
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
===========================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit aggregate offering price<F2> registration fee<F3>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01
par value<F1> 3,194,844 shares $19.17 $61,273,000 $18,075.54
===========================================================================================================================
<FN>
<F1> Includes one attached Preferred Share Purchase Right per share.
<F2> Estimated solely for the purposes of computing the registration fee
pursuant to the provisions of Rule 457(f), and based upon the
$61,273,000 aggregate book value of the 3,553,717 shares of common
stock, $1.25 par value, of First Financial Bancorporation issued and
outstanding as of May 31, 1998.
<F3> The entire registration fee was paid with the original filing on June 19,1998.
</TABLE>
---------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
[LETTERHEAD OF FIRST FINANCIAL BANCORPORATION]
June 30, 1998
Dear Shareholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Shareholders of First Financial Bancorporation ("First Financial")
to be held at 4:30 p.m. Central Time, on Tuesday, August 25, 1998, at the Main
Office of First National Bank Iowa, 204 East Washington Street, Iowa City, Iowa
(the "Special Meeting"). At the Special Meeting, you will be asked to
consider and vote upon a proposal to approve the Agreement and Plan of Merger,
dated as of May 7, 1998 (the "Merger Agreement"), and each of the transactions
contemplated thereby, pursuant to which First Financial will be merged (the
"Merger") with and into Ameribanc, Inc., a Missouri corporation and wholly
owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). Upon
consummation of the Merger, each share of First Financial common stock will
be converted into the right to receive 0.88 (the "Exchange Ratio") of a share
of MBI common stock, all as more fully described in the accompanying Proxy
Statement/Prospectus.
Enclosed are the following items relating to the Special Meeting and
the Merger:
1. Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope for the proxy card.
The Proxy Statement/Prospectus and related proxy materials set forth,
or incorporate by reference, financial data and other important information
relating to First Financial and MBI and describe the terms and conditions of
the Merger. The Board of Directors requests that you carefully review these
materials before completing the enclosed proxy card or attending the Special
Meeting.
THE BOARD OF DIRECTORS OF FIRST FINANCIAL CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST
INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
FIRST FINANCIAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT. ---
The investment banking firm of ABN AMRO Incorporated has issued its
written opinion, dated as of the date hereof, to your Board of Directors
regarding the fairness from a financial point of view of the Exchange Ratio
to be received by First Financial shareholders pursuant to the Merger
Agreement. A copy of the opinion is attached as Annex A to the Proxy
Statement/Prospectus. -------
APPROVAL OF THE MERGER AGREEMENT BY THE FIRST FINANCIAL SHAREHOLDERS IS
A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important
that your shares be represented at the Special Meeting, whether or not you
plan to attend the Special Meeting in person. Please complete, date and sign
the enclosed proxy card and return it in the enclosed pre-addressed envelope,
which requires no postage if mailed within the United States. If you later
decide to attend the Special Meeting and vote in person, or if you wish to
revoke your proxy for any reason prior to the vote at the Special Meeting,
you may do so and your proxy will have no further effect. You may revoke
your proxy by delivering to the
<PAGE> 3
Secretary of First Financial a written notice of revocation or another proxy
relating to the same shares bearing a later date than the proxy being revoked or
by attending the Special Meeting and voting in person. Attendance at the
Special Meeting will not in itself constitute a revocation of an earlier dated
proxy.
If you need assistance in completing your proxy card or if you have any
questions about the Proxy Statement/Prospectus, please feel free to contact
Russ Schmeiser at (319) 356-9038 or me at (319) 356-9024.
Sincerely,
Robert M. Sierk
President and Chief Executive Officer
<PAGE> 4
FIRST FINANCIAL BANCORPORATION
204 EAST WASHINGTON STREET
P.O. BOX 1880
IOWA CITY, IOWA 52244-1880
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
AUGUST 25, 1998
TO THE SHAREHOLDERS OF FIRST FINANCIAL BANCORPORATION:
Notice is hereby given that a special meeting (the "Special Meeting")
of shareholders of FIRST FINANCIAL BANCORPORATION, an Iowa corporation
("First Financial"), will be held at the Main Office of First National Bank
Iowa, 204 East Washington Street, Iowa City, Iowa on Tuesday, August 25, 1998,
at 4:30 p.m. Central Time, for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of May 7, 1998 (the "Merger Agreement"), by and
among Mercantile Bancorporation Inc. ("MBI"), Ameribanc, Inc., a wholly owned
subsidiary of MBI ("Ameribanc"), and First Financial, pursuant to which First
Financial will be merged (the "Merger") with and into Ameribanc, in a
transaction that will result in the business and operations of First
Financial being continued through Ameribanc, and whereby, upon consummation
of the Merger, each outstanding share of First Financial common stock will be
converted into the right to receive 0.88 of a share of MBI common stock, as
set forth in detail in the attached Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The record date for determining the shareholders entitled to receive
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof has been fixed as of the close of business on June 26,
1998. On the record date, First Financial had 3,553,717 shares of common stock
issued, outstanding and entitled to vote. Such shares were held by
approximately 877 holders of record. Each share will be entitled to one vote on
each matter submitted to a vote at the Special Meeting.
Pursuant to Division XIII of the Iowa Business Corporation Act, each
holder of First Financial common stock will have the right to dissent from
the Merger Agreement and to demand a determination of the fair value of such
shareholder's shares in the event the Merger Agreement is approved and the
Merger consummated. A copy of Division XIII of the Iowa Business Corporation
Act is attached as Annex B to the Proxy Statement/Prospectus.
-------
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES OF FIRST FINANCIAL COMMON STOCK IS REQUIRED FOR APPROVAL
OF THE MERGER AGREEMENT. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN.
<PAGE> 5
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS. FAILURE TO RETURN THE ENCLOSED
PROXY CARD OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. If the
Merger Agreement is approved, you will be sent instructions regarding the
mechanics of exchanging your existing First Financial common stock
certificates for new certificates representing shares of MBI common stock.
BY ORDER OF THE BOARD OF DIRECTORS
Iowa City, Iowa A. Russell Schmeiser
June 30, 1998 Executive Vice President, Chief Operating
Officer and Secretary
<PAGE> 6
MERCANTILE BANCORPORATION INC.
PROSPECTUS
----------------
FIRST FINANCIAL BANCORPORATION
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 25, 1998
This Prospectus of Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), relates to up to 3,194,844 shares of common stock, $0.01
par value (the "Common Stock"), and attached Preferred Share Purchase Rights
(the "Rights"), of MBI (the Common Stock and Rights are collectively referred
to herein as "MBI Common Stock"), to be issued to the shareholders of First
Financial Bancorporation, an Iowa corporation ("First Financial"), upon
consummation of the proposed merger (the "Merger") of First Financial with
and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary
of MBI ("Ameribanc"). Upon receipt of the requisite shareholder and
regulatory approvals, and the satisfaction or waiver of certain conditions
precedent, the Merger will be consummated pursuant to the terms of the
Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger
Agreement"), by and among MBI, Ameribanc and First Financial. This
Prospectus also serves as the Proxy Statement of First Financial for use in
connection with the Special Meeting of Shareholders of First Financial (the
"Special Meeting"), which will be held on August 25, 1998, at the time and
place and for the purposes stated in the Notice of Special Meeting of
Shareholders accompanying this Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, MBI will issue up to an aggregate of
3,194,844 shares of MBI Common Stock. Upon consummation of the Merger, the
business and operations of First Financial will be continued through
Ameribanc and each share of common stock, $1.25 par value, of First Financial
("First Financial Common Stock") will be converted into the right to receive
0.88 of a share of MBI Common Stock (the "Exchange Ratio"). The fair market
value of MBI Common Stock to be received pursuant to the Merger may fluctuate
and at the consummation of the Merger may be more or less than the current
fair market value of such shares. See "TERMS OF THE PROPOSED MERGER -
General Description of the Merger." No fractional shares of MBI Common Stock
will be issued in the Merger, but cash will be paid in lieu of such
fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional Shares."
The Merger is intended to qualify as a reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"). The Merger generally
is intended to achieve certain federal income tax deferral benefits for First
Financial shareholders with respect to shares of MBI Common Stock received in
the Merger. See "SUMMARY INFORMATION - Federal Income Tax Consequences in
General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
MBI Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "MTL." On June 26, 1998, the closing sale price for MBI
Common Stock as reported on the NYSE Composite Tape was $50.625 per share.
First Financial Common Stock is not actively traded.
This Proxy Statement/Prospectus, the Notice of Special Meeting and the
form of proxy are first being mailed to the shareholders of First Financial
on or about June 30, 1998.
<PAGE> 7
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF MBI AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL
OR STATE GOVERNMENTAL AGENCY.
All information contained in this Proxy Statement/Prospectus with
respect to MBI has been supplied by MBI and all information with respect to
First Financial has been supplied by First Financial.
The date of this Proxy Statement/Prospectus is -------, 1998.
-2-
<PAGE> 8
AVAILABLE INFORMATION
---------------------
MBI and First Financial are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, file with the Commission reports, proxy statements
and other information. Such reports, proxy statements and other information
filed with the Commission by MBI and First Financial can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Suite 1300, Seven World Trade Center, New York, New York
10048, and Room 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. The Commission maintains an Internet site on the
World Wide Web containing reports, proxy and information statements and other
information filed electronically by MBI and First Financial with the
Commission. The address of the World Wide Web site maintained by the
Commission is http://www.sec.gov. MBI Common Stock is listed on the NYSE,
and such reports, proxy statements and other information concerning MBI also
are available for inspection and copying at the offices of the NYSE, 20 Broad
Street, New York, New York 10005. First Financial Common Stock is not
actively traded. Reports, proxy statements and other information concerning
First Financial are available from First Financial, without charge, upon
written or oral request to A. Russell Schmeiser, Executive Vice President and
Chief Operating Officer, First Financial Bancorporation, 204 East Washington
Street, P.O. Box 1880, Iowa City, Iowa 52244-1880, telephone (319) 356-9038.
This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby which has
been filed by MBI with the Commission. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information contained or incorporated by reference in the Registration
Statement. Statements contained in this Proxy Statement/Prospectus provide a
summary of the contents of certain contracts or other documents referenced
herein but are not necessarily complete and in each instance reference is
made to the copy of each such contract or other document filed as an exhibit
to the Registration Statement. For such further information, reference is
made to the Registration Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO MBI THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE, WITHOUT CHARGE TO ANY PERSON, INCLUDING BENEFICIAL OWNERS OF FIRST
FINANCIAL COMMON STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST, TO JON W. BILSTROM, GENERAL COUNSEL AND
SECRETARY, MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI
63166-0524, TELEPHONE (314) 418-2525. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY
AUGUST 18, 1998.
-3-
<PAGE> 9
The following documents filed with the Commission by MBI under the
Exchange Act are incorporated herein by reference:
(a) MBI's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) MBI's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
(c) MBI's Current Reports on Form 8-K dated January 10, 1998 and
January 30, 1998.
(d) The description of MBI's Common Stock set forth in Item 1 of
MBI's Registration Statement on Form 8-A, dated March 5, 1993,
and any amendment or report filed for the purpose of updating
such description.
(e) The description of MBI's Preferred Share Purchase Rights set
forth in Item 1 of MBI's Registration Statement on Form 8-A dated
May 27, 1998.
Such incorporation by reference shall not be deemed to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents filed by MBI pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date hereof and until the date of the
Special Meeting shall be deemed to be incorporated by reference herein and
made a part hereof from the date any such document is filed. The
information relating to MBI contained in this Proxy Statement/Prospectus
does not purport to be complete and should be read together with the
information in the documents incorporated by reference herein. Any
statement contained herein or in a document incorporated herein by
reference shall be deemed to be modified or superseded for purposes hereof
to the extent that a subsequent statement contained herein or in any other
subsequently filed document incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part hereof.
Any statements contained in this Proxy Statement/Prospectus involving
matters of opinion, whether or not expressly so stated, are intended as such
and not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY MBI OR FIRST FINANCIAL. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK
TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL
IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF MBI OR FIRST FINANCIAL OR ANY OF THEIR SUBSIDIARIES OR IN THE INFORMATION
SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF.
-4-
<PAGE> 10
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 3
SUMMARY INFORMATION 8
Business of MBI 8
Business of Ameribanc 9
Business of First Financial 9
The Proposed Merger 9
Effect on First Financial Stock Plans and Employee Benefit Plans 10
Other Agreements 11
Interests of Certain Persons in the Merger 12
Special Meeting of First Financial Shareholders 12
Reasons for the Merger 12
Opinion of Financial Advisor to First Financial 13
Fractional Shares 13
Waiver and Amendment 13
Federal Income Tax Consequences in General 13
Regulatory Approval 14
Accounting Treatment 14
Dissenters' Rights 14
Markets and Market Prices 14
Comparative Unaudited Per Share Data 15
Summary Financial Data 16
INFORMATION REGARDING SPECIAL MEETING 20
General 20
Date, Time and Place 20
Record Date; Vote Required 20
Voting and Revocation of Proxies 21
Solicitation of Proxies 21
TERMS OF THE PROPOSED MERGER 23
General Description of the Merger 23
Effect on First Financial Stock Plans and Employee Benefit Plans 24
Other Agreements 25
Interests of Certain Persons in the Merger 27
Background of and Reasons for the Merger; Board Recommendations 27
Opinion of Financial Advisor to First Financial 31
Conditions of the Merger 37
Representations and Warranties 39
Termination, Waiver and Amendment of the Merger Agreement 40
Indemnification 41
Closing Date 41
Surrender of First Financial Stock Certificates and Receipt of
MBI Common Stock 41
-5-
<PAGE> 11
Fractional Shares 42
Regulatory Approval 42
Business Pending the Merger 43
Accounting Treatment 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 46
DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL 47
PRO FORMA FINANCIAL INFORMATION 50
Comparative Unaudited Per Share Data 50
Pro Forma Combined Consolidated Financial Statements (Unaudited) 52
INFORMATION REGARDING FIRST FINANCIAL 66
Business 66
Management's Discussion and Analysis of Financial Condition and
Results of Operations 81
Legal Proceedings 89
Properties 89
Management's Discussion and Analysis of Financial Condition and
Results of Operations (First Quarter Comparison) 90
Quantitative and Qualitative Disclosures About Market Risk 97
Ownership of Certain Beneficial Owners and Management 99
INFORMATION REGARDING MBI STOCK 101
Description of MBI Common Stock and Attached Preferred Share
Purchase Rights 101
Restrictions on Resale of MBI Stock by Affiliates 103
Comparison of the Rights of Shareholders of MBI and
First Financial 103
SUPERVISION AND REGULATION 107
General 107
Certain Transactions with Affiliates 108
Payment of Dividends 108
Capital Adequacy 108
Support of Subsidiary Banks 108
FIRREA and FDICIA 109
Depositor Preference Statute 110
FDIC Insurance Assessments 110
Interstate Banking and Other Recent Legislation 110
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS 111
LEGAL MATTERS 111
EXPERTS 111
OTHER MATTERS 112
SHAREHOLDER PROPOSALS 112
-6-
<PAGE> 12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 113
ANNEXES
Annex A -- Opinion of ABN AMRO Incorporated A-1
Annex B -- Dissenters' Rights Provisions of the Iowa Business
Corporation Act B-1
</TABLE>
-7-
<PAGE> 13
SUMMARY INFORMATION
-------------------
The following is a summary of the important terms of the proposed
Merger and related information discussed elsewhere in this Proxy
Statement/Prospectus but does not purport to be complete and is qualified in
its entirety by reference to the more detailed information that appears
elsewhere in this Proxy Statement/Prospectus and the documents incorporated
by reference herein. Shareholders of First Financial are urged to read this
Proxy Statement/Prospectus in its entirety. All MBI per share data reflect
three-for-two stock splits distributed in the form of dividends on each of
April 11, 1994 and October 1, 1997.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is a registered
bank holding company under the federal Bank Holding Company Act of 1956, as
amended (the "BHCA"). At March 31, 1998, MBI owned, directly or indirectly,
all of the capital stock of Mercantile Bank National Association ("Mercantile
Bank") and 19 other commercial banks, all of which operate from 557 banking
offices and 544 Fingertip Banking automated teller machines, located
throughout Missouri, Illinois, eastern Kansas, northern and central Arkansas
and Iowa. MBI's services concentrate in three major lines of business:
consumer; corporate; and trust and investment advisory services. MBI also
operates non-banking subsidiaries that provide related financial services,
including investment management, brokerage services and asset-based lending.
As of March 31, 1998, MBI had 133,115,227 shares of its Common Stock
outstanding and reported, on a consolidated basis, total assets of $31.8
billion, total deposits of $22.5 billion, total loans of $19.6 billion and
shareholders' equity of $2.5 billion.
On February 2, 1998, MBI completed the acquisition of Horizon Bancorp,
Inc., an Arkansas corporation and a registered bank holding company under the
BHCA ("Horizon"), headquartered in Arkadelphia, Arkansas. This acquisition
was accounted for under the pooling-of-interests method of accounting, but
due to the immateriality of Horizon's financial information to MBI's
financial condition and results of operations, MBI's consolidated financial
statements have not been restated for any dates or any periods prior to the
acquisition date of Horizon. As of February 2, 1998, Horizon reported, on a
consolidated basis, total assets of $537 million, total deposits of $454
million and shareholders' equity of $47 million.
On March 2, 1998, MBI completed the acquisition of HomeCorp, Inc., a
Delaware corporation and savings and loan holding company ("HomeCorp"),
headquartered in Rockford, Illinois. This acquisition was accounted for
under the pooling-of-interests method of accounting, but due to the
immateriality of HomeCorp's financial information to MBI's financial
condition and results of operation, MBI's consolidated financial statements
have not been restated for any date or any period prior to the acquisition
date of HomeCorp. As of March 2, 1998, HomeCorp reported, on a consolidated
basis, total assets of $335 million, total deposits of $309 million and
stockholders' equity of $21 million.
On January 10, 1998, MBI entered into an agreement to acquire CBT
Corporation, a Kentucky corporation and registered bank holding company under
the BHCA ("CBT"), headquartered in Paducah, Kentucky. The acquisition is
intended to be accounted for under the pooling-of-interests method of
accounting. As of March 31, 1998, CBT reported, on a consolidated basis,
total assets of $1.03 billion, total deposits of $715 million and
shareholders' equity of $122 million.
On February 2, 1998, MBI entered into an agreement to acquire Firstbank
of Illinois Co., a Delaware corporation and registered bank holding company
under the BHCA ("Firstbank"),
-8-
<PAGE> 14
headquartered in Springfield, Illinois. The acquisition is intended to be
accounted for under the pooling-of-interests method of accounting. As of March
31, 1998, Firstbank reported, on a consolidated basis, total assets of $2.28
billion, total deposits of $2.00 billion and stockholders' equity of $238
million.
On April 13, 1998, MBI entered into an agreement to acquire Financial
Services Corporation of the Midwest, a Delaware corporation and registered
bank holding company under the BHCA ("FSCM"), headquartered in Rock Island,
Illinois. The acquisition is intended to be accounted for under the
pooling-of-interests method of accounting. As of March 31, 1998, FSCM
reported, on a consolidated basis, total assets of $518 million total
deposits of $409 million and stockholders' equity of $34 million.
MBI's principal executive offices are located at One Mercantile Center,
St. Louis, Missouri 63101 and its telephone number is (314) 418-2525.
Additional information concerning MBI is included in the documents
incorporated by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
BUSINESS OF AMERIBANC
Ameribanc, a Missouri corporation, is a wholly owned subsidiary of MBI
that was organized in 1991. Ameribanc is a registered bank holding company
under the BHCA. At March 31, 1998, Ameribanc owned all of the capital stock
of 20 banks which operate from 557 locations in Missouri, Illinois, eastern
Kansas, northern and central Arkansas and Iowa. Ameribanc, which will
continue to be a subsidiary of MBI following the Merger, will be the
surviving corporation upon consummation of the Merger.
BUSINESS OF FIRST FINANCIAL
First Financial, an Iowa corporation, was organized in 1985 and is a
one-bank holding company registered under the BHCA. First Financial is the
parent company of First National Bank Iowa ("FNBI"), a national banking
association. As of March 31, 1998, 3,553,717 shares of First Financial
Common Stock were issued and outstanding. As of March 31, 1998, First
Financial reported, on a consolidated basis, total assets of $568 million,
total deposits of $481 million and shareholders' equity of $60 million.
First Financial's principal executive offices are located at 204 East
Washington Street, P.O. Box 1880, Iowa City, Iowa 52244-1880 and its
telephone number is (319) 356-9000.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in
the Merger Agreement, First Financial will be merged with and into Ameribanc.
Upon consummation of the Merger, First Financial's corporate existence will
terminate and Ameribanc will continue as the surviving entity.
Simultaneously with the effectiveness of the Merger, each outstanding share
of First Financial Common Stock will be converted into the right to receive
0.88 of a share of MBI Common Stock. Such consideration is subject to
certain anti-dilution protections, but is not adjustable based upon the
operating results, financial condition or other factors affecting either MBI
or First Financial prior to the consummation of the Merger. The fair market
value of MBI Common Stock to be received pursuant to
-9-
<PAGE> 15
the Merger may fluctuate and at the consummation of the Merger may be more or
less than the current fair market value of such shares.
Harris Trust and Savings Bank, the transfer agent for MBI Common Stock,
has been selected as the Exchange Agent (the "Exchange Agent") for purposes
of effecting the conversion of First Financial Common Stock into MBI Common
Stock upon consummation of the Merger. As soon as practicable after
consummation of the Merger, a letter of transmittal (including instructions
setting forth the procedures for exchanging certificates representing shares
of First Financial Common Stock for the MBI Common Stock issuable to each
holder thereof pursuant to the Merger Agreement) will be sent to each record
holder of certificates formerly representing shares of First Financial Common
Stock as of the Effective Time (as hereinafter defined). Upon surrender to
the Exchange Agent of his or her certificate(s) representing shares of First
Financial Common Stock, together with a duly completed and executed letter of
transmittal, such holder will receive certificates representing that whole
number of shares of MBI Common Stock to which such holder is entitled under
the Merger Agreement. See "TERMS OF THE PROPOSED MERGER - Surrender of First
Financial Stock Certificates and Receipt of MBI Common Stock."
The Merger Agreement provides that the consummation of the Merger is
subject to certain terms and conditions, including the approval of the Merger
Agreement by the requisite vote of the holders of First Financial Common
Stock, the receipt of the requisite regulatory approvals, a letter of KPMG
Peat Marwick LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment and an opinion of counsel for MBI
regarding certain federal income tax aspects of the transaction. For a
discussion of each of the conditions to the Merger, see "TERMS OF THE
PROPOSED MERGER - Conditions of the Merger." The Merger will be consummated
and become effective (the "Effective Time") upon the later of (i) the issuance
of a certificate of merger by the Office of the Secretary of State of the
State of Missouri and (ii) the filing of articles of merger with the Office of
the Secretary of State of the State of Iowa.
Unless the parties otherwise agree, the date of the closing of the
Merger (the "Closing Date") shall occur on such date as MBI shall notify
First Financial in writing (such notice to be at least five business days in
advance of the Effective Time) but (i) not earlier than the approval of the
Merger Agreement by the requisite vote of the holders of First Financial
Common Stock and the receipt of the requisite regulatory approvals (the
"Approval Date") and (ii) not later than the first business day of the first
full calendar month commencing at least five days after the Approval Date.
The Merger Agreement may be terminated at any time prior to the Closing Date
by the mutual consent of the parties or, unilaterally, by either party upon
the occurrence of certain events or if the Merger is not consummated by May
1, 1999. See "TERMS OF THE PROPOSED MERGER - Conditions of the Merger" and
"- Termination of the Merger Agreement."
EFFECT ON FIRST FINANCIAL STOCK PLANS AND EMPLOYEE BENEFIT PLANS
Upon consummation of the Merger, MBI will assume the First Financial
Bancorporation 1997 Stock Compensation Plan and the First Financial
Bancorporation Stock Option Plan (collectively, the "First Financial Stock
Plans"), and all of the outstanding rights (whether or not then exercisable)
with respect to First Financial Common Stock pursuant to the First Financial
Stock Plan (collectively, the "First Financial Stock Options") will be
converted into rights to purchase MBI Common Stock. As a result of such
assumption: (i) each outstanding First Financial Stock Option will be
exercisable solely for shares of MBI Common Stock; (ii) the number of shares
of MBI Common Stock subject to the First Financial Stock Options will equal
the number of shares of First Financial Common Stock immediately prior to the
Effective Time multiplied by the Exchange Ratio; and
-10-
<PAGE> 16
(iii) the per share exercise price for each First Financial Stock Option will be
adjusted by dividing such exercise price by the Exchange Ratio.
In addition, upon consummation of the Merger, Ameribanc will honor all
severance and other compensation contracts and provisions for vested benefits
under the employee plans of First Financial and FNBI earned or accrued
through the Effective Time. MBI will take such steps as are necessary to
integrate the employees of First Financial and FNBI into MBI's employee benefit
plans as soon as practicable after the Effective Time. See "TERMS OF THE
PROPOSED MERGER - Effect on First Financial Stock Plans and Employee Benefit
Plans."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI and
First Financial executed a Stock Option Agreement (the "Option Agreement")
and MBI and all of the directors of First Financial executed separate Voting
Agreements (the "Voting Agreements"). The following is a summary of the
material terms of the Option Agreement and the Voting Agreements.
OPTION AGREEMENT. Pursuant to the Option Agreement, First Financial
issued to MBI an option (the "Option") to purchase up to 707,189 shares of
First Financial Common Stock at a price of $37.75 per share (the "Option
Price"). The Option is exercisable upon the occurrence of certain events
generally relating to the failure of First Financial to consummate the Merger
because of a material change or potential material change in the ownership of
First Financial, all as set forth in the Option Agreement. No such event has
occurred as of the date hereof. First Financial granted to MBI the Option as
a condition of and in consideration of MBI entering into the Merger
Agreement. The Option is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms of the Merger Agreement.
Consequently, the Option may have the effect of discouraging a person who
might now or prior to the consummation of the Merger consider or propose the
acquisition of First Financial (or a significant interest in First
Financial), even if such person were prepared to pay a higher price per share
for First Financial Common Stock than the price per share implicit in the
Exchange Ratio. In the event MBI acquires shares of First Financial Common
Stock pursuant to the Option, MBI could vote those shares in the election of
First Financial directors and other matters requiring a shareholder vote,
thereby potentially having a material impact on the outcome of such matters.
See "TERMS OF THE PROPOSED MERGER - Other Agreements - Option Agreement."
VOTING AGREEMENTS. Concurrent with the execution of the Merger
Agreement, MBI and all of the directors of First Financial executed
separate Voting Agreements (the "Voting Agreements") pursuant to which each
such director agreed that he will vote all of the shares of First Financial
Common Stock then owned, controlled or subsequently acquired in favor of the
approval of the Merger Agreement at the Special Meeting. In addition, until
the earliest to occur of the Closing Date or the termination of the Merger
Agreement, each director further agreed he will not vote any such shares in
favor of the approval of any other competing acquisition proposal involving
First Financial and a third party. Each director also agreed that he will
not transfer shares of First Financial Common Stock unless, prior to such
transfer, the transferee executes an agreement in substantially the same form
as the Voting Agreement and satisfactory to MBI. As of the Record Date (as
defined below), the directors of First Financial who signed Voting Agreements
owned beneficially, directly and indirectly, an aggregate of 254,078 shares
(excluding 214,527 shares held in trust by Mary Lee Nagle Duda, the spouse
of Fritz Duda, a director of First Financial) of First Financial Common
Stock, or approximately 7.15% of the issued and outstanding shares. See
"TERMS OF THE PROPOSED MERGER - Other Agreements - Voting Agreements."
-11-
<PAGE> 17
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MBI has agreed that the Merger will not diminish any indemnification
obligations of First Financial or FNBI in favor of the employees, agents,
directors or officers of First Financial or FNBI existing as of the Effective
Time. In addition, to the extent that First Financial's existing directors'
and officers' liability insurance policy provides coverage for the acts or
omissions of the directors and officers of First Financial and FNBI prior to
the Effective Time, First Financial has agreed to give to such insurance
carrier and to MBI notice of any potential claims thereunder. On and after
the Effective Time, MBI's directors' and officers' liability insurance policy
will provide coverage for the prior acts of the directors and officers of
First Financial and FNBI. See "TERMS OF THE PROPOSED MERGER - Interests of
Certain Persons in the Merger."
SPECIAL MEETING OF FIRST FINANCIAL SHAREHOLDERS
The Special Meeting will be held on August 25, 1998, at 4:30 p.m.
Central Time, at the Main Office of First National Bank Iowa. Approval by
the First Financial shareholders of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of First Financial Common Stock. Only holders of record of First
Financial Common Stock at the close of business on June 26, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Special
Meeting. At such date, there were 3,553,717 shares of First Financial Common
Stock outstanding. Each share of First Financial Common Stock is entitled to
one vote on each matter submitted to a vote at the Special Meeting.
As of the Record Date, directors and executive officers of First
Financial and their affiliates owned beneficially, or controlled the voting
of, an aggregate of 254,078 shares of First Financial Common Stock, or
approximately 7.15% of the shares entitled to vote at the Special Meeting.
Each of First Financial's directors and executive officers has indicated his
or her intention to vote his or her shares (excluding the 214,527 shares held
in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) for the approval
of the Merger Agreement, which includes the eight directors of First
Financial who, pursuant to the terms of their respective Voting Agreements,
have committed to vote their shares of First Financial Common Stock for
approval of the Merger Agreement. In addition, MBI and FSCM currently own
6,000 and 11,250 shares, respectively, of First Financial Common Stock, which
shares will be voted for the approval of the Merger Agreement.
THE BOARD OF DIRECTORS OF FIRST FINANCIAL CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST
INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
FIRST FINANCIAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT. ---
REASONS FOR THE MERGER
FIRST FINANCIAL. First Financial's Board of Directors believes that
the Merger is in the best interests of First Financial and its shareholders.
In reaching the decision to recommend the approval of the Merger Agreement to
the shareholders, the Board of Directors, without assigning any relative or
specific weights, considered a number of factors. For a discussion of such
factors, see "TERMS OF THE PROPOSED MERGER - Background of and Reasons for
the Merger; Board Recommendations."
-12-
<PAGE> 18
MBI. MBI's Board of Directors believes that the Merger will enable MBI
to (i) expand MBI's presence in eastern Iowa through the acquisition of an
established banking organization and (ii) enhance MBI's ability to compete in
the increasingly competitive banking and financial services industry. See
"TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger;
Board Recommendations."
OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL
As of the date of hereof, ABN AMRO Incorporated ("ABN AMRO"), First
Financial's financial advisor, rendered to the Board of Directors of First
Financial a written opinion to the effect that, as of the date of such
opinion, the Exchange Ratio to be received by the holders of First Financial
Common Stock in the Merger is fair to them from a financial point of view.
Attached to this Proxy Statement/Prospectus as Annex A is a copy of the
-------
opinion of ABN AMRO, as of the date hereof, setting forth the procedures
followed, assumptions made, matters considered and qualifications and
limitations of the review undertaken by ABN AMRO in connection with rendering
its opinion. Holders of First Financial Common Stock are urged to read ABN
AMRO's opinion in its entirety. See "TERMS OF THE PROPOSED MERGER -
Background of and Reasons for the Merger; Board Recommendations" and "-
Opinion of Financial Advisor to First Financial."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the
shareholders of First Financial in connection with the Merger. Each holder
of First Financial Common Stock who otherwise would have been entitled to
receive a fraction of a share of MBI Common Stock shall receive in lieu
thereof cash, without interest, in an amount equal to the holder's fractional
share interest multiplied by the closing stock price of MBI Common Stock on
the NYSE Composite Tape on the Closing Date as reported in The Wall Street
Journal. Cash received by First Financial shareholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without limitation,
the conditions to the consummation of the Merger and the restrictions
described under the caption "TERMS OF THE PROPOSED MERGER - Business Pending
the Merger," may be (i) waived in writing at any time by the party that is, or
whose shareholders are, entitled to the benefits thereof or (ii) amended at any
time by written agreement of the parties approved by or on behalf of their
respective Boards of Directors, whether before or after the approval of the
Merger Agreement by the shareholders of First Financial; provided, however,
that after approval of the Merger Agreement by the shareholders of First
Financial at the Special Meeting no such modification may (i) alter or change
the amount or kind of the consideration to be received by the First Financial
shareholders pursuant to the Merger Agreement or (ii) adversely affect the tax
treatment to the First Financial shareholders as a result of receiving shares
of MBI Common Stock in the Merger.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Thompson Coburn, MBI's legal counsel, has delivered its opinion to the
effect that, assuming the Merger occurs in accordance with the Merger
Agreement and conditioned on the accuracy
-13-
<PAGE> 19
of certain representations made by MBI and First Financial, the Merger will
constitute a "reorganization" for federal income tax purposes and that,
accordingly, assuming the First Financial Common Stock is a capital asset
in the hands of the holder at the Effective Time, (i) no gain or loss will
be recognized by First Financial shareholders who exchange their shares of
First Financial Common Stock solely for shares of MBI Common Stock in the
Merger, (ii) the basis of the MBI Common Stock will equal the basis of the
First Financial Common Stock for which it is exchanged and (iii) the
holding period of the MBI Common Stock will include the holding period of
the First Financial Common Stock for which it is exchanged. However, cash
received in lieu of fractional shares may give rise to taxable income.
EACH FIRST FINANCIAL SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE, LOCAL AND
FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
REGULATORY APPROVAL
The Merger is subject to prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") and any other bank
regulatory authority that may be necessary or appropriate (the Federal Reserve
Board and any other bank regulatory authority that may be necessary or
appropriate are collectively referred to herein as the "Regulatory Authorities"
and, individually, as a "Regulatory Authority"). MBI will file the required
applications regarding the Merger with the Federal Reserve Board. In reviewing
the applications and the proposed Merger, the Federal Reserve Board will
consider various factors, including possible anti-competitive effects of the
Merger, and examine the financial and managerial resources and future prospects
of the combined organization. There can be no assurance that the requisite
regulatory approvals will be granted or as to the timing of such approvals.
See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and "SUPERVISION AND
REGULATION."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the
pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER
- - Accounting Treatment."
DISSENTERS' RIGHTS
Pursuant to the Iowa Business Corporation Act (the "IBCA"), each holder
of First Financial Common Stock will have the right to dissent from the
Merger Agreement and to demand a determination of the fair value of such
holder's shares and, if the Merger is consummated, receive payment of such
fair value in cash by following the procedures set forth in Division XIII of
the IBCA, the text of which is attached hereto as Annex B. Failure to
-------
follow such procedures may result in a loss of such shareholder's dissenters'
rights. Any First Financial shareholder returning a blank executed proxy
card will be deemed to have approved the Merger Agreement, thereby waiving
any such dissenters' rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF
FIRST FINANCIAL."
MARKETS AND MARKET PRICES
MBI Common Stock is traded on the NYSE under the symbol "MTL." The
closing per share sale price reported for MBI Common Stock on May 7, 1998,
the last trading date preceding the public announcement of the Merger, was
$52.8125. First Financial Common Stock is not actively
-14-
<PAGE> 20
traded, but there are regularly quoted bid and asked prices from eight
brokerage firms that maintained public trading markets for First Financial
Common Stock in 1997.
The following table sets forth for the periods indicated the high and
low prices per share of MBI Common Stock as reported on the NYSE and of First
Financial Common Stock as known to management of First Financial, along with
the quarterly cash dividends per share declared. The per share prices do not
include adjustments for markups, markdowns or commissions.
<TABLE>
<CAPTION>
MBI FIRST FINANCIAL
------------------------------------- ------------------------------------
SALES PRICE<F1> CASH SALES PRICE CASH
------------------ DIVIDEND ------------------ DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1996
- ----
First Quarter $31.0006 $27.6875 $.273 $18.25 $16.33 $.13
Second Quarter 31.9375 29.0000 .273 19.00 17.68 .13
Third Quarter 35.2500 28.9375 .273 20.17 18.42 .1467
Fourth Quarter 36.0000 32.6875 .273 20.17 19.33 .1467
1997
- ----
First Quarter $39.6880 $33.3125 $.287 $23.42 $20.08 $.1467
Second Quarter 41.6880 35.0000 .287 23.00 21.33 .1467
Third Quarter 53.5000 40.5000 .287 25.00 22.00 .17
Fourth Quarter 61.6250 45.5000 .287 29.50 24.25 .19
1998
- ----
First Quarter $61.2500 $49.5625 $ .31 $45.75 $29.13 $.19
Second Quarter 57.5000 49.8125 .31 47.50 36.13 .2725
(through June 26, 1998)
<FN>
- --------------------
<F1> For recent sale prices of MBI Common Stock, see the cover of this Proxy
Statement/Prospectus. Shareholders are advised to obtain current market
quotations for MBI Common Stock and First Financial Common Stock.
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and First Financial and the corresponding
pro forma and pro forma equivalent per share amounts giving effect to the
proposed Merger, as well as the pending acquisitions by MBI of FSCM, CBT
and Firstbank, each of which will be accounted for under the pooling-of-
interests method of accounting, and the acquisition by MBI of Roosevelt
Financial Group, Inc. ("Roosevelt"), which was consummated on July 1, 1997 and
accounted for under the purchase method of accounting. The data presented is
based upon the consolidated financial statements and related notes of each of
MBI and First Financial included herein or in documents incorporated herein
by reference, and the pro forma combined consolidated balance sheet
and income statements, including the notes thereto, appearing elsewhere
herein. This information should be read in conjunction with such historical
and pro forma financial statements and related notes thereto. The
assumptions used in the preparation of this table appear in the notes to the
pro forma financial information appearing elsewhere in this Proxy
Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro
Forma Combined Consolidated Financial Statements." This data is not
necessarily indicative of the results of the future operations of the
combined organization or the actual results that would have occurred if the
proposed Merger, the pending acquisitions by MBI of FSCM, CBT and Firstbank
and the completed acquisition of Roosevelt had been consummated prior to the
periods indicated.
-15-
<PAGE> 21
<TABLE>
<CAPTION>
MBI/ MBI/ MBI/
FIRST FIRST FINANCIAL FIRST FINANCIAL MBI/ALL ENTITIES ALL ENTITIES
MBI FINANCIAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED<F1> EQUIVALENT<F2> COMBINED<F3> EQUIVALENT<F2>
-------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
March 31, 1998<F4> $ 18.65 $ 16.96 $ 18.54 $ 16.32 $ 18.58 $ 16.35
December 31, 1997 18.47 16.50 18.33 16.13 17.58 15.47
Cash Dividends Declared per Share:
Three Months ended March 31, 1998 $ .31 $ .19 $ .31 $ .27 $ .310 $ .27
Year ended December 31, 1997 1.148 .65 1.148 1.01 1.148 1.01
Year ended December 31, 1996 1.092 .55 1.092 .96 1.092 .96
Year ended December 31, 1995 .88 .51 .88 .77 .880 .77
Basic Earnings per Share:
Three Months ended March 31, 1998 $ .78 $ .49 $ .78 $ .69 $ .76 $ .67
Year ended December 31, 1997 1.68 1.91 1.69 1.49 1.49 1.31
Year ended December 31, 1996 2.11 1.68 2.11 1.86 2.13 1.87
Year ended December 31, 1995 2.41 1.28 2.39 2.10 2.37 2.09
Diluted Earnings per Share:
Three Months Ended March 31, 1998 $ .77 $ .49 $ .77 $ .68 $ .75 $ .66
Year ended December 31, 1997 1.65 1.90 1.66 1.46 1.45 1.28
Year ended December 31, 1996 2.08 1.67 2.08 1.83 2.09 1.84
Year ended December 31, 1995 2.37 1.27 2.35 2.07 2.31 2.03
Market Price per Share:
At May 7, 1998<F5> $52.8125 $38.000 $52.8125 $46.475 $52.8125 $46.475
At June 25, 1998<F5> 50.8125 43.375 50.8125 44.715 50.8125 44.715
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for First Financial, as
appropriate. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma
Combined Consolidated Financial Statements."
<F2> Based on the pro forma combined per share amounts multiplied by 0.88,
the Exchange Ratio applicable to one share of First Financial Common
Stock in the Merger. Further explanation of the assumptions used in
the preparation of the pro forma combined consolidated financial
statements is included in the notes to pro forma combined consolidated
financial statements. See "PRO FORMA FINANCIAL INFORMATION--Notes to
Pro Forma Combined Consolidated Financial Statements."
<F3> Includes the effect of pro forma adjustments for First Financial, CBT,
Firstbank, FSCM and Roosevelt, as appropriate. Due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, this table does not include the
effect of pro forma adjustments for Horizon and HomeCorp. See "PRO
FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated
Financial Statements."
<F4> Based upon the following number of shares outstanding as of
March 31, 1998:
<S> <C>
Shares of MBI Common Stock as reported 133,115,257
Number of Shares of MBI Common Stock, net of
treasury shares, to be issued in the mergers of:
FSCM 1,877,324
CBT 4,961,910
First Financial 2,875,360
Firstbank 12,511,135
-----------
MBI/All Entities Pro Forma
Combined 155,340,956
===========
<FN>
<F5> The market value of MBI Common Stock disclosed as of May 7, 1998, the
last trading day preceding the public announcement of the Merger, and
as of June 25, 1998, the last practicable date prior to the mailing of this
Proxy Statement/Prospectus, is based on the last sale price as reported
on the NYSE Composite Tape. The market value of First Financial Common
Stock disclosed as of May 7, 1998, the last trading day preceding the
public announcement of the Merger, and as of June 25, 1998, the last
practicable date prior to the mailing of this Proxy Statement/Prospectus,
is based on over-the-counter "bulletin board" closing prices.
</TABLE>
SUMMARY FINANCIAL DATA
The following table sets forth for the periods indicated certain
summary historical consolidated financial information for MBI and First
Financial. The balance sheet data and income
-16-
<PAGE> 22
statement data of MBI and First Financial included in the summary financial
data as of and for the five years ended December 31, 1997, are taken from
the audited consolidated financial statements of MBI and First Financial,
respectively. The balance sheet data and income statement data of MBI and
First Financial included in the summary financial data as of and for the
three months ended March 31, 1998 and 1997 are taken from the unaudited
consolidated financial statements of MBI and First Financial, respectively.
These data include all adjustments which are, in the opinion of the
respective managements of MBI and First Financial, necessary to present a
fair statement of these periods and are of a normal recurring nature.
Results for MBI and First Financial for the three months ended March 31,
1998 are not necessarily indicative of results for the entire year. The
following information should be read in conjunction with the audited
consolidated financial statements of each of MBI and First Financial and
the related notes thereto, included herein or in documents incorporated herein
by reference, and in conjunction with the unaudited pro forma combined
consolidated financial information, including the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
-17-
<PAGE> 23
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
ALL ENTITIES
PRO FORMA
COMBINED
CONSOLIDATED AS OF OR FOR THE
AS OF OR FOR THREE MONTHS
THE THREE ENDED
MONTHS ENDED MARCH 31,
MARCH 31, --------------------------
1998<F1> 1998 1997
------------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
Basic earnings $ .76 $ .78 $ .65
Diluted earnings .75 .77 .64
Dividends declared .31 .31 .287
Book value at period end 18.54 18.65 16.50
EARNINGS (THOUSANDS)
Interest income $611,817 $530,331 $398,462
Interest expense 330,187 290,026 186,501
-------- -------- --------
Net interest income 281,630 240,305 211,961
Provision for possible loan losses 9,387 6,606 18,443
Other income 140,747 127,193 88,100
Other expense 228,455 196,864 165,595
Income taxes 67,321 60,136 41,028
-------- -------- --------
Net income $117,214 $103,892 $ 74,995
======== ======== ========
ENDING BALANCE SHEET (MILLIONS)
Total assets $ 35,830 $ 31,802 $ 22,078
Earning assets 32,286 28,530 20,373
Investment securities 9,444 8,378 4,847
Loans and leases, net of unearned income 22,224 19,625 15,213
Deposits 25,830 22,528 17,354
Long-term debt<F2> 2,410 2,343 452
Shareholders' equity 2,885 2,483 1,882
Reserve for possible loan losses 316 264 231
SELECTED RATIOS
Return on average assets 1.35% 1.35% 1.38%
Return on average equity 16.29 16.57 15.63
Net interest rate margin<F3> 3.62 3.54 4.36
Equity to assets 8.05 7.81 8.52
Reserve for possible loan losses to
Outstanding loans 1.42 1.34 1.52
Non-performing loans 232.41 231.39 273.18
Dividend payout ratio<F4> 41.33 40.26 44.84
<CAPTION>
As of or for the
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Data
Basic earnings $ 1.68 $ 2.11 $ 2.41 $ 2.06 $ 1.81
Diluted earnings 1.65 2.08 2.37 2.02 1.77
Dividends declared 1.148 1.092 .88 .748 .66
Book value at period end 18.47 16.74 16.29 14.48 13.41
Earnings (Thousands)
Interest income $1,878,194 $1,552,863 $1,516,156 $1,311,928 $1,269,680
Interest expense 957,690 724,910 715,466 521,542 508,469
---------- ---------- ---------- ---------- ----------
Net interest income 920,504 827,953 800,690 790,386 761,211
Provision for possible loan losses 79,309 73,015 41,533 48,791 70,584
Other income 378,684 337,480 311,649 272,368 290,380
Other expense 894,780 718,668 640,519 645,011 666,067
Income taxes 120,506 128,535 149,898 135,896 114,768
---------- ---------- ---------- ---------- ----------
Net income $ 204,593 $ 245,215 $ 280,389 $ 233,056 $ 200,172
========== ========== ========== ========== ==========
Ending Balance Sheet (Millions)
Total assets $ 29,955 $ 22,030 $ 20,883 $ 19,397 $ 18,878
Earning assets 27,278 20,061 18,997 17,904 17,390
Investment securities 7,546 4,746 4,964 4,895 5,234
Loans and leases, net of unearned income 19,200 14,953 13,703 12,764 11,637
Deposits 22,080 17,336 16,172 15,137 15,435
Long-term debt<F2> 1,469 305 344 351 340
Shareholders' equity 2,410 1,946 1,915 1,643 1,510
Reserve for possible loan losses 255 230 232 245 233
Selected Ratios
Return on average assets 0.79% 1.16% 1.39% 1.22% 1.08%
Return on average equity 9.55 12.95 15.64 14.66 14.06
Net interest rate margin<F3> 3.93 4.34 4.38 4.61 4.58
Equity to assets 8.05 8.83 9.17 8.47 8.00
Reserve for possible loan losses to
Outstanding loans 1.33 1.54 1.70 1.92 2.00
Non-performing loans 249.51 318.99 241.79 552.34 289.13
Dividend payout ratio<F4> 69.58 52.50 37.13 37.03 37.29
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for the pending
acquisitions of First Financial, CBT, Firstbank and FSCM and the
completed acquisition of Roosevelt, as appropriate. Due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, this table does not include the
effect of pro forma adjustments for Horizon and HomeCorp. See "PRO
FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated
Financial Statements."
<F2> Includes company-obligated mandatorily redeemable preferred securities
of Mercantile Capital Trust I.
<F3> Taxable-equivalent basis. Includes tax-equivalent adjustments for MBI
of $3,401,000, $3,857,000, $15,086,000, $16,353,000, $17,758,000,
$17,962,000 and $18,598,000 for March 31, 1998 and 1997 and December
31, 1997, 1996, 1995, 1994 and 1993, respectively, and for all entities
pro forma combined consolidated for March 31, 1998 of $4,644,000.
These adjustments are based upon a federal tax rate of 35% for all
periods.
<F4> Based upon diluted earnings per share.
</TABLE>
-18-
<PAGE> 24
<TABLE>
FIRST FINANCIAL BANCORPORATION
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
THREE MONTHS AS OF OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic earnings $ .49 $ .44 $ 1.91 $ 1.68 $ 1.28 $ 1.28 $ 1.45
Diluted earnings .49 .44 1.90 1.67 1.27 1.27 1.43
Dividends declared .19 .15 .65 .55 .51 .49 .47
Book value at period end 16.96 15.29 16.50 15.03 14.04 12.71 12.60
Average common shares outstanding 3,532,038 3,502,600 3,496,634 3,528,792 3,573,713 3,554,595 3,488,990
EARNINGS (THOUSANDS)
Interest income $ 9,367 $ 8,363 $ 36,708 $ 33,268 $ 31,742 $ 29,205 $ 28,236
Interest expense 4,907 4,122 18,730 16,449 15,811 13,624 14,057
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 4,460 4,241 17,978 16,819 15,931 15,581 14,179
Provision for credit losses 100 177 588 591 366 425 155
Other income 2,601 1,849 8,385 7,024 6,236 5,699 5,924
Other expense 4,491 3,702 16,183 14,802 15,480 14,532 13,041
Income taxes 736 664 2,909 2,534 1,751 1,760 1,852
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 1,734 $ 1,547 $ 6,683 $ 5,916 $ 4,570 $ 4,563 $ 5,055
========== ========== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (THOUSANDS)
Total assets $ 568,442 $ 492,372 $ 550,053 $ 467,725 $ 457,236 $ 434,461 $ 434,081
Earning assets 516,152 459,290 504,981 428,541 421,640 404,536 406,243
Investments 119,254 102,694 112,755 97,802 123,886 109,229 134,511
Loans and leases 357,598 325,096 364,301 330,739 294,529 294,707 254,207
Deposits 480,461 419,165 458,815 395,407 385,055 362,263 363,580
Long-term debt 12,908 13,938 18,188 12,355 17,469 20,268 18,283
Shareholders' equity 60,267 53,585 57,580 52,576 50,207 45,245 43,993
Allowance for credit losses 4,499 3,896 4,589 3,788 3,602 3,354 3,101
SELECTED RATIOS
Return on average assets 1.29% 1.33% 1.26% 1.26% 1.02% 1.03% 1.19%
Return on average equity 12.09 11.76 11.53 11.51 9.65 10.10 12.07
Net interest rate margin 3.74 4.06 3.96 4.12 4.07 4.05 3.88
Equity to assets 10.60 10.88 10.47 11.24 10.98 10.41 10.13
Allowance for credit losses to:
Outstanding loans 1.26 1.20 1.26 1.15 1.22 1.14 1.22
Non-performing loans 316 708 497 678 1334 305 243
Dividend payout ratio 38.78 34.09 34.16 32.89 39.63 37.98 32.23
</TABLE>
-19-
<PAGE> 25
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of First
Financial Common Stock in connection with the solicitation of proxies by the
Board of Directors of First Financial for use at the Special Meeting and any
adjournments or postponements thereof at which the shareholders of First
Financial will consider and vote upon a proposal to approve the Merger
Agreement and consider and vote upon any other business that may properly be
brought before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement/Prospectus is accompanied by the
Notice of Special Meeting of Shareholders of First Financial, a proxy card
and a return envelope to First Financial for the proxy card.
This Proxy Statement/Prospectus also is furnished by MBI to each holder
of First Financial Common Stock as a prospectus in connection with the
issuance by MBI of shares of MBI Common Stock upon the consummation of the
Merger. This Proxy Statement/Prospectus, the Notice of Special Meeting and
proxy card are being first mailed to shareholders of First Financial on
June 30, 1998.
DATE, TIME AND PLACE
The Special Meeting will be held at the Main Office of First National
Bank Iowa, Iowa City, Iowa on August 25, 1998, at 4:30 p.m. Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 3,553,717 shares of First Financial Common
Stock outstanding and entitled to vote at the Special Meeting. Each such
share is entitled to one vote on each matter properly brought before the
Special Meeting. The affirmative vote of the holders of at least two-thirds
of the outstanding shares of First Financial Common Stock is required to
approve the Merger Agreement.
As of the Record Date, directors and executive officers of First
Financial and their affiliates owned beneficially, or controlled the voting
of, an aggregate of 254,078 shares of First Financial Common Stock, or
approximately 7.15% of the outstanding shares of First Financial Common
Stock entitled to vote at the Special Meeting. Each of the directors and
executive officers of First Financial has indicated his or her intention to
vote his or her shares (excluding the 214,527 shares held in trust by Mary
Lee Nagle Duda, the spouse of Fritz Duda) for the approval of the Merger
Agreement at the Special Meeting, which includes the eight directors of First
Financial who, pursuant to the terms of their respective Voting Agreements,
have committed to vote their shares of First Financial Common Stock for
approval of the Merger Agreement. In addition, MBI and FSCM currently own
6,000 and 11,250 shares, respectively, of First Financial Common Stock, which
shares will be voted for the approval of the Merger Agreement. See "TERMS OF
THE PROPOSED MERGER - Other Agreements - Voting Agreements."
-20-
<PAGE> 26
VOTING AND REVOCATION OF PROXIES
Shares of First Financial Common Stock that are represented by a
properly executed proxy received prior to the vote at the Special Meeting
will be voted at such Special Meeting in the manner directed on the proxy
card, unless such proxy is revoked in the manner set forth herein in advance
of such vote. ANY FIRST FINANCIAL SHAREHOLDER RETURNING AN EXECUTED PROXY
CARD THAT DOES NOT PROVIDE INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE
MERGER AGREEMENT WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE APPROVAL OF THE
MERGER AGREEMENT. Failure to return a properly executed proxy card or to
vote in person at the Special Meeting will have the practical effect of a
vote against the approval of the Merger Agreement.
Shares subject to abstentions will be treated as shares that are
present and voting at the Special Meeting for purposes of determining the
presence of a quorum. Because the affirmative vote of at least two-thirds of
the outstanding shares of First Financial Common Stock is required for
approval of the Merger Agreement, abstentions will have the effect of votes
against the approval of the Merger Agreement. Broker "non-votes" (i.e.,
proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares with respect to which the brokers or nominees do not have
discretionary power to vote without such instructions) will not be considered
as present for the purposes of determining the presence of a quorum. Because
the affirmative vote of a majority of the outstanding shares of First
Financial Common Stock is required for approval of the Merger Agreement,
broker non-votes will have the effect of a vote against the approval of the
Merger Agreement.
Any First Financial shareholder returning an executed proxy card that
does not provide instructions to abstain from, or to vote against the
approval of, the Merger Agreement will be deemed to have approved the Merger
Agreement.
Any shareholder of First Financial giving a proxy may revoke it at any
time prior to the vote at the Special Meeting. Shareholders of First
Financial wishing to revoke a proxy prior to the vote may do so by delivering
to the Secretary of First Financial, at 204 East Washington Street, P.O. Box
1880, Iowa City, Iowa 52244-1880, at or before the Special Meeting, a written
notice of revocation bearing a later date than the proxy or a later dated
proxy relating to the same shares, or by attending the Special Meeting and
voting such shares in person. Attendance at the Special Meeting will not in
itself constitute the revocation of a proxy.
The Board of Directors of First Financial currently is not aware of any
business to be brought before the Special Meeting other than that described
herein. If, however, other matters are properly brought before such Special
Meeting, or any adjournments or postponements thereof, the persons appointed
as proxies will have discretionary authority to vote the shares represented
by duly executed proxies in accordance with their discretion and judgment as
to the best interest of First Financial.
SOLICITATION OF PROXIES
First Financial will bear its own costs of soliciting proxies, except
that MBI will pay printing and mailing expenses and registration fees
incurred in connection with preparing this Proxy Statement/Prospectus.
Proxies will initially be solicited by mail, but directors, officers and
selected other employees of First Financial also may solicit proxies in
person or by telephone. Directors,
-21-
<PAGE> 27
executive officers and any other employees of First Financial who solicit
proxies will not be specially compensated for such services. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward proxy
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
HOLDERS OF FIRST FINANCIAL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
-22-
<PAGE> 28
TERMS OF THE PROPOSED MERGER
----------------------------
The following is a summary of the material terms and conditions of the
Merger Agreement, which document is incorporated by reference herein. This
summary is qualified in its entirety by the full text of the Merger
Agreement. MBI, upon written or oral request, will furnish a copy of the
Merger Agreement, without charge, to any person who receives a copy of this
Proxy Statement/Prospectus. Such requests should be directed to Jon W.
Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O.
Box 524, St. Louis, Missouri 63166-0524, telephone (314) 418-2525.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, subject to satisfaction or waiver of
certain conditions precedent, including receipt of all applicable regulatory
approvals, First Financial will be merged on the Closing Date with and into
Ameribanc. Upon consummation of the Merger, First Financial's corporate
existence will terminate and Ameribanc will continue as the surviving entity.
At the Effective Time, each share of First Financial Common Stock will be
converted into the right to receive 0.88 of a share of MBI Common Stock.
Such consideration is subject to certain anti-dilution protections but is not
adjustable based upon the operating results, financial condition or other
factors affecting either MBI or First Financial prior to the consummation of
the Merger. The fair market value of MBI Common Stock received pursuant to
the Merger may fluctuate and at the consummation of the Merger may be more or
less than the current fair market value of such shares.
The amount and nature of the consideration was established through
arms'-length negotiations between MBI and First Financial and their
respective advisors and reflects the balancing of a number of countervailing
factors. The total amount of the consideration reflects a price both parties
concluded was appropriate. See "-Background of and Reasons for the Merger;
Board Recommendations." The fact that the consideration is payable in shares
of MBI Common Stock reflects the desire of the parties to the Merger to have
the favorable tax attributes of a "reorganization" for federal income tax
purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI
COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK
ON THE DATE SUCH STOCK IS RECEIVED BY A FIRST FINANCIAL SHAREHOLDER OR AT ANY
OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A FIRST
FINANCIAL SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
Following the Closing Date, each shareholder of First Financial (other
than any shareholders exercising dissenters' rights pursuant to the IBCA)
will be required to submit to the Exchange Agent a properly executed letter
of transmittal and surrender to the Exchange Agent the stock certificate(s)
formerly representing the shares of First Financial Common Stock in order to
receive a new stock certificate(s) evidencing the shares of MBI Common Stock
to which such shareholder is entitled. As soon as practicable following the
Effective Time, the Exchange Agent will mail to each First Financial
shareholder (other than any shareholders exercising dissenters' rights
pursuant to the IBCA) a notice of consummation of the Merger and a form of
letter of transmittal, together with instructions and a
-23-
<PAGE> 29
return envelope to facilitate the exchange of such holder's certificate(s)
formerly representing First Financial Common Stock for certificate(s) evidencing
MBI Common Stock. No dividends or other distributions will be paid to a former
First Financial shareholder with respect to shares of MBI Common Stock until
such shareholder's letter of transmittal and stock certificate(s) formerly
representing First Financial Common Stock, or documentation reasonably
acceptable to the Exchange Agent in lieu of lost or destroyed certificate(s),
is delivered to the Exchange Agent. See "TERMS OF THE PROPOSED MERGER -
Surrender of First Financial Stock Certificates and Receipt of MBI Common
Stock." No fractional shares of MBI Common Stock will be issued in the
Merger, but cash will be paid in lieu of such fractional shares, such cash
being calculated by multiplying the holder's fractional share interest by the
closing stock price of MBI Common Stock on the NYSE Composite Tape on the
Closing Date of the Merger as reported in The Wall Street Journal. See "-
Fractional Shares." The shares of MBI Common Stock to be issued pursuant to
the Merger will be freely transferable except by certain shareholders of
First Financial who are deemed to be "affiliates" of First Financial. The
shares of MBI Common Stock issued to such affiliates will be restricted in
their transferability in accordance with the rules and regulations
promulgated by the Commission. See "INFORMATION REGARDING MBI STOCK -
Restrictions on Resale of MBI Stock by Affiliates."
EFFECT ON FIRST FINANCIAL STOCK PLANS AND EMPLOYEE BENEFIT PLANS
MBI has agreed to assume the First Financial Stock Options in
accordance with the terms of the First Financial Stock Plans and, upon
consummation of the Merger, all outstanding First Financial Stock Options
will be converted into rights with respect to MBI Common Stock. Beginning at
the Effective Time, (i) each First Financial Stock Option assumed by MBI will
be exercisable solely for shares of MBI Common Stock, (ii) the number of shares
of MBI Common Stock subject to each First Financial Stock Option will equal
the number of shares of First Financial Common Stock subject to the First
Financial Stock Options multiplied by the Exchange Ratio and (iii) the per share
exercise price for each First Financial Stock Option will be adjusted by
dividing such price by the Exchange Ratio, subject to adjustment as
appropriate to reflect any stock split, stock dividend, capitalization or
similar transaction subsequent to the Effective Time. MBI has agreed, at and
after the Effective Time, to reserve sufficient shares of MBI Common Stock
for issuance with respect to the First Financial Stock Options under the
First Financial Stock Plans to be assumed by MBI. MBI will also file with the
Commission, and obtain the effectiveness of, a registration statement with
respect to the shares of MBI Common Stock issuable upon exercise of such
options and list such shares on the NYSE.
The Merger Agreement provides that Ameribanc will honor severance and
other compensation contracts between First Financial or FNBI and any current
or former director, officer, employee or agent thereof, along with all
provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under First Financial employee plans. The First
Financial employee plans will continue as plans of Ameribanc until such time
as the employees of First Financial and FNBI are integrated into MBI's employee
benefit plans that are available to other employees of MBI and its subsidiaries.
MBI will take such steps as are necessary or required to integrate the
employees of First Financial and FNBI into MBI's employee benefit plans
available to other employees of MBI and its subsidiaries as soon as practicable
after the Effective Time, with (i) full credit for prior service with First
Financial or FNBI for purposes of vesting and eligibility for participation and
benefit allocation (but not benefit accruals under any defined benefit plan) and
co-payments and deductibles, (ii) waiver of all waiting periods, evidence of
insurability and pre-existing condition exclusions or penalties and (iii) full
credit for claims arising prior to the Effective Time for purposes of
deductibles, out-of-pocket
-24-
<PAGE> 30
maximums, benefit maximums and all other similar limitations for the
applicable plan year in which the Merger is consummated.
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI and
First Financial executed the Option Agreement and MBI and all of the eight
directors of First Financial executed separate Voting Agreements. The
following is a summary of the material terms of the Option Agreement and the
Voting Agreements.
OPTION AGREEMENT. Under the terms of the Option Agreement, First
Financial issued to MBI an option to purchase up to 707,189 shares of First
Financial Common Stock at a price per share equal to $37.75. The Option was
granted by First Financial to MBI as a condition to and in consideration of
MBI entering into the Merger Agreement. The following description does not
purport to be complete and is qualified in its entirety by reference to the
Option Agreement, which is attached as an exhibit to the Registration
Statement and is incorporated herein by reference.
The Option is intended to increase the likelihood that the Merger will
be consummated in accordance with the terms of the Merger Agreement. The
occurrence of certain events described below could cause the Option to become
exercisable and thereby significantly increase the cost of the acquisition of
First Financial. Consequently, the Option may (i) have the effect of
discouraging a person who might now or prior to the consummation of the
Merger consider or propose the acquisition of First Financial (or a
significant interest in First Financial), even if such a person were prepared
to pay a higher price per share for First Financial Common Stock than the
price per share implicit in the Exchange Ratio, (ii) result in the proposal
by a potential acquiror of a lower per share price than such acquiror might
otherwise have been willing to pay or (iii) prevent a potential acquiror from
accounting for the acquisition of First Financial through the
pooling-of-interests method of accounting for a period of two years and
thereby discourage or preclude the acquisition of First Financial during such
period.
As of the Record Date, the maximum number of shares issuable pursuant
to the Option (the "MBI Option Shares") represented approximately 19.9% of
the issued and outstanding shares of First Financial Common Stock. The
Option exercise price is $37.75 per share. In the event MBI acquires the MBI
Option Shares, MBI could vote such shares in the election of First Financial
directors and other matters requiring a shareholder vote, thereby potentially
having a material impact on the outcome of such matters. If not then in
material breach of the Merger Agreement, MBI may exercise the Option, in
whole or in part, at any time or from time to time if a Purchase Event (as
defined below) has occurred; provided, however, that: (i) to the extent the
Option has not been exercised, it will terminate and be of no further force
and effect upon the earlier to occur of (A) the Effective Time and (B) the
termination of the Merger Agreement in accordance with its terms, provided
that in the case of a termination of the Merger Agreement arising from the
volitional breach by First Financial of any of its representations,
warranties or covenants in the Merger Agreement, the Option will not
terminate until the date that is 12 months following such termination; (ii)
if the Option cannot be exercised on such day because of any injunction,
order or similar restraint issued by a court of competent jurisdiction, the
Option will expire on the thirtieth business day after such injunction, order
or restraint has been dissolved or when such injunction, order or restraint
has become permanent and is no longer subject to appeal, as the case may be;
and (iii) any such exercise will be subject to compliance with applicable
law, including the BHCA.
-25-
<PAGE> 31
A "Purchase Event" means any of the following events: (i) First
Financial or any of its subsidiaries, without having received prior written
consent from MBI, have entered into, authorized, recommended, proposed or
publicly announced its intention to enter into, authorize, recommend or
propose an agreement, arrangement or understanding with any person (other
than MBI or any of its subsidiaries) to (A) effect a merger, consolidation or
similar transaction involving First Financial or any of its subsidiaries, (B)
purchase, lease or otherwise acquire 15% or more of the assets of First
Financial or any of its subsidiaries or (C) purchase or otherwise acquire
(including by way of merger, consolidation, share exchange or similar
transaction) beneficial ownership of securities representing 15% or more of
the voting power of First Financial or any of its subsidiaries; (ii) any
person (other than MBI or any subsidiary of MBI, or First Financial or any
subsidiary of First Financial in a fiduciary capacity) has acquired
beneficial ownership or the right to acquire beneficial ownership of 15% or
more of the voting power of First Financial; or (iii) the holders of First
Financial Common Stock have not approved the Merger Agreement at the Special
Meeting, the Special Meeting has not been held or is canceled prior to
termination of the Merger Agreement in accordance with its terms or First
Financial's Board of Directors has withdrawn or modified in a manner adverse
to MBI the recommendation of First Financial's Board of Directors with
respect to the Merger Agreement, in each case after an Extension Event (as
defined below).
An "Extension Event" means any of the following events: (i) a Purchase
Event described in (i) or (ii) of the preceding paragraph; (ii) any person
(other than MBI or any of its subsidiaries) has "commenced" (as such term is
defined in Rule 14d-2 under the Exchange Act) or has filed a registration
statement under the Securities Act with respect to a tender offer or exchange
offer to purchase shares of First Financial Common Stock such that, upon
consummation of such offer, such person would have beneficial ownership or
the right to acquire beneficial ownership of 15% or more of the voting power
of First Financial; or (iii) any person (other than MBI or any subsidiary of
MBI, or First Financial or any subsidiary of First Financial in a fiduciary
capacity) has publicly announced its willingness or a proposal or intention
to make a proposal, (x) to make an offer described in clause (ii) above or
(y) to engage in a transaction described in clause (i) above.
Subject to regulatory approval, upon the occurrence of a Purchase Event
and until 12 months thereafter (but not later than the termination of the
Option pursuant to the terms of the Option Agreement), First Financial shall
be required, upon MBI's request, to repurchase any shares of First Financial
Common Stock purchased by MBI, at a price equal to the greater of the market
price or the highest price per share at which a tender or exchange offer has
been made for shares of First Financial Common Stock (the "Market Price"), or
to purchase the Option for the amount by which the Market Price exceeds the
Option Price.
At the request of First Financial during the first six-month period
commencing 12 months following the first occurrence of a Purchase Event,
First Financial may repurchase from MBI, and MBI shall sell to First
Financial, all (but not less than all) of the First Financial Common Stock
acquired by MBI pursuant to the Option at a price per share equal to the
greater of (i) Market Price or (ii) the sum of (A) the aggregate purchase price
of such shares plus (B) interest on the aggregate purchase price paid for such
shares from the date of purchase to the date of repurchase, less any
dividends received on such shares. To the best of each of MBI's and First
Financial's knowledge, no Purchase Event or Extension Event has occurred as
of the date of this Proxy Statement/Prospectus.
VOTING AGREEMENTS. MBI and all of the eight directors of First
Financial executed a separate Voting Agreement pursuant to which each such
director agreed that he will vote all of the shares
-26-
<PAGE> 32
of First Financial Common Stock that he then owned, controlled or subsequently
acquires (excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the
spouse of Fritz Duda) in favor of the approval of the Merger Agreement at the
Special Meeting. In addition, until the earliest to occur of the Effective
Time, the termination of the Voting Agreements or the abandonment of the Merger,
each such director further agreed that he will not vote any such shares in favor
of the approval of any other competing acquisition proposal involving First
Financial and a third party. Each such director also agreed that he will not
transfer shares of First Financial Common Stock unless, prior to such
transfer, the transferee executes an agreement in substantially the same form
as the Voting Agreement. As of the Record Date, such directors owned
beneficially an aggregate of 254,078 shares (excluding the 214,527 shares
held in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) of First
Financial Common Stock, or approximately 7.15% of the issued and
outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MBI has agreed that the Merger will not diminish any indemnification
obligations of First Financial or FNBI in favor of the employees, agents,
directors or officers of First Financial or FNBI existing as of the Effective
Time by operation of law or by virtue of the Articles of Incorporation or
other charter documents, by-laws, contracts, resolutions or other agreements
or documents of First Financial or FNBI in effect as of the Effective Time.
To the extent that First Financial's existing directors' and officers'
liability insurance policy provides coverage for the acts or omissions of the
directors and officers of First Financial and FNBI prior to the Effective
Time, First Financial has agreed to give to such insurance carrier and to MBI
notice of any potential claims thereunder. On and after the Effective Time,
MBI's directors' and officers' liability insurance policy will provide
coverage for the prior acts of the directors and officers of First Financial
and FNBI.
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
BACKGROUND OF THE MERGER. In late 1996 and early 1997 First Financial's
Board and management began to analyze various strategic alternatives and
develop a business plan. This process, which included hiring outside
consultants and meeting with outside financial experts, was initiated
for the purpose of determining a course of action for maximizing shareholder
value. This review was made in light of general conditions in the banking
industry, local competitive and economic conditions, the results of its
operations and its future prospects, legislative changes and other
developments affecting the banking industry generally and First Financial
specifically. When no clear consensus as to the appropriate course of action
was reached by the Board as a result of this review, in September 1997 the
Board determined to retain an independent financial advisor to assist it in
exploring alternative means of maximizing shareholder value. Accordingly, on
November 6, 1997, First Financial engaged ABN AMRO Incorporated ("ABN AMRO")
as financial advisor for that purpose.
On November 20, 1997, ABN AMRO presented an analysis to First
Financial's Board of Directors encompassing, among other things, (i) First
Financial's financial condition relative to its peers, (ii) First Financial's
prospects as an independent financial institution under various growth
scenarios, (iii) the effect on First Financial of various alternatives for
enhancing shareholder value, including a stock split or stock dividend, an
increase in the cash dividend or a share repurchase program, (iv) First
Financial's prospects for growth through acquisitions of other financial
institutions, (v) the effect on First Financial of a merger of equals, (vi) an
analysis of prospective merger-of-equals and acquisition candidates, (vii) an
indication as to the reasonable range of values that could be expected in the
event First Financial were acquired and (viii) an analysis of prospective
acquirors. After consideration by First Financial's Board of Directors of
the various alternatives for enhancing shareholder value presented by
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ABN AMRO, First Financial's Board of Directors decided to explore further the
possibility of a strategic business combination.
On November 20, 1997, First Financial's Board of Directors established
a Special Committee comprised of three outside directors: Fritz L. Duda,
Robert J. Latham and Larry D. Ward (the "Special Committee"). The Special
Committee was established to review strategic options available to First
Financial, including possible affiliation with another financial institution,
and to negotiate and implement an agreement with an independent financial
advisor for the provision of investment banking and advisory services to the
Special Committee and First Financial's Board of Directors. By letter
agreement dated January 9, 1998, First Financial retained ABN AMRO to provide
such services.
On January 19, 1998, ABN AMRO presented to the Special Committee an
analysis of institutions identified by ABN AMRO as having the ability to
consummate a transaction, with particular emphasis being placed on
institutions that were the most likely to offer First Financial shareholders
the greatest value in an acquisition. The Special Committee discussed other
criteria that it would consider important in evaluating prospective acquiror
institutions. The Special Committee authorized ABN AMRO to explore the
interest of certain financial institutions in engaging in discussions
concerning a possible business combination and, in conjunction therewith, to
prepare and provide an information statement regarding First Financial (the
"Information Statement") to interested institutions.
Beginning on January 28, 1998, ABN AMRO began contacting the
prospective acquirors which had been approved by the Special Committee. The
Information Statement was sent to seven institutions that expressed an
interest in conducting discussions with First Financial and that entered into
a confidentiality agreement. Representatives from ABN AMRO also conducted
follow-up meetings with representatives of certain institutions that received
an Information Statement.
ABN AMRO first contacted MBI by telephone on January 28, 1998, after
which MBI executed a confidentiality agreement and received an Information
Statement. Representatives of ABN AMRO met with MBI representatives in St.
Louis on February 11, 1998 to discuss a potential combination of First
Financial and MBI.
On February 18, 1998, MBI submitted a written indication of interest in
a merger with First Financial. MBI's indication and the responses from the
other prospective acquirors were reviewed by the Special Committee at a
meeting held on February 20, 1998. Based on MBI's indication of interest,
the Special Committee invited MBI to conduct a due diligence review of First
Financial, which was conducted from February 24 through February 27, 1998, in
Chicago. The due diligence review included a review of certain documents of
First Financial, as well as interviews with four members of the senior
management of First Financial. Following its due diligence review, MBI
submitted a revised written indication of interest on March 5, 1998. With
the Special Committee's approval, ABN AMRO responded to MBI's revised
expression of interest by a letter dated March 10, 1998, which letter
affirmed First Financial's interest in pursuing a transaction with MBI
subject to the further negotiation of certain business terms.
On March 10, 1998, the Special Committee authorized ABN AMRO to contact
by telephone, and send an Information Statement to, two additional potential
acquirors that had previously not been approved by the Special Committee but
which had previously expressed interest in a potential transaction with First
Financial. Information Statements were sent to the two potential acquirors
and indications of interest were received from them, in each case at a lower
valuation than the valuation of
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First Financial contained in MBI's written expression of interest of March 5,
1998. Accordingly, the Special Committee determined not to pursue negotiations
with either party.
On March 12, 1998, the Special Committee and a representative of ABN
AMRO met with First Financial's Board of Directors at the Board's regular
meeting and provided a full report on discussions with MBI and the other
prospective acquirors. Board members were given an opportunity to ask
questions of the Special Committee and of the ABN AMRO representative.
Following a conversation between a member of the Special Committee and
an investment banker unaffiliated with ABN AMRO, ABN AMRO received a letter
on March 12, 1998 from an Iowa-based community bank holding company that
expressed an interest in pursuing a transaction with First Financial. On
March 18, 1998, the same bank holding company sent a letter to ABN AMRO and
each member of the Special Committee proposing a "merger-of-equals" with
First Financial. After evaluating the expression of interest and comparing
it with other proposed transactions, including the most recent expression of
interest from MBI, the Special Committee concluded that in light of the fact
that the proposed merger-of-equals transaction contained no premium and the
combined entity would have limited stock liquidity, pursuing further
discussions with such entity was not in the best interests of First Financial
or its shareholders.
On March 26, 1998, two members of the Special Committee and
representatives from ABN AMRO met in Chicago with three representatives of
senior management of MBI to learn more about MBI and its prospects for the
future, as well as to better understand how First Financial would be
integrated into MBI in the event a merger transaction were consummated. On
April 10, 1998, a representative from ABN AMRO and a senior executive from
First Financial met with representatives of MBI in St. Louis to update MBI on
year-to-date results at First Financial and to discuss additional business
terms of the proposed transaction. On April 20, 1998, a MBI representative
contacted representatives of ABN AMRO by telephone regarding such additional
business terms. Based upon such discussions with MBI, the Special Committee
agreed to begin negotiating a definitive merger agreement, stock option
agreement and related documentation for presentation to First Financial's
Board of Directors. On April 30, 1998, two senior executives from First
Financial and a representative from ABN AMRO met with senior management of
MBI in St. Louis and continued their examination of MBI's operations.
On May 4, 1998, the Special Committee held a meeting at which it
reviewed the Merger Agreement, Stock Option Agreement and related
documentation and voted to recommend approval of the Merger to the full Board
of Directors of First Financial. A special meeting of the Board was
conducted on the same day, at which meeting the Special Committee presented a
discussion of the specifics of the proposed transaction with MBI and the
negotiations which had transpired. Representatives of ABN AMRO and of Sidley
& Austin, First Financial's legal counsel, were also available for questions.
Following extensive discussion and questioning by First Financial's Board of
Directors, the Board unanimously approved the Merger Agreement, the Stock
Option Agreement and the related documents and authorized proper officers of
First Financial to execute them. The Merger Agreement and Stock Option
Agreement were executed and delivered by the parties after the close of
business on May 7, 1998.
FIRST FINANCIAL'S REASONS FOR THE MERGER AND BOARD RECOMMENDATION.
First Financial's Board of Directors has determined that the terms of the
proposed Merger are fair to, and in the best interests of, First Financial
and its shareholders. In reaching its determination, First Financial's
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Board of Directors consulted with legal counsel with respect to (i) the legal
duties of First Financial's Board of Directors, (ii) tax matters and (iii)
the Merger Agreement, Stock Option Agreement and issues related thereto.
First Financial's Board of Directors also consulted with ABN AMRO, its
financial advisors, with respect to the financial aspects and fairness of the
proposed Merger to the shareholders of First Financial. First Financial's
Board of Directors considered a number of factors, which included:
(i) Information concerning the business, earnings,
operations, financial condition, prospects, capital levels and asset
quality of MBI and First Financial, both individually and on a combined
basis, including but not limited to, information with respect to the
companies' respective recent and historic stock and earnings
performance. First Financial's Board of Directors considered the
detailed financial analyses and other information with respect to MBI
and First Financial presented to First Financial's Board of Directors
by ABN AMRO, as well as First Financial's Board of Directors' own
knowledge of MBI, First Financial and their respective businesses;
(ii) The current and prospective competitive and regulatory
environments in which First Financial operates, including significant
recent consolidations within the banking industry, both nationally and
in the Midwestern United States;
(iii) The challenges of remaining a smaller, community-based
institution, including the following: (1) competition on the margins
for loans and deposits from existing competitors and new competition
from larger financial institutions; (2) technology costs to remain
competitive as a smaller entity; (3) continued demands for growth; and
(4) other risks;
(iv) A review of the strategic options available to First
Financial and indications of interest from other prospective acquirors;
(v) The increase in service to customers and consolidation of
back-office functions which will result from the increased product mix
and technology created by the specific business synergies resulting
from the combination with MBI;
(vi) The financial advice provided by ABN AMRO and the opinion
of ABN AMRO that the Exchange Ratio pursuant to the Merger Agreement is
fair from a financial point of view to the holders of First Financial
Common Stock;
(vii) The terms, conditions and course of negotiations relating
to the Merger Agreement;
(viii) The availability of dissenters' rights;
(ix) The terms, conditions and course of negotiations relating
to, as well as the legal, accounting and other consequences of, the
stock option granted to MBI under the Stock Option Agreement, as well
as the fact that MBI required the stock option as a condition to
entering into the Merger Agreement;
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(x) The expectation that the Merger will generally be a
tax-free transaction to First Financial and its shareholders for
federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER;"
(xi) The likelihood that the proposed Merger would be
consummated;
(xii) The recommendations of First Financial's management with
respect to the proposed Merger (which recommendations were considered
in light of certain interests of management in the proposed merger; see
"- Interests of Certain Persons in the Merger"); and
(xiii) The effect of the proposed Merger on the employees of
First Financial as well as its effect on First Financial's customers
and the communities in which First Financial operates.
First Financial's Board of Directors believes that the proposed Merger
will benefit shareholders of First Financial by affording them the
opportunity to participate in the future growth of a larger and more
diversified bank holding company having greater financial resources,
competitive strengths and business opportunities than would be possible for
First Financial as a stand alone entity.
In view of the wide variety of factors considered in connection with
its evaluation of the proposed Merger, First Financial's Board of Directors
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of First Financial's Board of
Directors may have given different weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, FIRST FINANCIAL'S BOARD OF DIRECTORS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVES THE MERGER IS FAIR TO,
AND IS IN THE BEST INTERESTS OF, FIRST FINANCIAL'S SHAREHOLDERS.
ACCORDINGLY, FIRST FINANCIAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF FIRST FINANCIAL COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. ---
MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive Committee of
the Board of Directors of MBI considered a number of factors, including,
among other things, the financial condition of First Financial and projected
synergies that are anticipated to result from the Merger. The Executive
Committee concluded that the Merger presents a unique opportunity for MBI to
(i) increase its presence in eastern Iowa through the acquisition of an
established banking organization having operations in the targeted area and
(ii) enhance MBI's ability to compete in the increasingly competitive
banking and financial services industry. MBI's decision to pursue
discussions with First Financial was primarily a result of MBI's assessment
of the value of First Financial's banking franchise, its substantial asset
base within that area and the compatibility of the businesses of the two
banking organizations.
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OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL
First Financial retained ABN AMRO to provide financial advisory and
investment banking services to First Financial and First Financial's Board of
Directors in connection with the possible sale of First Financial. In
connection with such engagement, ABN AMRO agreed, if requested by First
Financial's Board of Directors, to render an opinion as to the fairness to
First Financial's shareholders of the Exchange Ratio to be received in the
Merger. First Financial imposed no limitations upon the scope of
investigation or procedures followed by ABN AMRO in connection with its
opinion, nor did First Financial give ABN AMRO any specific instructions in
connection therewith. The Exchange Ratio, upon which the consideration to be
received by First Financial shareholders pursuant to the Merger Agreement
will be based, was determined through arms'-length negotiations between MBI
and First Financial, although First Financial was advised during such
negotiations by ABN AMRO.
On May 7, 1998, in connection with the evaluation by First Financial's
Board of Directors of the transaction proposed by MBI, ABN AMRO rendered an
opinion that, as of such date, and subject to certain assumptions, factors
and limitations set forth in such written opinion as described below, the
Exchange Ratio to be received by First Financial shareholders is fair to such
shareholders from a financial point of view. ABN AMRO has also delivered an
updated opinion to the Board of Directors of First Financial dated as of the
date of hereof (the "Opinion"). The Opinion is based upon a review of the
financial and other information set forth in this Proxy Statement/Prospectus
and the financial results for First Financial and MBI through May 7, 1998.
THE FULL TEXT OF ABN AMRO'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX A TO THIS PROXY
-------
STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY FOR INFORMATION WITH
RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY
ABN AMRO IN RENDERING ITS OPINION. ABN AMRO'S OPINION WAS PREPARED FOR FIRST
FINANCIAL'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE
EXCHANGE RATIO TO THE HOLDERS OF FIRST FINANCIAL COMMON STOCK. THE ABN AMRO
OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE PROPOSED MERGER AND DOES NOT
CONSTITUTE AN OPINION AS TO WHAT THE VALUE OF MBI COMMON STOCK ACTUALLY WILL
BE WHEN ISSUED TO FIRST FINANCIAL SHAREHOLDERS PURSUANT TO THE MERGER. THE
SUMMARY OF THE ABN AMRO OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In connection with its Opinion, ABN AMRO reviewed the Merger Agreement
and certain related documents and held discussions with certain senior
officers and directors of First Financial and certain senior officers of MBI
concerning the businesses, operations and prospects of First Financial and
MBI. ABN AMRO examined certain publicly available business and financial
information relating to First Financial and MBI, as well as certain financial
information and other data for First Financial and certain financial
information and other data related to MBI which were provided to or otherwise
discussed with ABN AMRO by the respective managements of First Financial and
MBI. ABN AMRO reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to: (i) current and historical market prices and
trading volumes of First Financial Common Stock and MBI Common Stock; (ii)
the respective companies' financial and other operating data; and (iii) the
capitalization and financial condition of First Financial and MBI. ABN AMRO
also considered, to the extent publicly available, the financial terms of
certain other banking-industry transactions recently effected, which ABN AMRO
considered relevant in evaluating the Merger, and analyzed certain
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financial, stock market and other publicly available information relating to the
businesses of other companies whose operations ABN AMRO considered relevant
in evaluating those of First Financial and MBI. ABN AMRO held discussions
with certain third parties to solicit indications of interest in a possible
transaction with First Financial.
In rendering its Opinion, ABN AMRO assumed and relied upon the accuracy
and completeness of the financial and other information reviewed by it and it
did not make or obtain or assume any responsibility for independent
verification of such information. In addition, ABN AMRO did not make an
independent evaluation or appraisal of the assets and liabilities of First
Financial and MBI or any of their respective subsidiaries.
The following is a summary of the financial analyses ABN AMRO employed
and reviewed with First Financial's Board of Directors in connection with its
Opinion:
(a) STOCK TRADING HISTORIES. ABN AMRO reviewed the stock
price history for First Financial Common Stock. This review showed
that during the period from April 28, 1995 to April 28, 1998, the
closing price of First Financial Common Stock ranged from $15.83 per
share to $45.75 per share. ABN AMRO calculated the prices per share of
First Financial Common Stock implied by multiplying each closing price
per share of MBI Common Stock by the Exchange Ratio. Over the same
time period, such implied prices per share of First Financial Common
Stock ranged from approximately $21.27 to $54.12. ABN AMRO also
examined the history of closing prices and trading volumes for shares
of MBI Common Stock from April 28, 1997 to April 28, 1998. This
examination showed that during this twelve-month period, the closing
price of MBI Common Stock ranged from $38.33 per share to $61.50 per
share and was $53.63 per share on April 28, 1998. This examination
also showed that the average trading volume of MBI Common Stock was
approximately 293,000 shares per day over the twelve-month period.
(b) COMPARABLE GROUP ANALYSES. ABN AMRO compared selected
historical financial and current trading-market data of First Financial
and MBI to those of separate groups of comparable companies which ABN
AMRO deemed to be reasonably similar to each of First Financial and MBI
in size, financial and operating character and/or geographic market.
Financial data were as of the most recently available financial
statement date and for the twelve-month period then ended. Market
price data were as of April 28, 1998. For each company in the
comparable groups for First Financial and MBI, ABN AMRO calculated the
multiples of each company's market price per share to: (i) latest
twelve-month earnings per share ("LTM P/E"); (ii) latest twelve-month
tangible core earnings per share ("LTM Core P/E"); (iii) the median
estimated earnings per share for the current fiscal year ("Current-Year
P/E"); and (iv) the median estimated earnings per share for the next
fiscal year ("Next-Year P/E"). "Tangible core earnings" excludes
intangible-asset amortization expense and non-recurring income and
expense items. "Estimated earnings per share" figures are those
prepared by securities analysts following each company. ABN AMRO also
calculated the ratio of each company's market price per share to: (i)
book value (shareholders' equity) per share ("P/BV"); and (ii) tangible
book value (shareholders' equity less intangible assets) per share
("P/TBV").
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The comparable companies for First Financial ("First Financial
Comparable Group") consisted of selected publicly traded Midwestern
commercial bank holding companies with total assets ranging from $350
million to $900 million. The First Financial Comparable Group included
the following 17 companies: ANB Corp., Muncie, IN; Belmont Bancorp.,
Bridgeport, OH; Cass Commercial Corp., Bridgeton, MO; Capitol Bancorp
Ltd., Lansing, MI; German American Bancorp, Jasper, IN; Lakeland
Financial Corp., Warsaw, IN; Merchants Bancorp Inc., Aurora, IL; Ohio
Valley Banc Corp., Gallipolis, OH; Peoples Bancorp Inc., Marietta, OH;
Premier Financial Bancorp Inc., Georgetown, KY; Princeton National
Bancorp, Princeton, IL; Peoples Bank of Indianapolis, Indianapolis, IN;
Southside Bancshares Corp., St. Louis, MO; State Financial Services
Corp., Hales Corner, WI; S.Y. Bancorp Inc., Louisville, KY;
UnionBancorp Inc., Ottawa, IL; and Wayne Bancorp Inc., Wooster, OH.
The analysis indicated that First Financial Common Stock traded
at: (i) a 19.9x LTM P/E multiple compared to a median of 21.7x for the
comparable companies; (ii) a 19.2x LTM Core P/E multiple compared to a
median of 18.7x for the comparable companies; (iii) a 19.2x Current-Year
P/E multiple compared to a median of 19.1x for the comparable
companies; and (iv) a 17.1x Next-Year P/E multiple compared to a median
of 17.2x for the comparable companies. The analysis also indicated that
First Financial Common Stock traded at: (i) a 228.8% P/BV ratio compared
to a median of 251.0% for the comparable companies; and (ii) a 240.5%
P/TBV ratio compared to a median of 264.5% for the comparable
companies.
The comparable companies for MBI ("MBI Comparable Group")
consisted of selected Midwestern and Southeast commercial bank holding
companies with total assets ranging from $10 billion to $100 billion.
The MBI Comparable Group included the following 14 companies: AmSouth
Bancorp., Birmingham, AL; BB&T Corp., Winston-Salem, NC; Commerce
Bancshares Inc., Kansas City, MO; Crestar Financial Corp., Richmond,
VA; Comerica Inc., Detroit, MI; Fifth Third Bancorp, Cincinnati, OH;
Firstar Corp., Milwaukee, WI; First Tennessee National Corp., Memphis,
TN; Huntington Bancshares Inc., Columbus, OH; Marshall & Ilsley Corp.,
Milwaukee, WI; Norwest Corp., Minneapolis, MN; Regions Financial Corp.,
Birmingham, AL; Union Planters Corp., Memphis, TN; and U.S. Bancorp,
Minneapolis, MN.
The analysis indicated that MBI Common Stock traded at: (i) a
31.1x LTM P/E multiple compared to a median of 21.7x for the comparable
companies; (ii) a 20.6x LTM Core P/E multiple compared to a median of
20.5x for the comparable companies; (iii) a 19.5x Current-Year P/E
multiple compared to a median of 19.6x for the comparable companies;
and (iv) a 17.4x Next-Year P/E multiple compared to a median of 17.2x for
the comparable companies. The analysis also indicated that MBI Common
Stock traded at: (i) a 298.6% P/BV ratio compared to a median of 339.8%
for the comparable companies; and (ii) a 438.5% P/TBV ratio compared to
a median of 401.8% for the comparable companies.
(c) DISCOUNTED CASH FLOW ANALYSES. ABN AMRO prepared a
discounted cash flow ("DCF") analysis of First Financial on a
"stand-alone" basis (i.e., without giving effect to the proposed
transaction). In preparing the DCF analysis, ABN AMRO studied the
historical earnings and growth patterns of First Financial and then
projected
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income statements and balance sheets for a five-year period using a series
of assumptions pertaining to growth, interest margins, loan losses,
non-interest income and expenses, income taxes and cash dividends. Prior
to its completion, ABN AMRO reviewed and discussed with First Financial's
management the financial projections. The DCF analysis yielded imputed
values ranging from $24.56 to $39.34 per share of First Financial Common
Stock under varied assumptions for growth and alternative financial
strategies.
(d) COMPARABLE TRANSACTIONS ANALYSIS. ABN AMRO reviewed
the financial terms of (i) recently announced banking-industry merger
and acquisition transactions in which the acquired company was
headquartered in the Midwest and had total assets ranging from $300
million to $800 million and (ii) recently announced banking-industry
merger and acquisition transactions in which MBI was the acquiring
company. Financial data for each acquired company and First Financial
were as of the most recent financial statement date available at the
date the transaction was announced and for the twelve-month period then
ended. Merger prices and related multiples and ratios were as of the
respective transaction-announcement dates. The 13 comparable
transactions included (the acquiror is the first name and is in italics
followed by the seller): MBI, St. Louis, MO-Financial Services
Corporation of the Midwest, Rock Island, IL; Union Planters
Corporation, Memphis, TN-AMBANC Corp, Vincennes, IN; St. Paul Bancorp,
Chicago, IL-Beverly Bancorp., Tinley Park, IL; MBI, St. Louis,
MO-Firstbank of Illinois Co., Springfield, IL; MBI, St. Louis, MO-CBT
Corporation, Paducah, KY; F&M Bancorporation, Kaukauna, WI-BancSecurity
Corp., Marshalltown, IA; FBOP Corporation, Oak Park, IL-P.N.B.
Financial, Chicago, IL; FirstMerit Corp., Akron, OH-CoBancorp, Inc.,
Elyria, OH; U.S. Bancorp, Minneapolis, MN-Zappco, Inc., St. Cloud, MN;
Commercial Federal, Omaha, NE-Liberty Financial, West Des Moines, IA;
First Midwest Bancorp, Naperville, IL-SparBank, Inc., McHenry, IL; Area
Bancshares Corp, Owensboro, KY-Cardinal Bancshares, Lexington, KY; and
Citizens Banking Corp, Flint, MI-CB Financial Corp, Jackson, MI.
ABN AMRO calculated several merger-pricing multiples and ratios
based upon the Exchange Ratio and price of MBI Common Stock, which
together implied a merger price of $46.48 per share of First Financial
Common Stock. With respect to the aggregate price for all of First
Financial's outstanding Common Stock and options to purchase First
Financial Common Stock, the proposed transaction with MBI represented:
(i) a 25.0x multiple of First Financial's earnings compared to a median
of 21.4x for the comparable transactions; (ii) a 24.6x multiple of First
Financial's tangible earnings compared to a median of 22.3x for the
comparable transactions; (iii) a 22.5x multiple of First Financial's
estimated earnings for the current fiscal year compared to a median of
20.2x for the comparable transactions; (iv) 290.3% of First Financial's
book value compared to a median of 238.9% for the comparable
transactions; (v) 305.0% of First Financial's tangible book value
compared to a median of 245.1% for the comparable transactions; (vi)
395.6% of First Financial's adjusted tangible book value compared to a
median of 327.6% for the comparable transactions; and (vii) premiums of
22.3% over First Financial's previous day's market price, 25.6% over
First Financial's one-month-earlier market price and 108.1% over First
Financial's one-year-earlier market price, compared to medians of
10.6%, 23.0% and 53.0%, respectively, for the comparable transactions.
The ratio of transaction value to "adjusted book value" adjusts both
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transaction value and book value for the "excess" capital of each
acquired company relative to a 7% tangible equity-to-assets ratio.
(e) PRO FORMA ANALYSIS. ABN AMRO prepared a pro forma
merger analysis illustrating the estimated effects on selected
historical and projected financial data of First Financial using
projected financial data for First Financial derived from the DCF
analyses described previously and projected financial data for MBI
based upon the consensus growth rate estimates of securities analysts
that follow MBI, giving effect to the Exchange Ratio and to certain
estimated after-tax merger benefits. This analysis indicated that, as
compared to First Financial's stand-alone historical and projected
financial data, the proposed transaction with MBI: (i) would have
increased First Financial's historical diluted earnings per share by
27.8% and could affect First Financial's projected diluted earnings per
share in a range of 26.3% to 35.5%; (ii) would have diluted First
Financial's historical book value per share by 1.5% and could increase
First Financial's projected book value per share in a range of 3.5% to
7.7%; and (iii) would have increased First Financial's historical cash
dividend per share by 32.9% and could increase First Financial's
projected cash dividend per share in a range of 42.5% to 53.3%.
(f) CONTRIBUTION ANALYSIS. ABN AMRO prepared a
contribution analysis displaying selected financial data of First
Financial and MBI along with the percentages these financial data for
each of First Financial and MBI would represent of the combined company
on a pro forma basis. Using recent historical financial data, ABN AMRO
calculated that, of the combined company on a pro forma basis, First
Financial would have contributed: (i) 1.80% of total assets; (ii) 1.86% of
net loans receivable; (iii) 2.04% of total deposits; (iv) 2.33% of common
equity; (v) 1.87% of net income to common; and (vi) 1.86% of market
capitalization. Based on the Exchange Ratio, First Financial
shareholders would have owned 2.39% of the pro forma number of shares
of MBI Common Stock outstanding.
(g) COMPARATIVE RETURN-TO-INVESTOR ANALYSIS. Using
projected financial data derived from the First Financial DCF analysis
and the MBI projection analysis Described previously and the certain
assumptions regarding future potential merger prices for each of First
Financial and MBI, ABN AMRO calculated the hypothetical investment
returns First Financial shareholders could achieve over a five-year
period under a number of scenarios. This analysis indicated
hypothetical compound annual rates of return to First Financial
shareholders of: (i) 9.4% assuming First Financial would remain
indefinitely an independent company; (ii) 14.9% assuming First Financial
would remain independent and then merge at the end of the five-year
analysis period; (iii) 17.5% assuming First Financial would consummate the
proposed transaction with MBI upon the Exchange Ratio and MBI would
remain indefinitely an independent company; and (iv) 23.6% assuming First
Financial would consummate the proposed transaction with MBI upon the
Exchange Ratio and MBI would merge at the end of the five-year analysis
period.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view
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of the process underlying ABN AMRO's Opinion. In arriving at its fairness
determination, ABN AMRO considered the results of all of such analyses. No
company or transaction used in the above analyses as a comparison is
identical to First Financial or MBI or the Merger. The analyses were
prepared solely for purposes of ABN AMRO's Opinion provided to First
Financial's Board of Directors as to the fairness of the Exchange Ratio to be
received by the shareholders of First Financial pursuant to the Merger and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon
projections of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties
or ABN AMRO, none of First Financial, ABN AMRO or any other person assumes
responsibility if future results are materially different from those
projected.
ABN AMRO, as part of its investment banking business, is continually
engaged in the valuation of businesses in connection with mergers and
acquisitions, as well as initial and secondary offerings of securities and
valuations for other purposes. First Financial selected ABN AMRO as its
financial advisor because ABN AMRO is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger.
In the ordinary course of ABN AMRO's business, ABN AMRO and its
affiliates may actively trade securities of First Financial and MBI for their
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
First Financial retained ABN AMRO as its financial advisor by letter
agreement dated January 9, 1998 ("Engagement Letter"). Pursuant to the terms
of the Engagement Letter, upon delivery of ABN AMRO's Opinion, First
Financial paid ABN AMRO an Opinion Fee (as defined in the Engagement Letter)
of $100,000. Pursuant to the terms of the Engagement Letter, upon closing of
the Merger, First Financial will pay ABN AMRO a cash financial advisory fee
based on a percentage of transaction value, as defined in the Engagement
Letter, reduced by the Opinion Fee previously paid. Based upon the closing
price of MBI Common Stock of $50.0625 per share on June 25, 1998, the balance
of the financial advisory fee payable by First Financial to ABN AMRO upon
closing of the Merger would be approximately $1,136,366. Further, in the
Engagement Letter, First Financial agreed to reimburse ABN AMRO for its
reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify ABN AMRO against certain liabilities, including liabilities
under securities laws.
CONDITIONS OF THE MERGER
The respective obligations of MBI, Ameribanc and First Financial to
consummate the Merger are subject to the satisfaction of certain mutual
conditions, including the following:
(1) The Merger Agreement shall be approved by the requisite
vote of holders of First Financial Common Stock at the Special Meeting.
(2) The Merger Agreement and the transactions contemplated
therein shall have been approved by the Federal Reserve Board and any
other federal and/or state regulatory agency whose approval is required
for the consummation of the transactions contemplated therein and all
waiting periods after such approvals required by law or regulation
shall have expired.
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(3) The Registration Statement, of which this Proxy
Statement/Prospectus is a part, registering shares of MBI Common Stock
to be issued in the Merger, shall have been declared effective and not
be subject to a stop order or any threatened stop order.
(4) None of First Financial, MBI or Ameribanc shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction that enjoins or prohibits the consummation of the Merger.
(5) First Financial, MBI and Ameribanc each shall have received
from Thompson Coburn an opinion (which opinion shall not have been
withdrawn at or prior to the Effective Time) reasonably satisfactory in
form and substance to it to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368 of the
Code and (ii) as a result of the Merger, except with respect to cash
received in lieu of fractional share interests, and assuming that the
MBI Common Stock is a capital asset in the hands of the holder thereof
at the effective time (A) holders of First Financial Common Stock who
receive MBI Common Stock in the Merger will not recognize gain or loss
for federal income tax purposes, (B) the basis of such MBI Common Stock
will equal the basis of the First Financial Common Stock for which it
is exchanged and (C) the holding period of such MBI Common Stock will
include the holding period of the First Financial Common Stock for
which it is exchanged.
The obligation of MBI and Ameribanc to consummate the Merger is subject
to the satisfaction, unless waived, of certain other conditions, including
the following:
(1) The representations and warranties of First Financial made
in the Merger Agreement shall be true and correct in all material
respects as of the Effective Time except (i) to the extent such
representations and warranties are by their express provisions made as
of a specific date or period, (ii) where the facts that caused the
failure of any representation or warranty to be so true and correct
have not resulted, and are not likely to result, in a material adverse
effect on the condition (financial or otherwise), properties, business
or results of operations (a "Material Adverse Effect") on First
Financial and its subsidiary, taken as a whole and (iii) for the effect of
transactions contemplated by the Merger Agreement and all obligations
required to be performed by First Financial prior to the Effective Time
shall have been performed in all material respects, and MBI shall have
received a certificate of the Chief Executive Officer and Chief
Financial Officer of First Financial to that effect.
(2) First Financial shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required of
First Financial for the lawful consummation by First Financial of the
Merger.
(3) MBI and Ameribanc shall have received a letter from KPMG
Peat Marwick LLP, reasonably satisfactory in form and substance to MBI
and Ameribanc, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment, which letter shall not have
been withdrawn at or prior to the Effective Time.
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(4) Since May 7, 1998, there shall have been no Material
Adverse Effect on First Financial and its subsidiary, taken as a whole.
(5) Sidley & Austin, counsel to First Financial, shall have
delivered to MBI an opinion dated as of the Closing Date or a mutually
agreeable earlier date regarding certain legal matters.
First Financial's obligation to consummate the Merger is subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(1) The representations and warranties of MBI and Ameribanc
made in the Merger Agreement shall be true and correct, in all material
respects, as of the Effective Time except (i) to the extent such
representations and warranties are by their express provisions made as
of a specific date or period, (ii) where the facts that caused the
failure of any representation or warranty to be so true and correct
have not resulted, and are not likely to result, in a Material Adverse
Effect on MBI and its subsidiaries, taken as a whole and (iii) for the
effect of transactions contemplated by the Merger Agreement and all
obligations required to be performed by MBI and Ameribanc prior to the
Effective Time shall have been performed in all material respects, and
First Financial shall have received a certificate from any Executive
Vice President of MBI to that effect.
(2) MBI and Ameribanc shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required of
MBI or Ameribanc for the lawful consummation of the Merger.
(3) Since May 7, 1998, there shall have been no Material
Adverse Effect on MBI and its subsidiaries, taken as a whole.
(4) Thompson Coburn, counsel to MBI, shall have delivered to
First Financial an opinion dated as of the Closing Date or a mutually
agreeable earlier date regarding certain legal matters.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains extensive representations and warranties
by First Financial, MBI and Ameribanc. These include, among other things,
representations and warranties of First Financial as to (i) the organization
and good standing of First Financial and its subsidiary, (ii) First Financial's
capital structure, (iii) First Financial's authority relative to the execution
and delivery of, and performance of its obligations under, the Merger
Agreement, (iv) the documents, including financial statements and other
reports, filed by First Financial with the applicable regulatory authorities,
(v) title to and condition of assets, (vi) real property, (vii) taxes, (viii)
the absence of material adverse changes since December 31, 1997, (ix) loans,
commitments and contracts, (x) the absence of material conflicts between its
obligations under the Merger Agreement and its charter documents and material
contracts to which it is a party or by which it is bound, (xi) litigation, (xii)
directors' and officers' insurance, (xiii) compliance with laws, (xiv) labor,
(xv) the existence of certain material interests of certain persons, (xvi)
allowance for loan and lease losses and non-performing assets, (xvii) employee
benefit plans and related matters, (xviii) the conduct of First Financial and
its subsidiary from and after December 31, 1997, (xix) the absence of
undisclosed liabilities, (xx) the accuracy of the information supplied by First
Financial for
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inclusion in this Proxy Statement/Prospectus and related documents, (xxi) the
absence of registration obligations with respect to First Financial Common
Stock, (xxii) the absence of actions that would jeopardize the qualification of
the transactions contemplated by the Merger Agreement as a reorganization or for
pooling-of-interests accounting treatment or jeopardize the receipt of certain
regulatory approvals, (xxiii) obligations to brokers and finders, (xxiv)
interest rate management instruments, (xxv) the accuracy of the statements
contained in the Merger Agreement and related documents and (xxvi) Year 2000
compliance for all computer software and hardware.
MBI's and Ameribanc's representations and warranties include, among
other things, those as to (i) MBI's and Ameribanc's respective organization
and good standing, (ii) the capital structure of MBI, (iii) MBI's and
Ameribanc's authority relative to the execution and delivery of, and performance
of their respective obligations under, the Merger Agreement, (iv) the documents,
including financial statements and other reports, filed by MBI with applicable
regulatory authorities, (v) the absence of material adverse changes since
December 31, 1997, (vi) the accuracy of the information supplied by MBI or
Ameribanc for inclusion in this Proxy Statement/Prospectus and related
documents, (vii) the absence of obligations to brokers and finders and (viii)
the accuracy of the statements contained in the Merger Agreement and related
documents.
TERMINATION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the shareholders of First
Financial, (i) by mutual consent of the Executive Committee of the Board of
Directors of MBI and the Board of Directors of First Financial or (ii)
unilaterally by the Executive Committee of the Board of Directors of MBI or
the Board of Directors of First Financial: (A) at any time after May 1, 1999,
if the Merger has not been consummated by such date (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement); (B)
if the Federal Reserve Board or any other Regulatory Authority whose approval
is required for consummation of the Merger shall have issued a final
non-appealable denial of such approval; (C) if the shareholders of First
Financial shall not have approved the Merger Agreement at the Special
Meeting; or (D) in the event of a material volitional breach by the other
party of any representation, warranty or agreement contained in the Merger
Agreement, which breach is not cured within 30 days after written notice
thereof is given to the party committing such breach or is not waived by such
other party. In addition, the Executive Committee of the Board of Directors
of MBI may terminate the Merger Agreement in certain circumstances if
environmental investigations of all real property owned, leased or operated
by First Financial as of May 7, 1998 indicate that the estimated cost of
corrective or remedial action with regard to such properties would exceed
$500,000 in the aggregate. No assurance can be given that the Merger will be
consummated on or before May 1, 1999 or that MBI or First Financial will not
elect to terminate the Merger Agreement if the Merger has not been
consummated on or before such date.
In the event of the termination of the Merger Agreement, it shall
become void and there shall be no liability on the part of any party or their
respective officers and directors, except that (i) confidentiality and
indemnification obligations shall survive termination, (ii) MBI shall pay all
printing, mailing and filing expenses with respect to the Registration
Statement and this Proxy Statement/Prospectus and (iii) in the case of
termination due to continued material volitional breach after notice and
opportunity to cure, the breaching party shall not be relieved of liability
to the non-breaching party arising from the intentional, deliberate or
willful breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement.
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Any provision of the Merger Agreement, including, without limitation,
the conditions to the consummation of the Merger and the restrictions
described under "- Business Pending the Merger," may be (i) waived in writing
at any time by the party that is or whose shareholders are entitled to the
benefits thereof or (ii) amended at any time by written agreement of the
parties approved by or on behalf of their respective Boards of Directors or
Executive Committees, whether before or after the Special Meeting; provided,
however, that after approval of the Merger Agreement by the shareholders of
First Financial at the Special Meeting, no such modification may (i) alter or
change the amount or kind of consideration to be received by the First
Financial shareholders pursuant to the Merger or (ii) adversely affect the tax
treatment to First Financial shareholders as a result of receiving the shares
of MBI Common Stock in the Merger.
INDEMNIFICATION
First Financial, MBI and Ameribanc have agreed to indemnify each other
and the officers, directors and controlling persons of each other against any
losses, claims, damages or liabilities to which any such party may become
subject under federal or state laws or regulations, to the extent that such
loss, claim, damage or liability is based primarily upon information
furnished to the party subject to such liability by the other party, or out
of an omission by such other party to state a necessary or material fact in
the Registration Statement of which this Proxy Statement/Prospectus is a
part.
CLOSING DATE
The Merger will be consummated and become effective upon the later of
(i) the issuance of a Certificate of Merger by the Office of the Secretary of
State of the State of Missouri and (ii) the filing of Articles of Merger with
the Office of the Secretary of State of the State of Iowa. Under the Merger
Agreement, unless otherwise agreed to by the parties, the Closing Date shall
occur on such date as MBI shall notify First Financial in writing (such
notice to be at least five business days in advance of the Effective Time)
but: (i) not earlier than the Approval Date, which shall occur upon (a) the
receipt of the requisite approval of the Merger Agreement by the shareholders
of First Financial and (b) the approval of the Merger by the Federal Reserve
Board and any other Regulatory Authority whose approval is required and the
satisfaction of all waiting periods for such approvals; and (ii) not later than
the first business day of the first full calendar month beginning at least five
business days after the Approval Date.
SURRENDER OF FIRST FINANCIAL STOCK CERTIFICATES AND RECEIPT OF MBI COMMON
STOCK
At the Effective Time, each outstanding share of First Financial Common
Stock (other than any shares held by shareholders exercising dissenters'
rights pursuant to the IBCA) will be converted into the right to receive 0.88
of a share of MBI Common Stock. See "- General Description of the Merger."
Each holder of First Financial Common Stock, upon submission to the Exchange
Agent of a properly executed letter of transmittal and surrender to the
Exchange Agent of the stock certificate(s) formerly representing shares of
First Financial Common Stock, will be entitled to receive a stock
certificate(s) evidencing the shares of MBI Common Stock to which such
shareholder is entitled.
As soon as practicable following the Effective Time, the Exchange Agent
will mail to each First Financial shareholder of record as of the Effective
Time notification of the effectiveness of the Merger. The Exchange Agent
also will provide a letter of transmittal and instructions as to the
procedure
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for the surrender of the stock certificates evidencing the First Financial
Common Stock and the receipt of shares of MBI Common Stock. It will be the
responsibility of each holder of First Financial shares to submit all
certificates formerly evidencing such holder's shares of First Financial Common
Stock to the Exchange Agent. No dividends or other distributions will be paid
to a former First Financial shareholder with respect to shares of MBI Common
Stock until such shareholder's properly completed letter of transmittal and
stock certificates formerly representing First Financial Common Stock, or, in
lieu thereof, such evidence of a lost, stolen or destroyed certificate and/or
such insurance bond as the Exchange Agent may reasonably require, are delivered
to the Exchange Agent. All dividends or other distributions on the MBI Common
Stock declared between the Closing Date and the date of the surrender of a First
Financial stock certificate will be held for the benefit of the shareholder and
will be paid to the shareholder, without interest thereon, upon the surrender of
such stock certificate(s) or documentation and/or insurance bond in lieu
thereof.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the former
shareholders of First Financial in connection with the Merger. Each holder
of First Financial Common Stock who otherwise would have been entitled to
receive a fraction of a share of MBI Common Stock shall receive in lieu
thereof cash, without interest, in an amount equal to the holder's fractional
share interest multiplied by the closing stock price of MBI Common Stock on
the NYSE Composite Tape on the Closing Date as reported in The Wall Street
Journal. Cash received by First Financial shareholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
In addition to the approval of the Merger Agreement by the First
Financial shareholders, the obligations of the parties to effect the Merger
are subject to prior approval of the Federal Reserve Board. As a bank holding
company, MBI is subject to regulation under the BHCA. MBI will file all
required applications seeking approval of the Merger with the Regulatory
Authorities.
Under the BHCA, the Federal Reserve Board can withhold approval of the
Merger if, among other things, it determines that the effect of the Merger
would be to substantially lessen competition in the relevant market. In
addition, the Federal Reserve Board is required to consider whether the
combined organization meets the requirements of the Community Reinvestment
Act of 1977, as amended, by assessing the involved entities' respective
records of meeting the credit needs of the local communities in which they
are chartered, consistent with the safe and sound operation of such
institutions. In its review, the Federal Reserve Board also is required to
examine the financial and managerial resources and future prospects of the
combined organization and analyze the capital structure and soundness of the
resulting entity. The Federal Reserve Board has the authority to deny an
application if it concludes that the combined organization would have
inadequate capital.
The Merger cannot be consummated prior to receipt of all required
approvals. There can be no assurance that required regulatory approvals for
the Merger will be obtained and, if the Merger is approved, as to the date of
such approvals or whether the approvals will contain any unacceptable
conditions. There can likewise be no assurance that the United States
Department of Justice will not challenge the Merger during the waiting
period set aside for such challenges after receipt of approval from the
Federal Reserve Board. See "SUPERVISION AND REGULATION."
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MBI and First Financial are not aware of any governmental approvals or
actions that may be required for consummation of the Merger other than as
described above. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought. There
can be no assurance that any necessary regulatory approvals or actions will
be timely received or taken, that no action will be brought challenging such
approval or action or, if such a challenge is brought, as to the result
thereof, or that any such approval or action will not be conditioned in a
manner that would cause the parties to abandon the Merger. See "SUPERVISION
AND REGULATION."
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period from May 7, 1998
to the Effective Time, First Financial and its subsidiary will conduct their
respective businesses according to the ordinary and usual course consistent
with past practices and use their best efforts to maintain and preserve their
respective business organizations, employees and advantageous business
relationships and retain the services of their officers and key employees.
Furthermore, from May 7, 1998 to the Effective Time, except as provided
in the Merger Agreement, First Financial will not, and will not permit its
subsidiary to, without the prior written consent of MBI and Ameribanc:
(1) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its capital stock
(other than dividends from the First Financial subsidiary to First
Financial), except that First Financial may declare and pay regular
quarterly cash dividends of not more than $0.2725 per share; provided,
however, that First Financial may not declare or pay a quarterly
dividend for any quarter in which First Financial shareholders will be
entitled to receive a regular quarterly dividend on the shares of MBI
Common Stock to be issued in the Merger;
(2) enter into or amend any employment, severance or similar
agreement or arrangement with any director, officer or employee, or
materially modify any of the First Financial employee plans or grant
any salary or wage increase or materially increase any employee benefit
(including incentive or bonus payments), except normal individual
increases in compensation to employees consistent with past practice,
or as required by law or contract, and except for such increases of
which First Financial notifies MBI and Ameribanc in writing and which
MBI and Ameribanc do not disapprove within ten days of the receipt of
such notice;
(3) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in
principle with respect to, any merger, consolidation or business
combination (other than the Merger), any acquisition of a material
amount of assets or securities, any disposition of a material amount of
assets or securities or any release or relinquishment of any material
contract rights;
(4) propose or adopt any amendments to its Articles of
Incorporation or other charter document or by-laws;
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(5) issue, sell, grant, confer or award any capital stock,
options, warrants, conversion rights or other rights, except First
Financial may issue shares of First Financial Common Stock upon
exercise of First Financial Stock Options outstanding on May 7, 1998
and pursuant to the Option, or effect any stock split or adjust,
combine, reclassify or otherwise change its capitalization as it
existed on May 7, 1998;
(6) purchase, redeem, retire, repurchase or exchange, or
otherwise acquire or dispose of, directly or indirectly, any capital
stock, options, warrants, conversion rights or other rights, whether
pursuant to the terms of such capital stock, options, warrants,
conversion rights or other rights or otherwise;
(7) (i) without first consulting with and obtaining the written
consent of MBI, cause or permit FNBI to enter into, renew or increase
any loan or credit commitment (including stand-by letters of credit)
to, or invest or agree to invest in any person or entity or modify any
of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "Lend
to") in an amount in excess of $1,000,000 or in any amount which, when
aggregated with any and all loans or credit commitments of First
Financial and its subsidiary to such person or entity, would be equal
to or in excess of $1,000,000; provided, however, that First Financial
or its subsidiary may make any such loan or credit commitment in the
event (A) First Financial or its subsidiary has delivered to MBI and
Ameribanc or their designated representative a notice of its intention
to make such loan and such information as MBI and Ameribanc or their
designated representative may reasonably require in respect thereof and
(B) MBI and Ameribanc or their designated representative shall not have
reasonably objected to such loan by giving written or facsimile notice
of such objection within two (2) business days following the delivery
to MBI and Ameribanc or their designated representative of the notice
of intention and information as aforesaid; provided further, however,
that nothing shall prohibit First Financial or its subsidiary from
honoring any contractual obligation in existence on the date of the
Merger Agreement. Notwithstanding the above, First Financial shall be
authorized, without first consulting with MBI and Ameribanc or
obtaining MBI's and Ameribanc's prior written consent, to increase the
aggregate amount of any credit facilities theretofore established in
favor of any person or entity (each a "Pre-Existing Facility"),
provided that the aggregate amount of any and all such increases shall
not be in excess of the lesser of ten percent (10%) of such
Pre-Existing Facilities or $50,000;
(8) directly or indirectly, including through its officers,
directors, employees or other representatives:
(i) initiate, solicit or encourage any discussions,
inquiries or proposals with any third party (other than MBI or
Ameribanc) relating to the disposition of any significant portion
of the business or assets of First Financial or its subsidiary or
the acquisition of the capital stock (or rights or options
exercisable for, or securities convertible or exchangeable into,
capital stock) of First Financial or its subsidiary or the merger
of First Financial or its subsidiary with any person (other than
MBI or Ameribanc) or any similar transaction (each such
transaction being referred to herein as an "Acquisition
Transaction"); or
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(ii) provide any third party with information or
assistance or negotiate with any third party with respect to an
Acquisition Transaction, and First Financial shall promptly
notify MBI and Ameribanc orally of all the relevant details
relating to all inquiries, indications of interest and proposals
which it or its subsidiary may receive with respect to any
Acquisition Transaction;
(9) take any action that would (i) prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368
of the Code, (ii) materially impede or delay the consummation of the
transactions contemplated by the Merger Agreement or the ability of MBI
and Ameribanc or First Financial to obtain any approval of any
Regulatory Authority required for the transactions contemplated by the
Merger Agreement or to perform its covenants and agreements under the
Merger Agreement or (iii) prevent the Merger from qualifying for
pooling-of-interests accounting treatment;
(10) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or
assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual,
corporation or other entity;
(11) materially restructure or change its investment securities
portfolio, through purchases, sales or otherwise, or the manner in
which the portfolio is classified or reported, or execute individual
investment transactions for its own account of greater than $1,000,000
for U.S. Treasury or Federal Agency Securities and $250,000 for all
other investment instruments;
(12) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or
knowingly take or omit to take any other action which would make any of
First Financial's representations and warranties in the Merger
Agreement untrue or incorrect in any material respect if made anew
after engaging in such activity, entering into such transaction, or
taking or omitting such other act; or
(13) enter into, increase or renew any loan or credit commitment
(including standby letters of credit) to any executive officer or
director of First Financial or any subsidiary of First Financial, any
holder of 10% or more of the outstanding shares of First Financial
Common Stock, or any entity controlled, directly or indirectly, by any
of the foregoing or engage in any transaction with any of the foregoing
which is of the type or nature sought to be regulated in 12 U.S.C.
Section 371c and 12 U.S.C. Section 371c-1, without first obtaining the
prior written consent of MBI and Ameribanc, which consent shall not be
unreasonably withheld.
The Merger Agreement also provides that during the period from May 7,
1998 to the Effective Time, MBI and Ameribanc shall not, and shall not permit
any of their subsidiaries to, without the prior written consent of First
Financial, agree in writing or otherwise take any action that is prohibited
of First Financial by subsections (9) and (12) above.
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ACCOUNTING TREATMENT
The Merger is intended to be accounted for under the
pooling-of-interests method of accounting. It is a condition to MBI's and
Ameribanc's consummation of the Merger, unless otherwise waived, that KPMG
Peat Marwick LLP, MBI's independent accountants, deliver to MBI and Ameribanc
a letter stating that the Merger will qualify for pooling-of-interests
accounting treatment.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
-----------------------------------------------------
The following discussion is based upon an opinion of Thompson Coburn,
counsel to MBI ("Counsel"), and except as otherwise indicated, reflects
Counsel's opinion. The discussion is a general summary of the material
United States federal income tax ("federal income tax") consequences of the
Merger to certain First Financial shareholders and does not purport to be a
complete analysis or listing of all potential tax considerations or
consequences relevant to a decision whether to vote for the approval of the
Merger. The discussion does not address all aspects of federal income
taxation that may be applicable to First Financial shareholders in light of
their status or personal investment circumstances, nor does it address the
federal income tax consequences of the Merger that are applicable to First
Financial shareholders subject to special federal income tax treatment,
including (without limitation) foreign persons, insurance companies,
tax-exempt entities, retirement plans, dealers in securities, persons who
acquired their First Financial Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation and persons who hold
their First Financial Common Stock as part of a "straddle," "hedge" or
"conversion transaction." Each shareholder's individual circumstances may
affect the tax consequences of the Merger to such shareholder. In addition,
the discussion does not address the effect of any applicable state, local or
foreign tax laws, or the effect of any federal tax laws other than those
pertaining to the federal income tax. AS A RESULT, EACH FIRST FINANCIAL
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The discussion
assumes that shares of First Financial Common Stock are held as capital
assets (within the meaning of Section 1221 of the Code) at the Effective
Time.
First Financial has received an opinion from Counsel to the effect
that, assuming the Merger occurs in accordance with the Merger Agreement, the
Merger will constitute a "reorganization" for federal income tax purposes
with the following federal income tax consequences:
(1) First Financial shareholders will recognize no gain or loss
as a result of the exchange of their First Financial Common Stock
solely for shares of MBI Common Stock pursuant to the Merger, except
with respect to cash received in lieu of fractional shares, if any, as
discussed below.
(2) The aggregate adjusted tax basis of the shares of MBI
Common Stock received by each First Financial shareholder in the Merger
(including any fractional share of MBI Common Stock deemed to be
received, as described in paragraph 4 below) will be equal to the
aggregate adjusted tax basis of the shares of First Financial Common
Stock surrendered.
(3) The holding period of the shares of MBI Common Stock
received by each First Financial shareholder in the Merger (including
any fractional share of MBI Common Stock deemed to be received, as
described in paragraph 4 below) will include the holding period of the
shares of First Financial Common Stock exchanged therefor.
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<PAGE> 52
(4) A First Financial shareholder who receives cash in the
Merger in lieu of a fractional share of MBI Common Stock will be
treated as if the fractional share had been received by such
shareholder in the Merger and then redeemed by MBI in return for the
cash. The receipt of such cash will cause the recipient to recognize
capital gain or loss equal to the difference between the amount of cash
received and the portion of such holder's adjusted tax basis in the
shares of MBI Common Stock allocable to the fractional share.
Counsel's opinion is subject to the conditions and assumptions stated
therein and relies upon various representations made by MBI and First
Financial. If any of these representations or assumptions is inaccurate, the
tax consequences of the Merger could differ from those described herein.
Counsel's opinion also is based upon the Code, regulations proposed or
promulgated thereunder, judicial precedent relating thereto and current
administrative rulings and practice, all of which are subject to change. Any
such change, which may or may not be retroactive, could alter the tax
consequences discussed herein. The opinion is available without charge upon
written request to Jon W. Bilstrom, General Counsel and Secretary, Mercantile
Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. The
receipt of Counsel's opinion again as of the Closing Date is a condition to
the consummation of the Merger. An opinion of counsel, unlike a private
letter ruling from the Internal Revenue Service (the "Service"), has no
binding effect on the Service. The Service could take a position contrary to
Counsel's opinion and, if the matter were litigated, a court may reach a
decision contrary to the opinion. Neither MBI nor First Financial has
requested an advance ruling as to the federal income tax consequences of the
Merger, and the Service is not expected to issue such a ruling.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO CERTAIN FIRST FINANCIAL SHAREHOLDERS AND IS
INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT
TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FIRST
FINANCIAL SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL
INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY
TO EACH FIRST FINANCIAL SHAREHOLDER. ACCORDINGLY, EACH FIRST FINANCIAL
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL AND OTHER TAX LAWS.
DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL
-----------------------------------------------------
Each shareholder of First Financial has the right to demand to be paid
the fair value of his or her shares of First Financial Common Stock in cash
upon consummation of the Merger if the shareholder follows the dissenters'
rights procedures set forth in Division XIII of the IBCA. "Fair value" is
defined in the IBCA as the value of the subject shares immediately prior to
the consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger unless such an exclusion would be inequitable.
Under the IBCA, a shareholder of First Financial may dissent from the
Merger and obtain the fair value of the shares owned by such shareholder with
such fair value to be paid in cash if the
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<PAGE> 53
Merger is consummated. Any shareholder of First Financial who wishes to
assert his or her dissenters' rights must do each of the following: (i)
deliver to First Financial before the vote on the Merger Agreement is taken
a written notice of such shareholder's intent to demand payment for his or
her shares if the Merger is effected and (ii) not vote such shares in favor
of the approval of the Merger Agreement at the Special Meeting. A VOTE
AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE
REGARDED AS A WRITTEN NOTICE OF A SHAREHOLDER'S INTENT TO ASSERT
DISSENTERS' RIGHTS.
If the Merger Agreement is approved at the Special Meeting, First
Financial shall deliver a written notice to each person who asserted
dissenters' rights as described above. The notice must be sent by First
Financial no later than 10 days after the Special Meeting and must contain
the following information: (i) a statement as to where a demand for payment
must be sent by the dissenting shareholder and where and when the
certificates evidencing shares of First Financial Common Stock owned by such
shareholders must be deposited, (ii) a form with which dissenting shareholders
may make their demands for payment, which form will include the date of the
first public announcement of the proposed Merger and a requirement that all
dissenting shareholders certify as to whether or not he or she had acquired
beneficial ownership of the shares subject to the dissenters' rights demand
prior to the date of the first public announcement of the proposed Merger, (iii)
a statement as to the date by which First Financial must receive the demand
for payment from the dissenting shareholder, such date to be not fewer than
30 nor more than 60 days after the date of First Financial's notice to
dissenting shareholders and (iv) a copy of Division XIII of the IBCA.
A dissenting shareholder must demand payment for his or her shares,
certify as to whether the acquisition date of such shares was prior to or
after the public announcement of the proposed Merger and deposit the
certificates evidencing such shares prior to the date set in the notice sent
by First Financial to the dissenting shareholders. A shareholder who does
not demand payment or deposit certificates for such shares by the date or in
the manner set forth in the notice to dissenting shareholders sent by First
Financial will be deemed to have waived his or her dissenters' rights and
will not be entitled to payment of the fair value of his or her shares under
Division XIII of the IBCA.
First Financial (or Ameribanc, as the surviving corporation in the
Merger) must make a cash payment to each dissenting shareholder who files a
demand for payment as described above equal to First Financial's (or
Ameribanc's) estimate of the fair value of the shares of First Financial
Common Stock owned by such shareholders, plus accrued interest on such
payment from the Closing Date. Such payment must be made upon the later of:
(i) the time the Merger is consummated or (ii) the receipt of the demand for
payment from the dissenting shareholder. If the Merger is not consummated
within 60 days of the date set by First Financial for receipt of the
dissenting shareholders' demands for payment and deposits of stock
certificates, First Financial must return the deposited certificates and send
a new notice to dissenting shareholders when the Merger is actually
consummated. The payment must be accompanied by the following: (i) First
Financial's balance sheet as of the end of its most recently completed fiscal
year, an income statement and a statement of changes in shareholders' equity
as of the most recently completed fiscal year and interim financial
statements of First Financial as of and for the most recent date or period
available, (ii) a statement of First Financial's (or Ameribanc's) estimate of
fair value of the First Financial shares, (iii) an explanation as to how the
interest payment was computed, (iv) a statement of the dissenting shareholder's
right to demand a greater payment than First Financial's estimate as
described below and (v) a copy of Division XIII of the IBCA.
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<PAGE> 54
First Financial may elect to withhold payment from those dissenting
shareholders who do not certify in their demand for payment that they owned
the shares subject to the dissenters' rights demand prior to the public
announcement of the proposed Merger. To the extent that First Financial
elects to withhold payment from such dissenting shareholders, First Financial
shall estimate the fair value of the shares owned by such holders and accrued
interest thereon and offer to pay the same to each such dissenting
shareholder who agrees to accept it in full satisfaction of his or her
demand. The offer to such shareholders must be accompanied by: (i) a
statement of First Financial's estimate of fair value, (ii) an explanation as
to how the interest payment was computed and (iii) a statement of the dissenting
shareholder's right to demand a greater payment than First Financial's
estimate as described below.
After receipt of First Financial's (or Ameribanc's) estimate of fair
value in either of the above cases, the dissenting shareholder may deliver
notice to First Financial (or Ameribanc) of his or her own estimate of fair
value for the shares and the amount of interest due and demand payment of the
difference in amount, if any, previously paid by First Financial (or
Ameribanc) to such shareholder and the amount of the shareholder's estimate.
In order to make such a demand: (i) the dissenting shareholder must believe
that the amount paid or offered by First Financial (or Ameribanc) is less
than the fair value of the shares or the interest is incorrectly calculated;
or (ii) First Financial (or Ameribanc) has not made payment for the shares
within 60 days after the date set by First Financial (or Ameribanc) as the
last day that First Financial (or Ameribanc) set for accepting demands for
payment; or (iii) the Merger has not been consummated within the 60-day period
after the last date that First Financial (or Ameribanc) set for accepting
demands for payment and First Financial has not returned the stock
certificates deposited by the dissenting shareholder. A dissenting
shareholder will waive his or her right to seek a greater payment than First
Financial's estimate of fair value and accrued interest unless such
shareholder notifies First Financial (or Ameribanc) in writing of the same
within 30 days of the receipt of First Financial's (or Ameribanc's) payment
or offer of payment for the shares.
If, within 60 days of receiving the dissenting shareholder's notice of
a demand for increased payment, the demand remains unsettled, First Financial
(or Ameribanc) must commence proceedings in the district court of Johnson
County, Iowa petitioning the court to determine the fair value and accrued
interest of such shares. If First Financial (or Ameribanc) fail to start
such proceedings within the 60-day period, First Financial (or Ameribanc)
must pay each dissenting shareholder whose demand remains unsettled the
amount that such shareholder has demanded. All dissenting shareholders with
claims remaining unsettled will be made parties to the proceedings and the
court may appoint one or more appraisers to receive evidence and recommend
the fair value of the shares. The court will find either (i) that the fair
value and accrued interest already paid by First Financial (or Ameribanc)
equals or exceeds the amount determined by the court, in which case the
shareholder will be entitled to no additional payment from First Financial
(or Ameribanc) or (ii) First Financial (or Ameribanc) must pay an additional
amount equal to the difference between the court's determination of fair
value and accrued interest and the amount already paid by First Financial (or
Ameribanc) to the shareholder.
The court shall also determine all costs of the proceedings, including
the reasonable compensation and expenses of the appraisers and shall assess
such costs to First Financial (or Ameribanc) unless the court finds that such
an assessment would be inequitable because the dissenting shareholders had
acted arbitrarily, vexatiously or not in good faith. Fees of legal counsel
will generally be borne by each of the parties except that the attorneys'
fees of the dissenting shareholders will be assessed to First Financial (or
Ameribanc) to the extent that the court finds it did not substantially comply
with the procedures set forth in Division XIII of the IBCA or to either party
in favor of the other party to the extent that the court finds that the
assessed party acted arbitrarily, vexatiously or not in good
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<PAGE> 55
faith. To the extent that counsel for one dissenting shareholder is found
by the court to have provided a substantial benefit to other dissenting
shareholders, the court may order that the fees of such counsel be paid out
of the amounts awarded to the dissenting shareholders who have been
benefited.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING
DISSENTERS' RIGHTS UNDER THE IBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE
TEXT OF DIVISION XIII OF THE IBCA WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS ANNEX B. FIRST FINANCIAL SHAREHOLDERS WHO ARE
-------
INTERESTED IN ASSERTING DISSENTERS' RIGHTS PURSUANT TO THE IBCA IN
CONNECTION WITH THE MERGER MAY WISH TO CONSULT WITH THEIR COUNSEL FOR
ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED.
PRO FORMA FINANCIAL INFORMATION
-------------------------------
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and First Financial and the corresponding
pro forma and pro forma equivalent per share amounts giving effect to the
proposed Merger, the pending acquisitions by MBI of FSCM, CBT and Firstbank,
each of which will be accounted for under the pooling-of-interests method of
accounting, and the acquisition of Roosevelt, which was consummated on July
1, 1997 and accounted for under the purchase method of accounting. The data
presented is based upon the consolidated financial statements and related
notes of MBI and First Financial included herein or in documents incorporated
herein by reference and the pro forma combined consolidated balance sheet and
income statements, including the notes thereto, appearing elsewhere herein.
This information should be read in conjunction with such historical and pro
forma financial statements and related notes thereto. The assumptions used in
the preparation of this table appear in the notes to the pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus. This data
is not necessarily indicative of the results of the future operations of the
combined organization or the actual results that would have occurred if the
proposed Merger, the pending acquisitions by MBI of FSCM, CBT and Firstbank
and the completed acquisition of Roosevelt had been consummated prior to the
periods indicated.
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<PAGE> 56
<TABLE>
<CAPTION>
MBI/ MBI/ MBI/ MBI/
FIRST FIRST FINANCIAL FIRST FINANCIAL ALL ENTITIES ALL ENTITIES
MBI FINANCIAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA
REPORTED REPORTED COMBINED<F1> EQUIVALENT<F2> COMBINED<F3> EQUIVALENT<F2>
-------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
March 31, 1998<F4> $ 18.65 $ 16.96 $ 18.54 $ 16.32 $ 18.58 $ 16.35
December 31, 1997 18.47 16.50 18.33 16.13 17.58 15.47
Cash Dividends Declared per Share:
Three Months ended March 31, 1998 $ .31 $ .19 $ .31 $ .27 $ .310 $ .27
Year ended December 31, 1997 1.148 .65 1.148 1.01 1.148 1.01
Year ended December 31, 1996 1.092 .55 1.092 .96 1.092 .96
Year ended December 31, 1995 .88 .51 .88 .77 .880 .77
Basic Earnings per Share:
Three Months ended March 31, 1998 $ .78 $ .49 $ .78 $ .69 $ .76 $ .67
Year ended December 31, 1997 1.68 1.91 1.69 1.49 1.49 1.31
Year ended December 31, 1996 2.11 1.68 2.11 1.86 2.13 1.87
Year ended December 31, 1995 2.41 1.28 2.39 2.10 2.37 2.09
Diluted Earnings per Share:
Three Months Ended March 31, 1998 $ .77 $ .49 $ .77 $ .68 $ .75 $ .66
Year ended December 31, 1997 1.65 1.90 1.66 1.46 1.45 1.28
Year ended December 31, 1996 2.08 1.67 2.08 1.83 2.09 1.84
Year ended December 31, 1995 2.37 1.27 2.35 2.07 2.31 2.03
Market Price per Share:
At May 7, 1998<F5> $52.8125 $38.000 $52.8125 $46.475 $52.8125 $46.475
At June 25, 1998<F5> 50.8125 43.375 50.8125 44.715 50.8125 44.715
<FN>
- ---------------
<F1> Includes the effect of pro forma adjustments for First Financial, as
appropriate. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma
Combined Consolidated Financial Statements."
<F2> Based on the pro forma combined per share amounts multiplied by 0.88,
the Exchange Ratio applicable to one share of First Financial Common
Stock in the Merger. Further explanation of the assumptions used in
the preparation of the pro forma combined consolidated financial
statements is included in the notes to pro forma combined consolidated
financial statements. See "PRO FORMA FINANCIAL INFORMATION--Notes to
Pro Forma Combined Consolidated Financial Statements."
<F3> Includes the effect of pro forma adjustments for First Financial, CBT,
Firstbank, FSCM and Roosevelt, as appropriate. Due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, this table does not include the
effect of pro forma adjustments for Horizon and HomeCorp. See "PRO
FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated
Financial Statements."
<F4> Based upon the following number of shares outstanding as of
March 31, 1998:
<S> <C>
Shares of MBI Common Stock as reported 133,115,257
Number of Shares of MBI Common Stock, net of
treasury shares, to be issued in the mergers of:
FSCM 1,877,324
CBT 4,961,910
First Financial 2,875,360
Firstbank 12,511,135
-----------
MBI/All Entities Pro Forma
Combined 155,340,956
===========
<F5> The market value of MBI Common Stock disclosed as of May 7, 1998, the
last trading day preceding the public announcement of the Merger, and
as of June 25, 1998, the last practicable date prior to the mailing of
this Proxy Statement/Prospectus, is based on the last sale price as reported
on the NYSE Composite Tape. The market value of First Financial Common
Stock disclosed as of May 7, 1998, the last trading day preceding the
public announcement of the Merger, and as of June 26, 1998, the last
practicable date prior to the mailing of this Proxy Statement/Prospectus, is
based on over-the-counter "bulletin board" closing prices.
</TABLE>
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<PAGE> 57
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RECENT ACQUISITIONS. MBI has completed or announced a number of
acquisitions during the years covered by the pro forma financial statements
that follow. Set forth below is a table that summarizes such completed and
pending acquisitions, including the name of the acquired entity, the date of
consummation of the acquisition, the assets and deposits of the acquired
entities at the date of consummation for the completed acquisitions, the
consideration paid in cash and/or shares of MBI Common Stock and the
accounting method utilized.
<TABLE>
ACQUISITIONS COMPLETED BY MBI (1995-PRESENT)
<CAPTION>
CONSIDERATION
----------------------
GROSS NUMBER ACCOUNTING
NAME DATE ASSETS DEPOSITS CASH OF SHARES METHOD
- ---- ---- ------ ------- ---- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HomeCorp, Inc. Mar. 2 1998 $ 335,137 $ 309,157 $ 14 854,760 Pooling<F1>
Horizon Bancorp, Inc.. Feb. 2, 1998 536,507 454,230 2 2,549,970 Pooling<F1>
Roosevelt Financial Group, Inc. July 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase
Mark Twain Bancshares, Inc. Apr. 25, 1997 3,227,972 2,519,474 73 24,088,713 Pooling
Regional Bancshares, Inc. Mar. 5, 1997 171,979 135,954 12,300 900,625 Purchase
TODAY'S Bancorp, Inc. Nov. 7, 1996 501,418 432,104 34,912 1,690,587 Purchase
First Financial Corporation of America Nov. 1, 1996 87,649 76,791 3,253 388,113 Purchase
Peoples State Bank Aug. 22, 1996 95,657 75,149 - 488,756 Purchase
Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 73,843 5 296,853 Purchase
Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 482,946 Purchase
Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 11,838,294 Pooling
First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 782,126 Pooling<F1>
Southwest Bancshares, Inc. Aug. 1, 1995 187,701 155,628 1 1,012,463 Pooling<F1>
AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 130,179 1 992,034 Pooling<F1>
Plains Spirit Financial Corporation July 7, 1995 400,754 276,887 6,697 1,951,770 Purchase
TCBankshares, Inc. May 1, 1995 1,422,798 1,217,740 - 7,124,999<F2> Pooling
Central Mortgage Bancshares, Inc. May 1, 1995 654,584 571,105 8 3,806,585 Pooling
UNSL Financial Corp. Jan. 3, 1995 508,346 380,716 11 2,367,161 Pooling
Wedge Bank Jan. 3, 1995 195,716 152,865 1 1,454,931 Pooling<F1>
<CAPTION>
PENDING ACQUISITIONS BY MBI
<S> <C> <C> <C> <C> <C> <C>
Financial Services Corporation
of the Midwest 3rd Qtr. 1998 $ 518,046 $ 408,995 - 2,077,000<F3> Pooling
CBT Corporation. 3rd Qtr. 1998 1,030,998 714,686 - 5,398,785<F3> Pooling
Firstbank of Illinois Co. 3rd Qtr. 1998 2,283,670 2,000,539 - 13,786,135<F3> Pooling
First Financial Bancorporation 3rd Qtr. 1998 568,442 480,461 - 3,194,844<F3> Pooling
<FN>
- ----------------------
<F1> The historical financial statements of MBI were not restated for the
acquisition due to the immateriality of the acquiree's financial
condition and results of operations to those of MBI.
<F2> In addition to MBI Common Stock issued, MBI assumed, through an
exchange, the outstanding, non-convertible preferred stock of
TCBankshares, Inc. Such preferred stock was redeemed in the first
quarter of 1996.
<F3> Estimated number of shares to be issued in acquisition.
</TABLE>
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<PAGE> 58
PRO FORMA FINANCIAL STATEMENTS. The following unaudited pro forma
combined consolidated balance sheet gives effect to the Merger as if it were
consummated on March 31, 1998.
The pro forma combined consolidated income statements for the three
months ended March 31, 1998 and 1997 and for the years ended December 31,
1997, 1996 and 1995 set forth the results of operations of MBI combined with
the results of operations of First Financial, CBT, FSCM and Firstbank as if
the respective mergers had occurred as of the first day of the period
presented. Such income statements also give effect to the divestiture by
MBI of Duchesne Bank and Colonial Bank, each a wholly owned subsidiary of
Firstbank, which divestitures are required due to deposit limitations imposed
by the statutes of the State of Missouri. Due to the immateriality of the
results of operations of Horizon and HomeCorp to that of MBI, individually
and in the aggregate, the unaudited pro forma combined consolidated
financial statements contained herein do not reflect the completed
acquisitions of Horizon and HomeCorp for any period prior to the acquisition
date of such entities.
MBI acquired Roosevelt on July 1, 1997, which acquisition was accounted
for under the purchase method of accounting. Accordingly, the historical
results of operations of MBI include the results of operations of Roosevelt
from July 1, 1997 forward. Consistent with the Commission's rules regarding
the treatment of acquisitions accounted for as purchases in pro forma
presentations, the pro forma combined consolidated income statements for the
three months ended March 31, 1998 and March 31, 1997 and the year ended
December 31, 1997 include the results of operations of Roosevelt but the pro
forma combined consolidated income statements for the years ended December
31, 1996 and 1995 do not.
The unaudited pro forma combined consolidated financial statements
should be read in conjunction with the accompanying Notes to the Pro Forma
Combined Consolidated Financial Statements and with the historical financial
statements of MBI and First Financial. These pro forma combined consolidated
financial statements may not be indicative of the results of operations that
actually would have occurred if the completed and proposed acquisitions had
been consummated on the dates assumed above or of the results of operations
that may be achieved in the future.
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<PAGE> 59
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,193,064 $ 23,575 $(16,873)<F2> $ 1,192,366 $ 63,013
(7,400)<F5>
Due from banks - interest bearing 269,342 0 269,342 11,759
Federal funds sold and repurchase agreements 258,295 39,300 297,595 30,130
Investments in debt and equity securities
Trading 125,634 0 125,634 0
Available-for-sale 8,027,916 119,254 8,147,170 275,694
Held-to-maturity 224,125 0 224,125 92,803
----------- -------- -------- ----------- ----------
Total 8,377,675 119,254 8,496,929 368,497
Loans and leases 19,625,022 357,598 19,982,620 1,038,269
Reserve for possible loan losses (263,511) (4,499) (1,500)<F5> (269,510) (16,729)
----------- -------- -------- ----------- ----------
Net Loans and Leases 19,361,511 353,099 (1,500) 19,713,110 1,021,540
Intangible assets 792,626 2,695 795,321 5,677
Other assets 1,549,209 30,519 60,267 <F3> 1,579,728 48,428
(60,267)<F4>
----------- -------- -------- ----------- ----------
Total Assets $31,801,722 $568,442 $(25,773) $32,344,391 $1,549,044
=========== ======== ======== =========== ==========
LIABILITIES
Deposits
Non-interest bearing $ 3,487,875 $ 60,913 $ 3,548,788 $ 123,211
Interest bearing 18,576,440 419,548 18,995,988 1,000,470
Foreign 463,426 0 463,426 0
----------- -------- -------- ----------- ----------
Total Deposits 22,527,741 480,461 0 23,008,202 1,123,681
Short-term borrowings 3,596,915 14,417 3,611,332 192,499
Bank notes 25,000 0 25,000 0
Long-term debt 2,193,061 7,958 2,201,019 58,964
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 150,000 0 150,000 0
Other liabilities 825,839 5,339 (3,204)<F5> 827,974 17,488
----------- -------- -------- ----------- ----------
Total Liabilities 29,318,556 508,175 (3,204) 29,823,527 1,392,632
<CAPTION>
COLONIAL
CBT/ BANK AND ALL ENTITIES
FSCM/ DUCHESNE PRO FORMA
FIRSTBANK BANK COMBINED
FIRSTBANK ADJUSTMENTS DIVESTITURES CONSOLIDATED
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 96,021 $ (57,025)<F5> $ 45,916 $ 1,329,234
(11,057)<F8>
Due from banks - interest bearing 1,782 (197) 282,686
Federal funds sold and repurchase agreements 19,250 (11,875) 335,100
Investments in debt and equity securities
Trading 46 0 125,680
Available-for-sale 627,548 (69,551) 8,980,861
Held-to-maturity 24,404 (4,051) 337,281
---------- --------- --------- -----------
Total 651,998 0 (73,602) 9,443,822
Loans and leases 1,425,133 (221,552) 22,224,470
Reserve for possible loan losses (20,285) (12,100)<F5> 3,094 (315,530)
---------- --------- --------- -----------
Net Loans and Leases 1,404,848 (12,100) (218,458) 21,908,940
Intangible assets 24,270 0 825,268
Other assets 85,501 122,031 <F6> (8,883) 1,704,774
(122,031)<F7>
34,381 <F9>
(34,381)<F10>
238,489 <F11>
(238,489)<F12>
---------- --------- --------- -----------
Total Assets $2,283,670 $ (80,182) $(267,099) $35,829,824
========== ========= ========= ===========
LIABILITIES
Deposits
Non-interest bearing $ 288,895 $ (54,857) $ 3,906,037
Interest bearing 1,711,644 (247,581) 21,460,521
Foreign 0 0 463,426
---------- --------- --------- -----------
Total Deposits 2,000,539 0 (302,438) 25,829,984
Short-term borrowings 18,604 (1,119) 3,821,316
Bank notes 0 0 25,000
Long-term debt 0 0 2,259,983
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 0 0 150,000
Other liabilities 26,038 (24,885)<F5> 11,458 858,073
---------- --------- --------- -----------
Total Liabilities 2,045,181 (24,885) (292,099) 32,944,356
</TABLE>
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<PAGE> 60
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 (CONTINUED)
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0 5,000
Common stock 1,351 4,442 29 <F3> 1,380 4,270
(4,442)<F4>
Capital surplus 986,393 3,635 (8,825)<F3> 977,568 18,668
(3,635)<F4>
Retained earnings 1,592,681 52,190 52,190 <F3> 1,639,175 131,125
(52,190)<F4>
(5,696)<F5>
Treasury stock (97,259) 0 16,873 <F2> (97,259) (2,651)
(16,873)<F3>
----------- -------- -------- ----------- ----------
Total Shareholders' Equity 2,483,166 60,267 (22,569) 2,520,864 156,412
----------- -------- -------- ----------- ----------
Total Liabilities and Shareholders' Equity $31,801,722 $568,442 $(25,773) $32,344,391 $1,549,044
=========== ======== ======== =========== ==========
<CAPTION>
COLONIAL
CBT/ BANK AND ALL ENTITIES
FSCM/ DUCHESNE PRO FORMA
FIRSTBANK BANK COMBINED
FIRSTBANK ADJUSTMENTS DIVESTITURES CONSOLIDATED
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock (5,000)<F10>
Common stock 15,941 50 <F6> 1,574
(4,100)<F7>
19 <F9>
(170)<F10>
125 <F11>
(15,941)<F12>
Capital surplus 42,976 (2,925)<F6> 25,000 988,088
(16,070)<F7>
(5,959)<F9>
(2,598)<F10>
(5,596)<F11>
(42,976)<F12>
Retained earnings 179,572 (44,240)<F5> 1,905,632
101,861 <F6>
(101,861)<F7>
29,264 <F9>
(29,264)<F10>
179,572 <F11>
(179,572)<F12>
Treasury stock 0 (11,057)<F8> (9,826)
11,057 <F9>
2,651 <F10>
23,045 <F6>
64,388 <F11>
---------- --------- --------- -----------
Total Shareholders' Equity 238,489 (55,297) 25,000 2,885,468
---------- --------- --------- -----------
Total Liabilities and Shareholders' Equity $2,283,670 $ (80,182) $(267,099) $35,829,824
========== ========= ========= ===========
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
-55-
<PAGE> 61
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $530,331 $9,367 $(211)<F13> $539,487
Interest Expense 290,026 4,907 294,933
-------- ------ ----- --------
Net Interest Income 240,305 4,460 (211) 244,554
Provision for Possible Loan Losses 6,606 100 6,706
-------- ------ ----- --------
Net Interest Income after Provision
for Possible Loan Losses 233,699 4,360 (211) 237,848
Other Income
Trust 25,886 938 26,824
Service charges 25,576 511 26,087
Credit card fees 3,284 0 3,284
Securities gains 4,263 154 4,417
Other 68,184 998 69,182
-------- ------ ----- --------
Total Other Income 127,193 2,601 0 129,794
Other Expense
Salaries and employee benefits 111,575 2,164 113,739
Net occupancy and equipment 33,655 723 34,378
Other 51,634 1,604 53,238
-------- ------ ----- --------
Total Other Expense 196,864 4,491 0 201,355
-------- ------ ----- --------
Income Before Income Taxes 164,028 2,470 (211) 166,287
Income Taxes 60,136 736 (76)<F14> 60,796
-------- ------ ----- --------
Net Income $103,892 $1,734 $(135) $105,491
======== ====== ===== ========
Per Share Data <F27>:
Basic Earnings per Share $ 0.78 $ 0.78
Diluted Earnings per Share 0.77 0.77
<CAPTION>
MBI/ALL ENTITIES
FIRSTBANK/ PRO FORMA
CBT/ CBT/FSCM COMBINED
FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $31,962 $41,598 $ (288)<F15> $611,817
(138)<F17>
(804)<F19>
Interest Expense 15,727 19,527 330,187
------- ------- ------- --------
Net Interest Income 16,235 22,071 (1,230) 281,630
Provision for Possible Loan Losses 1,919 762 9,387
------- ------- ------- --------
Net Interest Income after Provision
for Possible Loan Losses 14,316 21,309 (1,230) 272,243
Other Income
Trust 459 1,513 28,796
Service charges 1,552 1,945 29,584
Credit card fees 0 0 3,284
Securities gains 166 71 4,654
Other 1,998 3,249 74,429
------- ------- ------- --------
Total Other Income 4,175 6,778 0 140,747
Other Expense
Salaries and employee benefits 5,915 9,133 128,787
Net occupancy and equipment 1,107 2,606 38,091
Other 4,152 4,187 61,577
------- ------- ------- --------
Total Other Expense 11,174 15,926 228,455
------- ------- ------- --------
Income Before Income Taxes 7,317 12,161 (1,230) 184,535
Income Taxes 2,574 4,395 (104)<F16> 67,321
(50)<F18>
(290)<F20>
------- ------- ------- --------
Net Income $ 4,743 $ 7,766 $ (786) $117,214
======= ======= ======= ========
Per Share Data <F27>:
Basic Earnings per Share $ 0.76
Diluted Earnings per Share 0.75
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
-56-
<PAGE> 62
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
Interest Income $398,462 $8,363 $(211)<F13> $406,614 $28,803
Interest Expense 186,501 4,122 0 190,623 14,148
-------- ------ ----- -------- -------
Net Interest Income 211,961 4,241 (211) 215,991 14,655
Provision for Possible Loan Losses 18,443 177 0 18,620 1,560
-------- ------ ----- -------- -------
Net Interest Income after Provision
for Possible Loan Losses 193,518 4,064 (211) 197,371 13,095
Other Income
Trust 22,801 832 23,633 398
Service charges 22,798 445 23,243 1,495
Credit card fees 5,399 0 5,399 0
Net gain from financial instruments 0 0 0 0
Securities gains (losses) 1,049 44 1,093 0
Other 36,053 528 36,581 1,520
-------- ------ ----- -------- -------
Total Other Income 88,100 1,849 0 89,949 3,413
Other Expense
Salaries and employee benefits 97,722 1,801 99,523 5,436
Net occupancy and equipment 26,528 655 27,183 1,366
Other 41,345 1,246 42,591 3,210
-------- ------ ----- -------- -------
Total Other Expense 165,595 3,702 0 169,297 10,012
-------- ------ ----- -------- -------
Income Before Income Taxes 116,023 2,211 (211) 118,023 6,496
Income Taxes 41,028 664 (76)<F14> 41,616 2,040
-------- ------ ----- -------- -------
Net Income $ 74,995 $1,547 $(135) $ 76,407 $ 4,456
======== ====== ===== ======== =======
Per Share Data <F27>:
Basic Earnings per Share $ .65 $ .65
Diluted Earnings per Share .64 .64
<CAPTION>
ROOSEVELT FOR ROOSEVELT/ MBI/ALL ENTITIES
THE THREE FIRSTBANK/ PRO FORMA
MONTHS ENDED CBT/FSCM COMBINED
FIRSTBANK MARCH 31, 1997 ADJUSTMENTS<F21> CONSOLIDATED
--------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Interest Income $36,611 $140,012 $ (288)<F15> $610,810
(138)<F17>
(804)<F19>
Interest Expense 16,317 90,590 858 <F22> 321,380
8,844 <F23>
------- -------- -------- --------
Net Interest Income 20,294 49,422 (10,932) 289,430
Provision for Possible Loan Losses 717 640 21,537
------- -------- -------- --------
Net Interest Income after Provision
for Possible Loan Losses 19,577 48,782 (10,932) 267,893
Other Income
Trust 1,156 0 25,187
Service charges 1,611 5,979 32,328
Credit card fees 0 0 5,399
Net gain from financial instruments 0 392 392
Securities gains (losses) (4) 0 1,089
Other 2,676 5,981 46,758
------- -------- -------- --------
Total Other Income 5,439 12,352 0 111,153
Other Expense
Salaries and employee benefits 7,973 11,160 124,092
Net occupancy and equipment 2,439 4,811 35,799
Other 3,478 9,467 10,135 <F24> 68,881
------- -------- -------- --------
Total Other Expense 13,890 25,438 10,135 228,772
------- -------- -------- --------
Income Before Income Taxes 11,126 35,696 (21,067) 150,274
Income Taxes 3,941 13,605 (104)<F16> 57,266
(50)<F18>
(290)<F20>
(3,492)<F25>
------- -------- -------- --------
Net Income $ 7,185 $ 22,091 $(17,131) $ 93,008
======= ======== ======== ========
Per Share Data <F27>:
Basic Earnings per Share $ .60
Diluted Earnings per Share .59
See Notes to Pro Forma Combined Consolidated Financial Statements
</TABLE>
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<PAGE> 63
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED CBT/
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM
------- --------- ----------- ------------ ----
<S> <C> <C> <C> <C> <C>
Interest Income $1,878,194 $36,708 $(844)<F13> $1,914,058 $121,890
Interest Expense 957,690 18,730 0 976,420 60,619
---------- ------- ----- ---------- --------
Net Interest Income 920,504 17,978 (844) 937,638 61,271
Provision for Possible Loan Losses 79,309 588 0 79,897 7,470
---------- ------- ----- ---------- --------
Net Interest Income after Provision
for Possible Loan Losses 841,195 17,390 (844) 857,741 53,801
Other Income
Trust 96,055 3,289 99,344 2,799
Service charges 98,733 2,058 100,791 6,281
Credit card fees 20,480 0 20,480 0
Net loss from financial instruments 0 0 0 0
Securities gains 6,985 395 7,380 157
Other 156,431 2,643 159,074 4,941
---------- ------- ----- ---------- --------
Total Other Income 378,684 8,385 0 387,069 14,178
Other Expense
Salaries and employee benefits 414,882 7,758 422,640 22,090
Net occupancy and equipment 118,758 2,755 121,513 5,864
Loss on the sale of credit card loans 50,000 0 50,000 0
Other 311,140 5,670 316,810 13,977
---------- ------- ----- ---------- --------
Total Other Expense 894,780 16,183 0 910,963 41,931
---------- ------- ----- ---------- --------
Income Before Income Taxes 325,099 9,592 (844) 333,847 26,048
Income Taxes 120,506 2,909 (304)<F14> 123,111 7,859
---------- ------- ----- ---------- --------
Net Income $ 204,593 $ 6,683 $(540) $ 210,736 $ 18,189
========== ======= ===== ========== ========
Per Share Data <F27>:
Basic Earnings per Share $ 1.68 $ 1.69
Diluted Earnings per Share 1.65 1.66
<CAPTION>
ROOSEVELT ROOSEVELT/ MBI/ALL ENTITIES
FOR THE SIX FIRSTBANK/ PRO FORMA
MONTHS ENDED CBT/FSCM COMBINED
FIRSTBANK JUNE 30, 1997 ADJUSTMENTS<F21> CONSOLIDATED
--------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Interest Income $157,373 $272,169 $ (1,152)<F15> $2,460,566
(553)<F17>
(3,219)<F19>
Interest Expense 71,472 178,306 858 <F22> 1,303,397
15,722 <F23>
-------- -------- -------- ----------
Net Interest Income 85,901 93,863 (21,504) 1,157,169
Provision for Possible Loan Losses 2,958 3,474 93,799
-------- -------- -------- ----------
Net Interest Income after Provision
for Possible Loan Losses 82,943 90,389 (21,504) 1,063,370
Other Income
Trust 5,010 0 107,153
Service charges 7,441 13,018 127,531
Credit card fees 0 0 20,480
Net loss from financial instruments 0 (35,630) (35,630)
Securities gains 636 0 8,173
Other 11,531 10,038 185,584
-------- -------- -------- ----------
Total Other Income 24,618 (12,574) 413,291
Other Expense
Salaries and employee benefits 35,009 23,717 503,456
Net occupancy and equipment 10,082 9,291 146,750
Loss on the sale of credit card loans 0 0 50,000
Other 16,030 36,555 20,269 <F24> 403,641
-------- -------- -------- ----------
Total Other Expense 61,121 69,563 20,269 1,103,847
-------- -------- -------- ----------
Income Before Income Taxes 46,440 8,252 (41,773) 372,814
Income Taxes 16,796 7,630 (415)<F16> 147,654
(199)<F18>
(1,159)<F20>
(5,969)<F25>
-------- -------- -------- ----------
Net Income $ 29,644 $ 622 $(34,031) $ 225,160
======== ======== ======== ==========
Per Share Data <F27>:
Basic Earnings per Share $ 1.49
Diluted Earnings per Share 1.45
See Notes to Pro Forma Combined Consolidated Financial Statements
</TABLE>
-58-
<PAGE> 64
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $1,552,863 $33,268 $(844)<F13> $1,585,287
Interest Expense 724,910 16,449 0 741,359
---------- ------- ----- ----------
Net Interest Income 827,953 16,819 (844) 843,928
Provision for Possible Loan Losses 73,015 591 0 73,606
---------- ------- ----- ----------
Net Interest Income after Provision
for Possible Loan Losses 754,938 16,228 (844) 770,322
Other Income
Trust 86,616 2,998 89,614
Service charges 88,916 1,825 90,741
Credit card fees 27,962 0 27,962
Securities gains (losses) (83) (160) (243)
Other 134,069 2,361 136,430
---------- ------- ----- ----------
Total Other Income 337,480 7,024 0 344,504
Other Expense
Salaries and employee benefits 365,729 6,696 372,425
Net occupancy and equipment 103,715 2,624 106,339
Other 249,224 5,482 254,706
---------- ------- ----- ----------
Total Other Expense 718,668 14,802 0 733,470
---------- ------- ----- ----------
Income Before Income Taxes 373,750 8,450 (844) 381,356
Income Taxes 128,535 2,534 (304)<F14> 130,765
---------- ------- ----- ----------
Net Income $ 245,215 $ 5,916 $(540) $ 250,591
========== ======= ===== ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.11 $ 2.11
Diluted Earnings per Share 2.08 2.08
<CAPTION>
MBI/ALL ENTITIES
FIRSTBANK/ PRO FORMA
CBT/ CBT/FSCM COMBINED
FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $111,242 $140,611 $(1,152)<F15> $1,832,216
(553)<F17>
(3,219)<F19>
Interest Expense 53,454 61,005 855,818
-------- -------- ------- ----------
Net Interest Income 57,788 79,606 (4,924) 976,398
Provision for Possible Loan Losses 5,408 2,868 81,882
-------- -------- ------- ----------
Net Interest Income after Provision
for Possible Loan Losses 52,380 76,738 (4,924) 894,516
Other Income
Trust 2,544 4,292 96,450
Service charges 5,870 6,651 103,262
Credit card fees 0 0 27,962
Securities gains (losses) 35 340 132
Other 3,896 10,515 150,841
-------- -------- ------- ----------
Total Other Income 12,345 21,798 0 378,647
Other Expense
Salaries and employee benefits 21,876 31,919 426,220
Net occupancy and equipment 5,443 9,259 121,041
Other 15,094 13,959 283,759
-------- -------- ------- ----------
Total Other Expense 42,413 55,137 0 831,020
-------- -------- ------- ----------
Income Before Income Taxes 22,312 43,399 (4,924) 442,143
Income Taxes 6,845 15,526 (415)<F16> 151,363
(199)<F18>
(1,159)<F20>
-------- -------- ------- ----------
Net Income $ 15,467 $ 27,873 $(3,151) $ 290,780
======== ======== ======= ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.13
Diluted Earnings per Share 2.09
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
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<PAGE> 65
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI/FIRST
FINANCIAL
FIRST PRO FORMA
FIRST FINANCIAL COMBINED
MBI<F1> FINANCIAL ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $1,516,156 $31,742 $(844)<F15> $1,547,054
Interest Expense 715,466 15,811 0 731,277
---------- ------- ----- ----------
Net Interest Income 800,690 15,931 (844) 815,777
Provision for Possible Loan Losses 41,533 366 0 41,899
---------- ------- ----- ----------
Net Interest Income after Provision
for Possible Loan Losses 759,157 15,565 (844) 773,878
Other Income
Trust 77,115 2,763 79,878
Service charges 82,459 1,470 83,929
Credit card fees 20,366 0 20,366
Securities gains 4,338 0 4,338
Other 127,371 2,003 129,374
---------- ------- ----- ----------
Total Other Income 311,649 6,236 0 317,885
Other Expense
Salaries and employee benefits 346,156 7,677 353,833
Net occupancy and equipment 95,896 2,726 98,622
Other 198,467 5,077 203,544
---------- ------- ----- ----------
Total Other Expense 640,519 15,480 0 655,999
---------- ------- ----- ----------
Income Before Income Taxes 430,287 6,321 (844) 435,764
Income Taxes 149,898 1,751 (304)<F14> 151,345
---------- ------- ----- ----------
Net Income $ 280,389 $ 4,570 $(540) $ 284,419
========== ======= ===== ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.41 $ 2.39
Diluted Earnings per Share 2.37 2.35
<CAPTION>
MBI/ALL ENTITIES
FIRSTBANK/ PRO FORMA
CBT/ CBT/FSCM COMBINED
FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income $104,420 $134,401 $(1,152)<F15> $1,780,951
(553)<F17>
(3,219)<F19>
Interest Expense 50,217 57,486 838,980
-------- -------- ------- ----------
Net Interest Income 54,203 76,915 (4,924) 941,971
Provision for Possible Loan Losses 2,736 2,313 46,948
-------- -------- ------- ----------
Net Interest Income after Provision
for Possible Loan Losses 51,467 74,602 (4,924) 895,023
Other Income
Trust 1,803 5,986 87,667
Service charges 5,971 5,836 95,736
Credit card fees 0 0 20,366
Securities gains 279 28 4,645
Other 3,361 8,318 141,053
-------- -------- ------- ----------
Total Other Income 11,414 20,168 0 349,467
Other Expense
Salaries and employee benefits 21,526 30,882 406,241
Net occupancy and equipment 4,712 9,215 112,549
Other 14,664 14,824 233,032
-------- -------- ------- ----------
Total Other Expense 40,902 54,921 0 751,822
-------- -------- ------- ----------
Income Before Income Taxes 21,979 39,849 (4,924) 492,668
Income Taxes 6,460 14,107 (415)<F16> 170,139
(199)<F18>
(1,159)<F20>
-------- -------- ------- ----------
Net Income $ 15,519 $ 25,742 $(3,151) $ 322,529
======== ======== ======= ==========
Per Share Data <F27>:
Basic Earnings per Share $ 2.37
Diluted Earnings per Share 2.31
See Notes to Pro Forma Combined Consolidated Financial Statements.
</TABLE>
-60-
<PAGE> 66
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Represents MBI restated historical consolidated financial statements
reflecting the acquisition of Mark Twain Bancshares, Inc. effective
April 25, 1997, which was accounted for as a pooling-of-interests. The
recently completed acquisitions of Horizon and HomeCorp also were
accounted for as poolings-of-interests; however, due to the
immateriality of the financial condition and results of operations of
Horizon and HomeCorp to that of MBI, the historical financial
statements of MBI were not restated. Regional Bancshares, Inc. was
accounted for as a purchase and is included in these pro forma
financial statements only from its acquisition date forward. The full
impact of this acquisition is immaterial to the Pro Forma Combined
Consolidated Financial Statements.
MBI completed its acquisition of Roosevelt on July 1, 1997. The
acquisition of Roosevelt was accounted for as a purchase; as such,
historical financial statements were not restated. The estimated full
impact of the Roosevelt acquisition is included in the pro forma
combined consolidated income statement for the year ended December 31,
1997 and the three months ended March 31, 1997.
All per share data reflects the 3-for-2 stock split declared by MBI on
July 16, 1997 that was distributed on October 1, 1997.
(2) In conjunction with the proposed acquisition of First Financial, MBI
plans to repurchase up to 319,484 shares of MBI Common Stock in the
open market. The assumed repurchase price per share is $52.8125, the
closing price of MBI Common Stock on May 7, 1998, the last trading date
preceding the announcement of the Merger Agreement.
(3) Acquisition of First Financial with 3,194,844 shares of issued MBI
Common Stock, including up to 319,484 reissued treasury shares, based
on the exchange ratio of 0.88 of a share of MBI Common Stock per share
of First Financial Common Stock. The number of shares of MBI Common
Stock, which represents the aggregate number of shares to be issued in
the Merger, was calculated as follows:
<TABLE>
<S> <C>
Shares of First Financial Common Stock outstanding 3,553,717
Maximum number of shares of First Financial Common Stock which could be
issued pursuant to First Financial's stock option plans 76,788
---------
Maximum number of shares of First Financial Common Stock to be
canceled in the Merger 3,630,505
Exchange Ratio x 0.88
---------
Aggregate number of shares of MBI Common Stock to be issued in the
Merger 3,194,844
=========
</TABLE>
(4) Elimination of MBI's investment in First Financial.
(5) Balance sheet impact of adjustments related to the mergers with FSCM,
CBT, First Financial and Firstbank (see footnote 26). These
adjustments will be initially recorded as a credit to accrued
liabilities and the reserve for possible loan losses. Because the
credit to accrued liabilities will be
-61-
<PAGE> 67
paid out in cash within an estimated 18-month period following the
mergers, the Pro Forma Combined Consolidated Financial Statements
reflect the cash outlay. An income tax benefit at an effective tax rate
of 36% is included in these adjustments.
(6) Acquisition of CBT with 5,398,785 shares of issued MBI Common Stock,
including up to 436,875 reissued treasury shares, based on the exchange
ratio of 0.6513 of a share of MBI Common Stock per share of CBT Common
Stock. The number of shares of MBI Common Stock, which represents the
aggregate number of shares to be issued in the merger, was calculated
as follows:
<TABLE>
<S> <C>
Shares of CBT Common Stock 7,863,792
Maximum number of shares of CBT Common Stock which could be
issued pursuant to CBT's stock option plans 425,453
---------
Maximum number of shares of CBT Common Stock to be canceled in the
merger 8,289,245
Exchange Ratio x 0.6513
---------
Aggregate number of shares of MBI Common Stock to be issued in the
merger 5,398,785
=========
</TABLE>
(7) Elimination of MBI's investment in CBT.
(8) In conjunction with the proposed acquisition of FSCM, MBI plans to
repurchase up to 199,676 shares of MBI Common Stock in the open market.
The assumed repurchase price per share is $55.375, the closing price of
MBI Common Stock on April 9, 1998, the last trading date preceding the
announcement of the merger agreement between MBI and FSCM.
(9) Acquisition of FSCM with 2,077,000 shares of issued MBI Common Stock,
including up to 199,676 reissued treasury shares, based on the exchange
ratio of 6.8573 shares of MBI Common Stock per share of FSCM Common
Stock. The number of shares of MBI Common Stock, which represents the
aggregate number of shares to be issued in the merger, was calculated
as follows:
<TABLE>
<S> <C>
Shares of FSCM Common Stock outstanding 260,424
Maximum number of shares of FSCM Common Stock which could be
issued:
Pursuant to FSCM's stock option plans 800
Conversion of FSCM preferred stock 41,666
---------
Maximum number of shares of FSCM Common Stock to be canceled in the
Merger 302,890
Exchange Ratio x 6.8573
---------
Aggregate number of shares of MBI Common Stock to be issued in the
merger 2,077,000
=========
</TABLE>
(10) Elimination of MBI's investment in FSCM.
(11) Acquisition of Firstbank with 13,786,135 shares of issued MBI Common
Stock, including up to 1,275,000 reissued treasury shares, based on the
exchange ratio of 0.8308 of a share of MBI Common Stock per share of
Firstbank Common Stock. The number of shares of MBI Common Stock,
which represents the aggregate number of shares to be issued in the
merger, was calculated as follows:
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<PAGE> 68
<TABLE>
<S> <C>
Shares of Firstbank Common Stock 15,941,350
Maximum number of shares of Firstbank Common Stock which could be
issued pursuant to Firstbank's stock option plans 652,457
Maximum number of shares of Firstbank Common Stock to be canceled in
the merger 16,593,807
Exchange Ratio x 0.8308
----------
Aggregate number of shares of MBI Common Stock to be issued in the
merger 13,786,135
==========
</TABLE>
(12) Elimination of MBI's investment in Firstbank.
(13) Interest income foregone as a result of MBI repurchasing 319,484
treasury shares in conjunction with the acquisition of First Financial
by MBI. The assumed interest rate is 5%.
(14) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction of First Financial by MBI.
The assumed effective tax rate is 36%.
(15) Interest income foregone as a result of MBI repurchasing 436,875
treasury shares in conjunction with the acquisition of CBT by MBI. The
assumed interest rate is 5%.
(16) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
CBT by MBI. These shares were repurchased by MBI in March 1998. The
assumed effective tax is 36%.
(17) Interest income foregone as a result of MBI repurchasing 199,676
treasury shares in conjunction with the acquisition of FSCM by MBI.
The assumed interest rate is 5%.
(18) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
FSCM by MBI. The assumed effective tax rate is 36%.
(19) Interest income foregone as a result of MBI repurchasing 1,275,000
treasury shares in conjunction with the acquisition of Firstbank by
MBI. These shares were repurchased by MBI in March 1998. The assumed
interest rate is 5%.
(20) Income tax benefit associated with interest income foregone as the
result of repurchasing shares in conjunction with the acquisition of
Firstbank by MBI. The assumed effective tax rate is 36%.
(21) The acquisition of Roosevelt was accounted for as a purchase
transaction. Included herein is the amortization of goodwill over a
15-year period (see footnote 24 below) and interest expense related to
the issuance of subordinated debt securities and notes as described in
footnotes 22 and 23 below. The impact of interest income lost on the
cash consideration and stock buybacks is immaterial to the Pro Forma
Combined Consolidated Financial Statements. The income tax benefit
associated with taxable income statement adjustments is computed at an
effective tax rate of 36%.
(22) On January 29, 1997, MBI issued $150,000,000 of subordinated debt
securities, which were issued at a floating rate equal to the
three-month LIBOR plus 85 basis points. The rate assumed in
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<PAGE> 69
calculating the expense from January 1 through January 29, 1997 for the
Pro Forma Combined Consolidated Financial Statements is 6.86%.
(23) On June 11, 1997, MBI issued $200,000,000 of 7.3% subordinated notes
due 2007, $150,000,000 of 6.8% senior notes due 2001 and $150,000,000
of 7.05% senior notes due 2004. This is the pro forma impact of
interest expense on such notes.
(24) The pro forma excess of cost over fair value of net assets acquired was
$608,076,000 for Roosevelt as of December 31, 1997. Given a 15-year
amortization period, the pro forma income statement reflects
one-quarter and one-half the annual amount of goodwill amortization for
the three months ended March 31, 1997 and the year ended December 31,
1997, respectively.
(25) Income tax benefit associated with interest expense on debt issues (see
footnotes 22 and 23 above). The assumed effective tax rate is 36%.
(26) Upon consummation of the mergers with FSCM and First Financial, MBI
expects to record certain adjustments related to the mergers with an
approximate pre-tax total of between $18,000,000 and $22,000,000. Upon
consummation of the acquisition of Firstbank, MBI expects to record
certain adjustments related to the merger with an approximate pre-tax
total between $25,000,000 and $40,000,000. Upon consummation of the
merger with CBT, MBI expects to record certain adjustments related to
the merger with an approximate pre-tax total between $15,000,000 and
$25,000,000. The provision for possible loan losses in the following
table is to substantially conform the accounting and credit policies
of the acquirees to those of MBI. The pre-tax adjustments for First
Financial, FSCM, Firstbank and CBT are estimated as follows:
<TABLE>
<CAPTION>
First
Financial FSCM Firstbank CBT
--------- ---- --------- -------
(in thousands)
<S> <C> <C> <C> <C>
Contract penalties, equipment abandonment costs and
transition and duplicative costs related to system
standardization and signage $3,600 $3,500 $14,250 $ 9,700
Provision for possible loan losses 1,500 2,000 5,000 5,100
Accruals for severance and change of control payments 1,900 2,900 10,600 3,500
Investment banking, legal and accounting fees 1,900 725 8,600 3,250
------ ------ ------- -------
Total $8,900 $9,125 $38,450 $21,550
====== ====== ======= =======
</TABLE>
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<PAGE> 70
(27) Earnings per share was based upon the average shares listed below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MBI average shares as reported 132,778,433 114,862,128 121,933,113 115,938,311 115,754,877
MBI equivalent shares for the
following acquisitions, net of
treasury share repurchases:
FSCM 1,586,129 1,012,304 1,032,759 1,008,923 1,001,113
CBT 4,684,324 4,661,176 4,684,198 4,690,928 4,726,732
First Financial 2,788,709 2,762,804 2,757,554 2,785,853 2,825,383
Firstbank 11,888,331 11,555,805 11,685,124 11,584,583 11,604,514
Shares of MBI Common Stock
issued in the Roosevelt acquisition 18,948,884 18,948,884
Less effect of MBI shares issued
in the Roosevelt acquisition during
the second half of 1997 (9,474,442)
----------- ----------- ----------- ----------- -----------
Average shares outstanding for
basic earnings per share 153,725,926 153,803,101 151,567,190 136,008,598 135,912,619
Effect of MBI dilutive stock
options and convertible notes 2,471,850 1,969,592 2,405,301 1,851,462 2,304,336
MBI equivalent average shares of
dilutive stock options for:
FSCM 286,457 1,011,513 911,952 1,044,600 1,109,141
CBT 95,365 170,558 40,918 33,418 34,236
First Financial 25,626 16,877 26,499 16,254 14,349
Firstbank 261,926 219,577 246,677 185,452 178,084
----------- ----------- ----------- ----------- -----------
Average shares outstanding
for dilutive earnings per share 156,867,150 157,191,218 155,198,537 139,139,784 139,552,765
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE> 71
]
INFORMATION REGARDING FIRST FINANCIAL
-------------------------------------
BUSINESS
ORGANIZATIONAL STRUCTURE AND HISTORY
First Financial is an Iowa business corporation engaged in retail and
commercial banking, trust and asset management, and related lines of business
through its wholly owned subsidiary, FNBI. Both First Financial and FNBI are
based in Iowa City, Iowa. FNBI is a national banking association which is
chartered and incorporated in and which operates under the laws of the United
States. FNBI has trust powers and is a member of the Federal Reserve System,
the Federal Deposit Insurance Corporation (the "FDIC") and the Federal Home
Loan Bank System.
First Financial was organized on October 8, 1985, under the IBCA. On
December 31, 1985, it became operational as a one-bank holding company
through the acquisition of First National Bank, Iowa City, Iowa, an
institution which was founded in 1932 and which, at the date of acquisition,
enjoyed a strong and positive presence in the community as well as a
significant share of the local banking market.
On February 1, 1991, First Financial became a multi-bank holding
organization through the chartering of a second subsidiary bank, First
National Bank, Cedar Rapids, Iowa. On February 8, 1991, this operating unit
became a fully functioning commercial bank through the acquisition of certain
assets, liabilities and the Cedar Rapids branch office facility of the failed
American Federal Savings Association from the Resolution Trust Corporation.
At the time of acquisition, total assets were approximately $45 million,
which represented a relatively small share of the Cedar Rapids market.
In December 1994, First National Bank, Cedar Rapids, opened a second
banking location in downtown Cedar Rapids.
In December 1994, First National Bank, Iowa City, established a fifth
banking location in North Liberty, Iowa, and in January 1995 established a
sixth location in southwest Iowa City.
On November 1, 1996, First Financial made application to the Office of
the Comptroller of the Currency (the "OCC") to merge First National Bank,
Iowa City, and First National Bank, Cedar Rapids, into a single entity named
First National Bank Iowa. Regulatory approval was subsequently granted, and
the merger was consummated March 15, 1997.
During the fourth quarter of 1996, First Financial entered into an
agreement to acquire West Branch Bancorp, Inc., West Branch, Iowa, and its
wholly owned subsidiary, West Branch State Bank. This bank, which was
founded in 1875, was the only financial institution with a physical presence
in the community. Regulatory approval was granted for the transaction which
was completed on April 8, 1997. At the time of the acquisition, the assets
of West Branch State Bank were approximately $40 million.
On September 9, 1997, a filing was made with the State of Iowa to
dissolve West Branch Bancorp, Inc.
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<PAGE> 72
In November 1997, FNBI opened a ninth banking location at its Center
Point Road facility in Cedar Rapids.
In December 1997, after securing the required regulatory approval,
First Financial merged West Branch State Bank into FNBI.
Today, FNBI is one of the largest community banking organizations in
the state with ten banking locations, $550 million in assets and in excess of
$750 million in trust assets. Its organizational structure, which is laid
out along functional lines, consists of four major divisions: Trust and Asset
Management; Commercial Banking; Retail Banking; and Administration. Each
division is managed by a Senior Vice President, who in turn is a member of
FNBI's senior management team. This team is led by the President and CEO and
includes the area President for Cedar Rapids. Direction and oversight are
provided by a 13-member Board of Directors. In addition, input and support
are provided by a 7-member Advisory Board representing the greater Cedar
Rapids area.
The parent company of FNBI is managed by two executive officers: the
President and Chief Executive Officer, and the Executive Vice President and
Chief Operating Officer. It is governed by an 8-member Board of Directors.
MARKET AREA
First Financial's primary market area consists of Johnson and Linn
Counties in east-central Iowa, known as the "Iowa City/Cedar Rapids Corridor"
(the "Corridor"). Although it has a strong agricultural base, the general
economic character and climate of the Corridor is atypical of the rural
Midwest. The economy is significantly more diversified than that of the
region in general. Noteworthy features include strong manufacturing and
retail sectors, a growing regional transportation and distribution industry,
the presence of The University of Iowa and other seats of post-secondary
education and a significant medical and health care infrastructure.
The Corridor also benefits from the lower median age, higher income and
education levels, a higher rate of population growth, a greater population
turnover rate and a stronger residential real estate market than the regional
norms, all of which are conducive to successful community banking. These
general conditions and trends are expected to continue in the future.
NATURE OF BUSINESS
Within the framework provided for by regulation, FNBI provides a
comprehensive range of financial products and services. They fall into four
broad classifications which follow the divisional lines of FNBI's
organizational structure.
Trust and Asset Management:
--------------------------
FNBI's Trust and Asset Management division is among the largest in the
state and represents a significant source of fee income to First Financial.
Its services are comprehensive in scope, and geared primarily toward
fulfilling the needs of individuals, families, businesses and private and
public sector entities which populate the Corridor. Primary functions
include the administration of estates, personal trusts, conservatorships, and
pension and profit sharing plans, as well as providing property management,
asset management, investment advisory and investment management services.
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<PAGE> 73
Retail brokerage products such as mutual funds, stocks, bonds and annuities
are provided through First Financial Services, an affiliate of Des Moines,
Iowa-based Broker Dealer Financial Services, Inc., which maintains an office
in FNBI and utilizes its network of retail banking offices as a primary
distribution channel.
Commercial Banking:
------------------
The Commercial Banking division provides a wide range of products to
meet the needs of the private sector businesses and their public-sector
governmental counterparts in the Corridor. Deposit products include
commercial CDs and demand deposit, savings, money market and cash management
accounts. Core commercial credit products include: conventional and
SBA-guaranteed loans for the acquisition, operation and expansion of
businesses; commercial real estate loans; indirect automobile financing and
dealer floorplanning; commercial lines and letters of credit; and MasterCard(R)
commercial credit program. Access to allied services such as pension and
employee benefit plans, 401(k) and Keogh plans, and business succession and
estate planning, are provided via referral to FNBI's Trust and Asset
Management division.
Retail Banking:
--------------
The Retail Banking division provides a wide range of deposits, loans and
ancillary services designed to meet the needs of individuals and families.
Core deposit products consists of CDs, IRAs, and checking, savings and money
market accounts which are supported by a full complement of ancillary
services including ATM and debit cards, direct deposit and 24-hour telephone
banking. Primary retail credit products include personal loans and lines of
credit, auto loans, Visa(R), MasterCard(R), Visa Gold(R) and gold MasterCard(R)
credit cards, fixed installment and revolving credit lines, home equity loans
and home improvement loans. Fixed and adjustable rate residential mortgage
loans, originated both for secondary market sale and for portfolio purposes,
represent an important line of business.
Administration:
--------------
Although the primary mission of the Administration division is to
provide the necessary infrastructure and supporting mechanisms vital to the
ongoing operation of FNBI, it also provides several types of services which
are usually delivered indirectly to consumers through the three other
divisions. These include ATM services, merchant credit card processing,
direct deposit, wire and electronic funds transfers and correspondent banking
services.
DELIVERY SYSTEM
The foundation of First Financial's delivery system is FNBI's network
of conventional "brick-and-mortar" retail banking facilities. This network is
further supported by electronics and alternative means of responding to the
needs of the market.
As of December 31, 1997, FNBI had ten retail banking facilities: four in
Iowa City; three in Cedar Rapids; and one each in Coralville, North Liberty
and West Branch. This is one of the strongest physical delivery and
distribution channels in the market area. Beyond representing more Corridor
banking locations than that of any other financial institution, it also
reflects FNBI's status as the
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<PAGE> 74
only institution with full-service, freestanding facilities at both ends of
the Corridor as well as in the majority of its largest communities.
This network is augmented by a series of automated teller machines
(ATMs) and electronic point-of-sale (POS) terminals, as well as TeleFirst(SM), a
24-hour touchtone telephone banking service. Customers can also access their
accounts via ATM and debit cards on a statewide basis through the Shazam(R)
network, and nationwide through the Cirrus(R), PLUS(R) and affiliated electronic
funds transfer and ATM networks.
Additional delivery and support mechanisms are provided via FNBI's
membership in the National Automated Clearing House Association (NACHA) for
the processing of electronic ACH funds transfers and the Federal Reserve
FEDLINE(R) system for the direct processing of electronic wire transfers.
Data processing requirements for core banking operations and for trust
services are provided via two in-house computer systems which are owned and
operated by FNBI. Data processing support for credit card, merchant
processing and retail brokerage are provided by outside service bureaus.
Because FNBI relies heavily on both in-house and nonproprietary data
processing hardware and software as an integral part of its delivery systems
and channels, the "Year 2000" issue is one of critical importance.
Technology experts believe that many data processing application systems
could fail or improperly perform as a result of erroneous calculations or
data integrity problems if they are unable to correctly process date
information beyond the turn of the century. FNBI has taken a proactive
approach toward addressing this issue, and is currently in the process of
assessing its information systems, testing and validating in-house systems,
and obtaining validation and certification of outside systems in an effort to
ensure that all potential problem areas are identified and corrected in
advance of the year 2000.
COMPETITION
First Financial's primary competitors are other commercial banks,
thrift institutions such as savings banks and savings and loan associations,
and credit unions, all of which are represented by a physical presence in the
Corridor. Secondary competitors, which are far more numerous and not
necessarily represented by local facilities, vary widely depending on the
product or service in question and include non-traditional providers. In the
case of deposits, investments and asset management services, they include
stockbrokers, money market and mutual fund companies, insurance companies and
out-of-market financial institutions. In the area of loans, they include
mortgage brokers, the financing arm of automobile manufacturers, nationwide
credit card issuers, and in some cases, agencies of the federal government.
On a Corridor-wide basis, the largest share of the market is held by
commercial banks. Thrifts and credit unions also hold significant but
smaller portions of the market. At the south end of the Corridor, FNBI
enjoys a significant share of the deposit and lending market, due in large
measure to its 60+ year presence in the community. Conversely, FNBI has a
comparatively smaller share of the north Corridor market, a situation which
is attributable to the fact that it is a relative newcomer. The Cedar Rapids
and Iowa City ends of the markets do differ in the respect that the former,
aside from being much larger in size in terms of total deposits and total
loans, is dominated by the branches of several large
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<PAGE> 75
multi-state banking companies, while the overwhelming share of the latter
market is held by locally owned, independent financial institutions.
The demographics which make the market so conducive to successful
banking also carry with them a downside which is manifested in the form of
intense competitive pressures.
In recent years, while the nationwide trend in banking has generally
been one of consolidation and a corresponding reduction in traditional
competition, banking in the Corridor has become increasingly competitive in
nature, particularly in terms of rate, price and new entrants to the market.
The greater Iowa City area is a case in point. The number of ATMs has
tripled since 1988. Three new financial institutions have entered the market
and the overall number of banking offices has increased by 30% within the
past three years. It is not unusual to find local deposit yields which are
comparable to those touted as "highest in the country" in nationwide surveys,
and for competitors to attempt to "buy" existing deposit and loan business
from one another primarily on the basis of rate and price rather than through
utilization of sound banking principles and underwriting practices.
In the Corridor as a whole, there are currently over 125 offices of
banks, thrifts and credit unions. These highly competitive local market
trends are expected to continue in the foreseeable future.
CAPITAL REQUIREMENTS
First Financial is regulated by the Federal Reserve Board while FNBI is
under the regulatory jurisdiction of the OCC. One of the functions of the
OCC is to evaluate capital adequacy maintained by each national bank. To
determine the capital adequacy of national banks, the OCC has established a
risk-based capital ratio derived from guidelines sensitive to the credit risk
associated with various bank activities. This risk-based capital ratio is
intended to more accurately assess capital adequacy than is a capital ratio
which is based solely on total assets of banks. See "Supervision and
Regulation - FIRREA and FDICIA."
A comparison of FNBI's capital as of December 31, 1997, with minimum
requirements, is presented below:
<TABLE>
<CAPTION>
Minimum
Actual Requirements
------ ------------
<S> <C> <C>
Total risk-based capital 14.42% 8%
Tier I risk-based capital 3.17 4
Leverage ratio 8.88 4
</TABLE>
At December 31, 1997, FNBI was categorized as a well-capitalized
definition and substantially exceeded the regulatory minimum capital levels.
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As of December 31, 1997 and 1996, First Financial's Tier I capital to
risk-weighted asset ratios, total capital risk-weighted asset ratios (Tier I
capital plus Tier II capital) and leverage capital ratios were as follows:
<TABLE>
<CAPTION>
Actual
------------------------ Minimum
1997 1996 Requirements
---- ---- -------------
<S> <C> <C> <C>
Total risk-based capital 17.23% 18.75% 8%
Tier 1 risk-based capital 15.98 17.50 4
Leverage ratio 10.59 11.73 4
</TABLE>
The following consolidated statistical information reflects selected
balances and operations of First Financial and FNBI for the periods
indicated.
AVERAGE BALANCES AND INTEREST RATES AND INTEREST DIFFERENTIAL
The following tables show the average balance for the period for the
major categories of assets, liabilities and stockholders' equity, average
balances during the period, interest earned or paid and average yields.
(Yields on nontaxable securities are computed on a tax equivalent basis).
Changes in interest earned and paid for the years ended December 31, 1997 and
1996, are analyzed showing the effects of changes in volume and rates:
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<PAGE> 77
<TABLE>
AVERAGE BALANCES (DAILY AVERAGE BASIS):
<CAPTION>
(In Thousands)
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Taxable securities $ 73,800 $ 87,414 $ 88,064
Nontaxable securities 34,526 27,384 23,726
Federal funds sold 23,673 8,136 11,181
Loans, net of unearned income 348,511 310,956 294,649
-------- -------- --------
Total interest-earning assets 480,510 433,890 417,620
Less allowance for loan losses (4,482) (3,625) (3,512)
Cash and due from banks 18,270 15,905 14,312
Property and equipment, net 12,353 12,357 11,693
Other assets 12,429 9,600 9,278
-------- -------- --------
Total assets $519,080 $468,127 $449,391
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-paying demand deposits $ 62,019 $ 58,696 $ 58,357
Savings deposits 111,557 102,185 89,436
Time deposits 212,183 189,227 188,135
Federal funds purchased and
securities sold under agreements
to repurchase 3,701 1,068 237
Federal Home Loan Bank advances 14,818 16,246 19,857
Other long-term borrowings 4,090 -- 13
-------- -------- --------
Total interest-paying liabilities 408,368 367,422 356,035
Noninterest-paying demand deposits 50,387 44,692 42,331
Other liabilities 5,051 4,629 3,644
Stockholders' equity 55,274 51,384 47,381
-------- -------- --------
Total liabilities and stockholders'
equity $519,080 $468,127 $449,391
======== ======== ========
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<PAGE> 78
<CAPTION>
INTEREST INCOME AND EXPENSE:
(In Thousands)
Year Ended December 31,
-------------------------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INCOME
Taxable securities $ 4,496 $ 5,316 $ 5,251
Nontaxable securities 2,489 2,188 2,044
Federal funds sold 1,309 430 658
Loans 29,466 26,376 24,843
------- ------- -------
Total interest income $37,760 $34,310 $32,796
------- ------- -------
EXPENSE
Interest-paying demand
deposits $ 1,236 $ 1,184 $ 1,253
Savings deposits 3,945 3,568 2,870
Time deposits 12,190 10,642 10,475
Federal funds purchased and
securities sold under
agreements to repurchase 189 60 14
Federal Home Loan Bank
advances 910 995 1,199
Other long-term borrowings 260 -- --
------- ------- -------
Total interest expense 18,730 16,449 15,811
------- ------- -------
Net interest income $19,030 $17,861 $16,985
======= ======= =======
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<PAGE> 79
Interest Rates And
Interest Differential
Average yields:
Taxable securities 6.24% 6.08% 5.96%
Nontaxable securities 6.86 7.99 8.62
Federal funds sold 5.53 5.29 5.88
Loans 8.45 8.48 8.43
Interest-paying demand deposits 1.99 2.02 2.15
Savings deposits 3.54 3.49 3.21
Time deposits 5.74 5.62 5.57
Federal funds purchased and
securities sold under agreements
to repurchase 5.10 5.62 5.91
Federal Home Loan Bank advances 6.14 6.12 6.04
Other long-term borrowings 6.36 -- --
Yield on average interest
earning assets<F1> 7.86 7.91 7.85
Yield on average interest-
paying liabilities 4.59 4.48 4.44
Net interest yield<F1> 3.27 3.43 3.41
Net interest margin<F2> 3.96 4.12 4.07
<FN>
Nonaccruing loans are not material and have been included in the
average loan balances for purposes of this computation.
- --------------------
<F1> Net interest yield is the difference between the yield on average
interest-earning assets and the yield on average interest-paying
liabilities stated on a tax equivalent basis using a federal tax
rate of 34% and a state tax rate of 5% for the three years
presented.
<F2> Net interest margin is net interest income, on a tax-equivalent basis,
divided by average interest earning assets.
</TABLE>
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<PAGE> 80
<TABLE>
CHANGE IN INTEREST INCOME AND EXPENSE:
<CAPTION>
(In Thousands of Dollars)
Year Ended December 31, 1997
Change Change
Due To Due To Total
Volume Rates Change
------ ----- ------
<S> <C> <C> <C>
Change in interest income:
Taxable securities $ (941) $ 121 $ (820)
Nontaxable securities 596 (295) 301
Federal funds sold 858 21 879
Loans 3,183 (93) 3,090
------ ----- ------
$3,696 $(246) $3,450
------ ----- ------
Change in interest expense:
Interest-paying demand
deposits $ 69 $ (17) $ 52
Savings deposits 326 51 377
Time deposits 1,316 232 1,548
Federal funds purchased and
securities sold under
agreements to repurchase 136 (7) 129
Federal Home Loan Advances (88) 3 (85)
Other long-term borrowings 260 -- 260
------ ----- ------
2,019 262 2,281
------ ----- ------
Net change in net interest income<F1> $1,677 $(508) $1,169
====== ===== ======
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<PAGE> 81
<CAPTION>
(In Thousands of Dollars)
Year Ended December 31, 1997
------------------------------------------
<S> <C> <C> <C>
Change in interest income:
Taxable securities $ (40) $ 105 $ 65
Nontaxable securities<F1> 300 (156) 144
Federal funds sold (167) (61) (228)
Loans<F1> 1,385 148 1,533
------ ----- ------
1,478 36 1,514
------ ----- ------
Change in interest expense:
Interest-paying demand
deposits 7 (76) (69)
Savings deposits 433 265 698
Time deposits 66 101 167
Federal funds purchased and
securities sold under
agreements to repurchase 47 (1) 46
Federal Home Loan Bank
advances (220) 16 (204)
------ ----- ------
333 305 638
------ ----- ------
Net change in net interest income<F1> $1,145 $(269) $ 876
====== ===== ======
<FN>
<F1> Loan fees included in interest income are not material. Interest on
non-taxable securities and loans is shown on a tax equivalent
basis using a federal tax rate of 34% and a state tax rate of 5%
for 1996 and 1997.
</TABLE>
The rate/volume variances were allocated on a pro rata basis between
rate and volume variances using absolute values.
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<PAGE> 82
INVESTMENT SECURITIES
The following tables show the carrying values of investment securities
as of December 31, 1997, 1996 and 1995, and the maturities and yields of the
investment securities as of December 31, 1997:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
December 31,
--------------------------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Carrying values:
U.S. Treasury securities $ 21,521 $20,933 $ 32,027
Obligations of other U.S.
Government agencies and
corporations 43,666 44,526 63,231
Obligations of states and
political subdivisions 39,603 29,588 26,403
Marketable equity securities 5,339 475 --
Federal Reserve Bank stock 568 339 336
Federal Home Loan Bank
stock 2,058 1,941 1,889
-------- ------- --------
$112,755 $97,802 $123,886
======== ======= ========
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
December 31, 1997
Weighted
Fair Average
Value Yield<F1>
-------- ---------
<S> <C> <C>
Type and maturity groupings:
U.S. Treasury maturities:
Within 1 year $ 10,887 5.92%
From 1 to 5 years 10,634 6.22
--------
Total 21,521
--------
Obligations of other U.S. Government
agencies and corporations maturities:
Within 1 year 11,700 6.30%
From 1 to 5 years 29,020 6.45
From 5 to 10 years 2,946 6.32
--------
Total 43,666
--------
Obligations of states and political
subdivisions maturities:
Within 1 year 6,303 8.39%
From 1 to 5 years 16,843 7.15
From 5 to 10 years 15,971 7.06
Over 10 years 486 8.08
--------
Total 39,603
--------
Marketable equity securities 5,339 2.75%
Federal Reserve Bank stock 568 6.00
Federal Home Loan Bank stock 2,058 7.00
--------
Total 7,965
--------
Total $112,755
========
<FN>
- --------------------
<F1> The yields are computed on a tax equivalent basis using a federal tax
rate of 34% and a state tax rate of 5% for 1997 based on fair value.
</TABLE>
As of December 31, 1997, there were no investment securities of any
issuer, other than securities of the U.S. Government and U.S. Government
agencies and corporations, exceeding 10% of stockholders' equity.
-78-
<PAGE> 84
LOANS<F1>
The following table shows the composition of loans as of December 31,
1997, 1996, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 38,349 $ 32,361 $ 30,128 $ 31,800 $ 30,036
Real estate, construction 19,009 16,440 10,914 16,590 13,662
Real estate, mortgage 252,271 230,534 206,869 194,261 159,349
Loans to individuals 52,638 49,386 43,572 50,123 49,571
All other 2,034 2,018 3,046 1,933 1,589
-------- -------- -------- -------- --------
Total $364,301 $330,739 $294,529 $294,707 $254,207
======== ======== ======== ======== ========
</TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table shows the scheduled distribution of future principal
repayment of loans (in thousands) as of December 31, 1997:
<TABLE>
<CAPTION>
One to Over Non-
Amount One Year Five Five Accrual
of Loans or Less Years Years Loans
-------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural<F2> $ 38,349 $ 25,464 $ 11,446 $ 1,334 $105
Real estate, construction 19,009 3,276 11,496 4,237 --
Real estate, mortgage<F3> 252,271 71,722 162,738 17,158 653
Loans to individuals<F4> 52,638 28,211 22,523 1,738 166
All other 2,034 301 1,443 290 --
-------- -------- -------- ------- ----
Total $364,301 $128,974 $209,646 $24,757 $924
======== ======== ======== ======= ====
<FN>
- --------------------
<F1> Before deducting reserve for possible loan losses.
<F2> Approximately $16,793,000 or nearly 44% of these loans are adjustable rate loans.
<F3> Approximately $140,309,000 or nearly 56% of these loans are adjustable rate loans.
<F4> Approximately $15,249,000 or nearly 29% of these loans are adjustable rate loans.
</TABLE>
-79-
<PAGE> 85
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes First Financial's nonaccrual, past due 90
days or more and restructured loans as of December 31 for each of the years
presented:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
1997 1996 1995 1994 1993
------ ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 924 $559 $270 $1,100 $1,274
Accruing loans past due
90 days or more 1,090 381 273 60 68
Restructured loans 11 16 None None None
</TABLE>
As of December 31, 1997, total nonaccrual loans were comprised primarily
of loans collateralized by real estate. Nonaccrual of interest may occur on
any loan whenever one or more of the following criteria is evident: (a) there
is substantial deterioration in the financial position of the borrower; (b)
the full payment of interest and principal can no longer be reasonably
expected; or (c) the principal or interest on the loan has been in default
for a period of 90 days. In all cases, loans must be placed on nonaccrual or
charged off at an earlier date if collection of principal or interest is
considered doubtful. All interest accrued but not collected for loans that
are placed on nonaccrual or charged off is reversed to interest income. The
interest on these loans is accounted for on the cash basis or cost recovery
method, until qualifying for return to accrual. Loans are returned to
accrual status when all the principal and interest amounts contractually due
are reasonably assured of repayment within a reasonable time frame and when
the borrower has demonstrated payment performance of cash or cash
equivalents. Given the number of nonaccrual loans and related underlying
collateral, management does not anticipate any significant impact to
earnings.
First Financial does not have a significant amount of loans which are
past due less than 90 days on which there are serious doubts as to the
ability of the borrowers to comply with the loan repayment terms. First
Financial has no individual borrower or borrowers engaged in the same or
similar industry exceeding 10% of total loans. First Financial has no other
interest-bearing assets, other than loans, that meet the nonaccrual, past
due, restructured or potential problem loan criteria. First Financial has no
foreign loans outstanding.
First Financial adopted Statement of Financial Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (the "SFAS 114") in the
second quarter of 1995. Under the new standard, a loan is considered
impaired, based on current information and events, if it is probable that
First Financial will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan
agreement. Nonaccrual loans are the only impaired loans.
A loan is considered restructured when First Financial allows certain
concessions to a financially troubled debtor that would not normally be
considered. There were no material troubled debt restructuring loans for the
reporting periods.
The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
rate, except that all collateral dependent loans are measured for impairment
based on the fair value of the collateral.
-80-
<PAGE> 86
SFAS 114 does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for those loans
restructured under troubled debt restructuring. Loans collectively evaluated
for impairment include certain smaller balance commercial loans, consumer
loans, residential real estate loans and credit card loans, and are not
included in the data that follows:
The following table summarizes impaired loan information:
<TABLE>
<CAPTION>
(In Thousands)
As of December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Impaired loans $924 $559 $270
Impaired loans with related reserve
for loan losses calculated under
SFAS 114 924 559 164
Impaired loans with no related reserve
for loan losses calculated under
SFAS 114 -- -- 106
Amount of reserve for loan losses
allocated to the impaired loan balance 162 88 43
</TABLE>
The adoption of SFAS 114 did not result in additional provisions for
loan losses primarily because the majority of impaired loan valuations
continue to be based on the fair market value of collateral and because the
existing provision evaluations methods had included impaired loans as defined
by SFAS 114. Impairment losses are included in the provision for loan
losses.
<TABLE>
<CAPTION>
(In Thousands)
For the Year Ended December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average impaired loans $509 $317 $682
Interest income recognized 20 62 59
</TABLE>
Interest payments on impaired loans are typically applied to principal
unless future collectability of the recorded loan balance is expected, in
which case interest income is recognized on a cash basis.
-81-
<PAGE> 87
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes First Financial's loan loss experience
for each of the years ended December 31, 1997, 1996, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance of loan loss
allowance at beginning
of period $3,788 $3,602 $3,354 $3,101 $3,006
------ ------ ------ ------ ------
Allowance related to acquired bank 671 -- -- -- --
------ ------ ------ ------ ------
Charge-offs:
Commercial,
financial and
agricultural 262 31 21 3 32
Real estate
mortgage 47 76 -- 4 53
Loans to
individuals 500 370 254 249 148
------ ------ ------ ------ ------
809 477 275 256 233
------ ------ ------ ------ ------
Recoveries:
Commercial,
financial and
agricultural 38 13 37 34 27
Real estate,
mortgage 220 4 5 6 87
Loans to
individuals 93 55 115 44 59
------ ------ ------ ------ ------
351 72 157 84 173
------ ------ ------ ------ ------
Net charge-offs 458 405 118 172 60
------ ------ ------ ------ ------
Provision for loan
losses<F1> 588 591 366 425 155
------ ------ ------ ------ ------
Balance of loan loss
allowance at end of
period $4,589 $3,788 $3,602 $3,354 $3,101
====== ====== ====== ====== ======
Percentage of net charge-
offs during period to
average net loans
outstanding .13% .13% .04% .06% .03%
<FN>
- --------------------
<F1> Management regularly reviews the loan portfolio and determines a
provision for loan losses based upon the impact of economic
conditions on the borrower's ability to repay, past collection
experience, the risk characteristics of the loan portfolio and
such other factors which deserve current recognition.
</TABLE>
-82-
<PAGE> 88
The December 31, 1997, 1996, 1995, 1994 and 1993 allowance for loan
losses were allocated as follows:
<TABLE>
<CAPTION>
(In Thousands Except Percentages)
As of December 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- --------------
$(-) %(-) $<F1> %<F2> $<F1> %<F2> $<F1> %<F2> $<F1> %<F2>
------ ---- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31 balance
applicable to:
Allocated:
Commercial,
financial and
agricultural $1,535 11 $ 807 10 $ 490 10 $1,013 11 $ 973 12
Real estate 2,120 74 2,572 75 2,781 74 1,696 71 1,462 68
Installment loans
to individuals 934 15 409 15 256 15 579 17 430 19
Unallocated -- -- -- -- 75 1 66 1 236 -
------ --- ------ --- ------ --- ------ --- ------ ---
$4,589 100 $3,788 100 $3,602 100 $3,354 100 $3,101 100
------ --- ------ --- ------ --- ------ --- ------ ---
<FN>
- --------------------
<F1> Allocation of allowance amount by category.
<F2> Percent of outstanding loan balances in each category.
</TABLE>
Management regularly reviews the loan portfolio and does not expect
any unusual material amount to be charged-off during the next year that
would be significantly different than the above years.
DEPOSITS
The following tables show the average deposit balances and rates paid
on such deposits for the years ended December 31, 1997, 1996 and 1995 and
the composition of the certificates issued in excess of $100,000 as of
December 31, 1997:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
-----------------------------------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
$ Rate $ Rate $ Rate
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Average non-interest-
paying deposits $ 50,387 --% $ 44,692 --% $ 42,331 --%
Average interest-paying
demand deposits 62,019 1.99 58,696 2.02 58,357 2.15
Average savings deposits 111,557 3.54 102,185 3.49 89,436 3.21
Average time deposits 212,183 5.74 189,227 5.62 188,135 5.57
-------- -------- --------
$436,146 $394,800 $378,259
======== ======== ========
-83-
<PAGE> 89
<CAPTION>
Amount Rate
------- ----
<S> <C> <C>
Time certificates in amounts of $100,000 or more
as of December 31, 1997 with maturity in:
3 months or less $ 9,045 5.56%
3 through 12 months 12,314 5.69
1 year through 3 years 8,915 6.57
Over 3 years 100 6.25
-------
$30,374
=======
</TABLE>
There were no material deposits by foreign investors.
RETURN ON STOCKHOLDERS' EQUITY AND ASSETS
The following table presents the return on average stockholders' equity
and average assets, dividend payout percentage and stockholders' equity to
assets percentage for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on average total assets 1.29% 1.26% 1.02%
Return on average stockholders' equity 12.09 11.51 9.65
Dividend payout percentage on average
outstanding common shares 34.16 32.89 39.63
Average stockholders' equity to average
total assets percentage 10.65 10.98 10.54
</TABLE>
SHORT-TERM BORROWINGS
The following table shows outstanding balances, weighted average
interest rates at year end, maximum month-end balances, average month-end
balances and weighted average interest rates of securities sold under
agreements to repurchase and other short-term borrowings during 1997, 1996
and 1995:
<TABLE>
<CAPTION>
(In Thousands of Dollars, Except
for Interest Rate Percentage)
-------------------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Outstanding as of December 31 $10,028 $3,146 $ 67
Weighted average interest rate at year end 5.10% 5.61% --
Maximum month-end balance $10,028 $9,700 $1,575
Average month-end balance 3,894 2,217 131
Weighted average interest rate for the year 5.10% 5.62% 5.91%
</TABLE>
-84-
<PAGE> 90
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The following table shows outstanding balances, weighted average
interest rates at year end, maximum month-end balances, average month-end
balances and weighted average interest rates of Federal Home Loan Bank
advances and other borrowings during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(In Thousands of Dollars, Except
for Interest Rate Percentage)
-------------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Outstanding as of December 31 $18,188 $12,355 $17,469
Weighted average interest rate at year end 6.22% 6.01% 6.01%
Maximum month-end balance $22,379 $17,264 $20,524
Average month-end balance 18,628 16,126 19,772
Weighted average interest rate for the year 6.19% 6.12% 6.04%
</TABLE>
-85-
<PAGE> 91
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
The following table summarizes the repricing dates of First Financial's
earning assets and interest-paying liabilities as of December 31, 1997:
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31, 1997
----------------------------------------------------------------------
After Three After One
Within Through Through Non-
Three Months Twelve Months Five Years sensitive Total
------------ ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Earning assets
Federal funds sold $ 27,925 $ -- $ -- $ -- $ 27,925
Investment securities
available for sale 6,972 24,616 56,497 24,670 112,755
Loans 51,897 71,657 216,414 24,333 364,301<F2>
-------- ------- -------- ------- --------
Total earning assets 86,794 96,273 272,911 49,003 504,981
-------- ------- -------- ------- --------
Interest-paying liabilities
Deposits 93,168<F1> 95,041 90,030 121,332<F1> 399,571<F3>
Federal funds purchased
and securities sold under
agreement to repurchase 10,028 -- -- -- 10,028
Other borrowings 5,380 2,908 9,850 50 18,188
-------- ------- -------- ------- --------
Total interest-paying liabilities 108,576 97,949 99,880 121,382 427,787
-------- ------- -------- ------- --------
Net noninterest-paying liabilities
Noninterest paying
deposits net of cash and
due from banks -- -- -- 37,795 37,795
Other assets, liabilities
and equity net -- -- -- 39,399 39,399
------- --------
Total noninterest paying
liabilities -- -- -- 77,194 77,194
------- --------
Interest sensitivity gap (21,782) (1,676) 173,031 (149,573) --
Cumulative gap (21,782) (23,458) 149,573 --
Cumulative percentage of
interest sensitive assets to
interest sensitive liabilities 80% 89% 149%
<FN>
- --------------------
<F1> Based on an historical analysis of NOW, SuperNow, Savings and Money
Market account balances, a percentage of these deposit balances
has been determined to be sensitive to changes in interest rates.
Approximately 30%, 50%, 30% and 25% of these deposit balances,
respectively, were determined to be interest rate sensitive. As
a result, these percentages of interest rate sensitive deposit
balances, respectively were classified in the first column titled
"Within Three Months." The remainder of the balances were
classified as noninterest rate sensitive deposit balances and
placed in the last column titled "Non-sensitive."
<F2> Of the $364,301,000 of total loans, $191,950,000 have fixed rates while
$172,351,000 have variable rates.
-86-
<PAGE> 92
<F3> Certificates of deposit comprise $230,835,000 of total interest-paying
deposits, while interest-paying demand deposits and savings
deposit balances accounted for $168,736,000 of this total.
-86-
<PAGE> 93
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
The discussion following and elsewhere in this Proxy
Statement/Prospectus contains certain forward looking statements with respect
to the financial condition, results of operations and business of First
Financial. These statements involve certain risks and uncertainties which
are often inherent in the ongoing operation of a financial institution such
as FBNI.
For example, a financial institution may accept deposits at fixed
interest rates at different times and for different terms, and lend funds at
fixed interest rates at different times and at different terms. In doing so,
it accepts the risk that its cost of funds may rise while the use of those
funds may be at a fixed rate. Similarly, although market rates of interest
may decline, the financial institution may have committed, by virtue of the
term of deposit, to pay what essentially becomes an above-market rate.
Loans, and the reserve for loan losses, carry the risk that borrowers
will not repay all funds in a timely manner, as well as the risk of total
loss. The collateral pledged as security for loans may or may not have the
value which has been attributed to it. The loan loss reserve, while believed
to be adequate, may prove inadequate if one or more large-balance borrowers,
or numerous mid-balance borrowers, or a combination of both, experience
financial difficulty for a variety of reasons. These reasons may relate to
the financial circumstances of an individual borrower, or may be caused by
negative economic circumstances at the local, regional, national or
international level which are beyond the control of the borrowers or lender.
Because the business of banking is of a highly regulated nature, the
decisions of governmental entities can have a major effect on operating
results.
All of these uncertainties, as well as others, are present in the
operations of a financial institution, and stockholders are cautioned that
management's view of the future, which serves as a basis for both the ongoing
operation of First Financial and the forward looking statements included in
this report, may prove to be other than anticipated.
EARNINGS PERFORMANCE
Consolidated net income increased $767,000, or 13%, to $6,683,000 for the
year ended December 31, 1997, when compared to the $5,916,000 recorded in
1996. 1996 net income had increased by $1,346,000, or 29.5%, over 1995 net
income of $4,570,000. 1997 earnings are the highest on record for First
Financial, surpassing 1996's record earnings year.
First Financial's net income for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 was $6,683,000, $5,916,000, $4,570,000, $4,563,000
and $5,055,000, respectively.
-87-
<PAGE> 94
NET INTEREST INCOME
For the year ended December 31, 1997, net interest income, on a fully
tax equivalent basis, totaled $19,030,000 and represented an increase of
$1,169,000, or 6.5%, above the $17,861,000 of net interest income reported in
1996, which was $876,000, or 5.2%, higher than the $16,985,000 recorded in
1995. Increased average earning asset balances, in particular loan growth
through acquisition, accounted for the increase in net interest income.
Average earning assets increased $56,493,000, or 13%, in 1997, to $490,383,000,
compared to an increase of $16,270,000, or 3.9%, to $433,890,000 in 1996. As
of December 31, 1997, the net interest margin was 3.96%, a decrease of .16%
or 3.9% when compared to the 4.12% reported as of December 31, 1996. This
decrease was due to the acquired assets and liabilities of West Branch State
Bank and competition for loan and deposit balances. It is anticipated that
the current level of competitive pressures will continue in the foreseeable
future, as financial and nonfinancial entities compete for core deposits and
loans in the local markets. This competition will continue to negatively
impact the net interest margin, forcing financial institutions to seek
non-traditional funding sources and alternative sources of noninterest
income.
The yield on average earning assets, the interest cost of funds for
assets and the resulting net interest income, as a percentage of average
earning assets, for the years ended December 31, 1997, 1996, 1995, 1994 and
1993 are presented in the table below.
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on average earning assets 7.86% 7.91% 7.85% 7.37% 7.43%
Interest expense to average earning assets 3.90 3.48 3.78 3.32 3.55
Net interest margin 3.96 4.12 4.07 4.05 3.88
</TABLE>
DIVIDEND HISTORY
First Financial paid cash dividends totaling $2,283,000 in 1997,
$1,946,000 in 1996 and $1,877,000 in 1995. Cash dividends have increased
$337,000, or 17.3%, in 1997, $135,000, or 7.5%, in 1996 and $78,000, or 4.5%,
in 1995. The dividend payout percentage for 1997, 1996 and 1995 was 34.16%,
32.89% and 39.63%, respectively. This pay-out percentage is indicative of
First Financial's efforts to shares its profits and provide an acceptable
return to its shareholders.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The adequacy of the allowance for loan losses is determined based on
historical loss experience, projected loan losses and other factors. The
allowance for loan losses is an estimate of the anticipated losses in the
loan portfolio. As of December 31, 1997, the allowance for loan losses was
$4,589,000, an increase of $801,000, or 21.1%, over the 1996 year-end balance
of $3,788,000. Included in this increase was the acquired reserve for loan
losses of the West Branch State Bank which totaled $671,000 as of April 1997.
Net charge-offs in 1997 totaled $458,000 compared to net charge-offs of
$405,000 and $118,000 for 1996 and 1995, respectively. The majority of these
loan charge-offs were consumer and credit card charge-offs. As of December
31, 1997, 1996 and 1995, the loan loss reserve balances were 1.26%, 1.15% and
1.22% of total outstanding loan balances, respectively.
-88-
<PAGE> 95
For 1997, the provision for loan losses totaled $588,000, which
decreased $3,000, or .5%, from the $591,000 recorded in 1996, and which
increased $225,000, or 61.5%, from the $366,000 recorded in 1995.
There are no trends or uncertainties which management expects to
materially impact the adequacy of the allowance for loan losses or provision
expense in the foreseeable future.
NONINTEREST INCOME
Noninterest income, excluding security gains and losses, for the year
ended December 31, 1997, increased $806,000, or 11.2%, to $7,990,000, compared
to an increase of $948,000, or 15.4%, to $7,184,000 in 1996 and a increase of
$537,000, or 9.4%, to $6,236,000 in 1995. Noninterest income, excluding
security gains and losses, as a percentage of total assets was 1.51% as of
December 31, 1997, which is a decrease from the 1.53% for the year ended
December 31, 1996 and an increase over the 1.39% reported for 1995.
A five year comparison of the major components of noninterest income is
provided for the years 1997, 1996, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
(Amounts in Thousands)
1997 1996 1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment and OREO gains, net $ 395 $ (160) $ -- $ -- $ --
Service charges on deposit accounts 2,058 1,825 1,470 1,327 1,310
Trust department fees 3,289 2,998 2,763 2,594 2,416
Other service charges and fees 2,643 2,361 2,003 1,778 2,198
</TABLE>
A significant source of noninterest income in 1997 was trust fees.
Trust fees increased $291,000, or 9.7%, to $3,289,000 in 1997, compared to an
increase of $235,000 in 1996 and an increase of $169,000 in 1995. An
increase in trust asset balances and number of trust accounts, combined with
the rising stock market, were responsible for this improved level of
earnings.
Other service charges, commissions and fees increased $282,000, or 11.9%,
to $2,643,000 in 1997, $358,000, or 17.9%, to $2,361,000 in 1996 and $225,000,
or 12.7%, to $2,003,000 in 1995. Secondary market mortgage loan fees are a
direct function of the volume of loans originated for sale in the secondary
market, which is driven by changes in market interest rates. Merchant
program fees, which also contributed to the increase in 1997, increased
$185,000, or 30.1%, to $800,000 as a result of increased transaction volume.
Management is constantly reviewing alternative products and services to offer
to the general public and to cross-sell to existing customers to provide
additional sources of noninterest income.
NONINTEREST EXPENSES
Noninterest expenses increased $1,381,000, or 9.3%, to $16,183,000 in
1997, compared to a decrease of $678,000, or 4.4%, in 1996 and an increase of
$948,000, or 6.5%, to $15,480,000 in 1995. As a percentage of average total
assets, noninterest expenses decreased to 3.1% in 1997, which compares
favorably to 1996's 3.2% and 1995's 3.4%.
-89-
<PAGE> 96
A five year comparison of the major components of noninterest expense is
provided for the years 1997, 1996, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
(Amounts in Thousands)
1997 1996 1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplies and postage and data processing $2,558 $2,377 $2,180 $1,770 $1,628
Occupancy and bank premise 2,755 2,624 2,726 2,515 2,212
Other expenses 3,112 3,105 2,897 3,176 2,998
Salaries and employee benefits 7,758 6,696 7,677 7,071 6,203
</TABLE>
Salaries and employee benefit expenses increased $1,062,000, or 15.9%, to
$7,758,000 in 1997, decreased $981,000, or 12.8%, to $6,696,000 in 1996 and
increased $606,000, or 8.6%, to $7,677,000 in 1995. The increase in expense in
1997 is due to the added staff of the West Branch State Bank, the staffing of
a new branch in Cedar Rapids and normal salary adjustments. The reduction in
expense in 1996 was the result of staff reductions associated with attrition
and the Voluntary Severance Program ("VSP") initiated in 1995. In the past
three years, the number of full-time equivalent ("FTE") employees has varied
from 221 as of December 31, 1995 to 205 as of December 31, 1996 to 239 as of
December 31, 1997. As part of First Financial's restructuring initiative,
the VSP was offered to employees in 1995, resulting in $354,000 of severance
benefits being expensed in the fourth quarter of 1995.
Occupancy, furniture and equipment expenses were $2,755,000 as of
December 31, 1997, an increase of $131,000, or 5%, when compared to 1996
totals. 1996 expenses totaled $2,624,000 and decreased $102,000, or 3.7%, to
the $2,726,000 recorded in 1995. The increase reported in 1997 was due to
the acquisition of West Branch State Bank and the new Cedar Rapids branch.
Reduced depreciation expense accounted for the majority of the decrease in
1996.
Data processing expenses increased $279,000, or 21.8%, $127,000, or 11%,
and $229,000, or 24.7%, to $1,561,000, $1,282,000 and $1,155,000, respectively,
for 1997, 1996 and 1995. These increases are due to increased merchant
programming expenses, credit card processing and electronic banking system
expenses which are volume driven.
Other expenses totaled $3,112,000, $3,105,000 and $2,897,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. A special
Savings Association Insurance Fund ("SAIF") recapitalization assessment had a
negative impact in 1996, while a retroactive reduction in the FDIC premium
assessment rate had a positive impact on 1995.
Consulting and professional fees increased $58,000, or 8.2%, to $767,000
in 1997, compared to an increase of $123,000, or 21%, in 1996 to $709,000, and
an increase of $7,000, or 1.2%, to $586,000 in 1995. Increased advertising and
promotional expense accounted for the remaining increase for this category,
reflecting an increase of $107,000, or 17.4%, in 1997 to $722,000, compared to
an increase of $126,000, or 25.8%, in 1996 to $615,000.
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<PAGE> 97
BALANCE SHEET ANALYSIS
Total Assets:
------------
Total assets of First Financial were $550,053,000 as of December 31,
1997, which represented an increase of $82,328,000 ($39,354,000 of which
represented the assets of West Branch State Bank at the time of acquisition)
or 17.6% over total assets of $467,725,000 as of December 31, 1996.
Average total assets for 1997 were $519,080,000 which is an increase of
$50,953,000, or 10.9%, over 1996 average total assets of $468,127,000 which was
a $18,736,000, or 4.2%, increase over 1995 average total assets of
$449,391,000. The funding for this asset growth was provided by average
deposit growth of $41,346,000, or 10.5%, to $436,146,000 in 1997 and
$16,541,000, or 4.4%, to $394,800,000 in 1996. In addition, average
stockholders' equity balances increased $3,890,000, or 7.6%, in 1997 and
$4,003,000, or 8.4%, in 1996, primarily through the retention of earnings.
Notes payable, issued for the acquisition of West Branch Bancorp, Inc.,
averaged $4,090,000 for the year and provided another source of funds for
asset growth.
A five year comparison of the major components of average total
consolidated assets for 1997, 1996, 1995, 1994 and 1993 are listed in the
following table:
<TABLE>
<CAPTION>
(Amounts in Thousands)
1997 1996 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 23,700 $ 8,100 $ 11,200 $ 5,800 $ 16,600
Other assets 43,100 37,900 35,300 33,600 33,200
Investment securities 108,300 114,800 111,800 127,700 141,400
Net loans 344,000 307,300 291,100 273,900 234,600
</TABLE>
Investments:
-----------
First Financial's average investment portfolio balances for 1997 were
$108,326,000, which decreased $6,472,000, or 5.6%, from 1996 average
investments of $114,798,000. Average federal funds sold balances were
$23,673,000 in 1997, $15,537,000, or 191%, more than 1996's average balance of
$8,136,000. The increase in federal fund sold balances was due to increases
in short-term deposit balances and future liquidity needs. As of December
31, 1997, United States Treasury securities comprised 19.1% of the investment
portfolio compared to 21.4% as of the end of 1996.
Loan Balances:
-------------
As of December 31, 1997, total loan balances increased $33,562,000, or
10.1%, to $364,301,000 when compared to total loan balances of $330,739,000 as
of December 31, 1996.
Average loan balances increased by $37,555,000, or 12.1%, in 1997 to
$348,511,000 compared to average loan balances of $310,956,000 for 1996.
First Financial experienced the majority of its 1997 loan growth from the
acquisition of West Branch State Bank and from increased real estate loan
volume caused by construction activity and housing turnover in the local
market. Real estate loan
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<PAGE> 98
balances increased $53,079,000, or 21.5%, to $300,053,000 as of December 31,
1997 compared to the balance of $246,974,000 as of December 31, 1996.
Average total net loans for the years 1997, 1996, 1995, 1994 and 1993
were $349,700,000, $307,300,000, $291,100,000, $273,900,000 and $234,600,000,
respectively.
Deposits:
--------
Total deposits increased $63,408,000, or 16%, to $458,815,000 in 1997
compared to total deposits of $395,407,000 as of December 31, 1996.
Throughout 1997, average deposit balances totaled $444,052,000, an increase
of $49,252,000, or 12.5%, over the average total deposit balances of
$394,800,000 in 1996. Approximately $32,789,000 of 1997's deposit growth
came from the acquisition of West Branch State Bank.
A five-year comparison of the noninterest bearing and interest bearing
balances of average total deposits for 1997, 1996, 1995, 1994 and 1993 are
listed in the following table:
<TABLE>
<CAPTION>
(Amounts in Thousands)
1997 1996 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noninterest bearing $ 50,400 $ 44,700 $ 42,400 $ 42,700 $ 40,300
Interest bearing 385,700 350,100 335,900 327,700 322,800
</TABLE>
Liquidity And Capital Resources:
-------------------------------
On an unconsolidated basis, First Financial had cash balances of
$10,742,000 as of December 31, 1997. In 1997, First Financial received
dividends of $15,329,000 from FNBI and used those funds to provide a partial
payment of $2,100,000 on the acquisition of West Branch Bancorp, Inc., make
net purchases of marketable equity securities of $4,950,000, pay dividends to
its stockholders of $2,283,000 and increase its cash position by $6,721,000.
FNBI is subject to certain regulatory limitations relative to its
ability to pay dividends to First Financial. Management believes that First
Financial will not be adversely affected by these dividend regulations and
that projected dividends from FNBI will be sufficient to meet First
Financial's liquidity needs and pay consistent dividends.
The soundness, safety and stability of a financial institution is very
important to customers and shareholders when establishing a business
relationship or when purchasing stock of a financial institution. Management
realizes that this is essential for First Financial's continued growth and
profitability. As such, management places great emphasis in maintaining a
strong capital position. A strong capital position is beneficial to First
Financial, enabling it to withstand significant long-term adverse economic
conditions and to take advantage of opportunities for future development and
profitability. As of December 31, 1997 and 1996, total stockholders' equity
was $57,580,000 and $52,576,000, respectively. As of December 31, 1997 and
1996, First Financial's Tier 1 capital percentage was 15.98% and 17.50%,
respectively, and its total risk adjusted capital percentage (Tier 1 capital
plus Tier
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<PAGE> 99
2 capital) was 17.23% and 18.75%, respectively. All of these ratios
substantially exceeded the regulatory minimums of 4.00% and 8.00%,
respectively. First Financial's leverage capital ratio was 10.59% as of
December 31, 1997, compared to 11.73% as of December 31, 1996, also
considerably higher than the 4.00% floor. As of December 31, 1997, the lower
capital percentages are primarily due to the acquisition of West Branch
Bancorp, Inc. in 1997 and do not represent a trend or uncertainty that is
likely to have a material effect on liquidity and capital resources.
On a consolidated basis, 1997 net cash flows from operations provided
$6,525,000 and another $37,501,000 was provided by net increases in deposits
and repurchase agreements. These cash flows were invested in net loans of
$12,273,000 and federal funds sold of $26,225,000. In addition, First
Financial acquired approximately $41,800,000 of assets offset by deposits,
notes payable and other liabilities totaling $39,600,000 in conjunction with
the acquisition of West Branch Bancorp, Inc.
At December 31, 1997, First Financial had total outstanding loan
commitments of approximately $9,450,000 and a total of $64,805,000 of loan
commitments and unfunded or unused lines of credit. Management believes that
its liquidity levels are appropriate and that it has borrowing capacity from
the Federal Home Loan Bank and other sources.
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES AND LIQUIDITY
Average Interest-Earning Assets:
-------------------------------
In 1997, average interest-earning assets (consisting primarily of loans
and investment securities) totaled $490,383,000 and represented 92.5% of
total average asset balances. This is an increase of $56,493,000, or 13%, over
1996 average interest-earning asset balances of $433,890,000. The majority
of this increase was in loans. Average loan balances increased $43,431,000,
or 14%, to $354,387,000 in 1997.
Average Interest-Paying Liabilities:
-----------------------------------
Average interest-paying liabilities increased $44,830,000, or 12.2%, in
1997 and $11,387,000, or 3.2%, in 1996, to $412,252,000 and $367,422,000,
respectively. Average savings deposit balances increased $10,427,000, or
10.2%, to $112,612,000 in 1997 and $12,749,000, or 14.3%, in 1996. Average time
deposit balances increased $28,873,000, or 15.3%, to $218,000,000 in 1997 and
$1,092,000, or .6%, to $189,227,000 in 1996. The 1997 increase includes the
acquisition of West Branch State Bank.
Material Uncertainties:
----------------------
First Financial continues to challenge all systems and vendors in
reaching a compliance standard with the Year 2000 issue. It has utilized
diligence in selecting partners which provide information systems support for
hardware applications and operating systems software. As a matter of policy,
First Financial reviews any potential partners' financial condition in the
selection process for software and hardware for its critical systems. This
process is repeated annually in evaluating partners' ability to provide
continued quality and support. At the present time, all major system vendors
have conducted comprehensive testing of their systems with regard to the Year
2000 issue and have communicated these results to First Financial. Based on
these policies, procedures and actions, First Financial has determined that a
majority of its systems will be compliant with Year 2000 standards before the
end of 1998. First Financial has incurred, and expects to incur, internal
staff costs as well as
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<PAGE> 100
consulting and other expenses related to the assessment and testing of its
systems. Capital expenditures for hardware purchases will be incurred in the
normal course of business which will also prepare the systems for the Year
2000. These costs are not expected to significantly impact liquidity or
future earnings of First Financial. Management expects to complete its Year
2000 plan during 1998, and the remainder of the costs to be incurred are not
expected to be significant to the financial position of First Financial.
Effects of Inflation:
--------------------
Although it has not been an important factor in recent years, the rate
of inflation can have a significant impact on the balance sheet and income
statement of First Financial. In addition to the establishment of ALCO,
management has instituted effective cost and purchasing controls and has
established ongoing mechanisms for adjusting product and service pricing to
minimize the potential impact of inflation.
Recently Issued Accounting Standards:
------------------------------------
The adoption of recently issued accounting standards is not expected to
have a material effect on First Financial's financial statements.
LEGAL PROCEEDINGS
Neither First Financial nor FNBI is involved in any material legal
proceedings, other than routine proceedings incidental to the operation of
FNBI. Such proceedings are not expected to result in any materially adverse
effect on the operations or earnings of FNBI. Neither First Financial nor
FNBI is involved in any proceedings to which any director, principal
officer, or affiliate of such persons, or persons who own of record or
beneficially 5% or more of the outstanding shares of First Financial, or any
associate of the foregoing persons, is a party adverse to First Financial or
FNBI.
PROPERTIES
First Financial's office and the main office of FNBI is located in
Iowa City, Iowa.
As of December 31, 1997, FNBI had ten retail banking offices: four Iowa
City locations; one North Liberty location; one Coralville location; one West
Branch location; and three Cedar Rapids locations (see chart below).
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<PAGE> 101
<TABLE>
First Financial Bancorporation's Retail Banking Locations
<CAPTION>
Established
-----------
<S> <C>
Iowa City Locations
Main Bank - 204 East Washington Street, Downtown Iowa City 1932
Drive-In - 21 South Linn Street, Downtown Iowa City 1962
Towncrest - 1117 William Street, Iowa City's East Side 1968
Southwest - 2312 Mormon Trek Boulevard, Southwest Iowa City 1995
North Liberty Locations
North Liberty - 580 West Cherry Street, North Liberty, Iowa 1994
Coralville Locations
Coralville - 506 10th Avenue, Coralville, Iowa 1979
West Branch Locations
West Branch Banking Center - 127 West Main Street, West Branch, Iowa 52317 1997
Cedar Rapids Locations
Main Bank - 200 First Street SW, Cedar Rapids 1991
<F*>Downtown - 240 Third Avenue SE, in the Armstrong Centre, Cedar Rapids 1994
Center Point Road - 5012 Center Point Road NE, Cedar Rapids, Iowa 52402 1997
<FN>
<F*> This space is being rented for a five-year period from December 1, 1994,
to December 1, 1999, with three five-year options to renew.
During the first five years, annual rent is $37,206 through
December 1, 1996, $39,840 through December 1, 1998, and $40,068
to December 1, 1999. First Financial has free and clear title to
the remaining branch locations.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (FIRST QUARTER COMPARISON)
EARNINGS PERFORMANCE
Net income increased $187,000, or 12.1%, to $1,734,000 for the quarter
ended March 31, 1998 when compared to net income of $1,547,000 for the first
quarter of 1997. Basic earnings per share increased from $.44 in the first
quarter of 1997 to $.49 in the first quarter of 1998, an increase of 11.4%.
DIVIDEND INFORMATION
In the first quarter of 1998, First Financial paid cash dividends of
$.19 per outstanding share of common stock which totaled $675,000, compared
to $.1467 per share and $514,000 in total dividends for the same period in
1997. This represented an increase of $.0433, or 29.5%, per outstanding share
of common stock and $161,000, or 31.3%, in total cash dividends paid. The
ability of First Financial to pay dividends to its shareholders is dependent
on the profitability of FNBI and to what prudent and sound banking principles
will permit. The payment of the dividends (i) is not permitted without the
approval of the OCC except to the extent of net profits of the current fiscal
year and retained net profits of the two preceding fiscal years, and (ii) is
not permitted
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<PAGE> 102
if the payment of a dividend would reduce the capital of a bank below required
levels. Given FNBI's current capital position, the OCC minimum capital
criteria are not restrictive.
NET INTEREST INCOME
Net interest income after provision for loan losses increased $296,000,
or 7.3%, to $4,360,000 at the end of the first quarter of 1998 when compared
to 1997 period totals. The primary factor contributing to this increase in
net interest income was the acquisition of West Branch Bancorp, Inc. in April
1997.
Net interest income, on a fully tax equivalent basis, for the first
quarter of 1998 totaled $4,746,000, which is up $246,000, or 5.5%, over the
$4,500,000 reported for the same period in 1997. The increase in fully
taxable equivalent net interest income is also attributed to the acquisition.
The consolidated net interest spreads and margins are presented in the
following table for the first quarter of 1998 and 1997.
ANALYSIS OF INTEREST RATE SPREAD AND MARGIN
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
March 31, 1998 March 31, 1997
--------------------- ---------------------
(Fully taxable-equivalent basis) Average Average Average Average
(Dollars In Thousands) Balance Rates Balance Rates
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Interest earning assets $504,140 7.68% $440,549 7.85%
Interest paying liabilities 429,681 4.63 370,764 4.51
Net interest spread 3.05 3.34
Net interest margin 3.74 4.06
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
As of March 31, 1998, the allowance for possible loan losses was 1.26%
of total outstanding loans compared to the same percentage as of December 31,
1997 and 1.20% as of March 31, 1997. During the first quarter of 1998, First
Financial recorded net charged-off loans totaling $190,000 compared to
$69,000 for the first quarter of 1997. The dollar amount of nonaccrual loans
increased from $550,000 as of March 31, 1997 to $1,425,000 as of March 31,
1998. Year-to-date provision decreased $77,000, or 43.5%, to $100,000 as of
March 31, 1998 when compared to March 31, 1997. The provision was decreased
primarily due to the improvement of the credit quality of the loan portfolio.
There are no trends or uncertainties which management expects to materially
impact the adequacy of the allowance for loan losses or provision expense in
the foreseeable future.
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<PAGE> 103
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes First Financial's loan loss experience
for the three month periods ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
(In Thousands)
------------------------------
Three Months Ended
March 31,
1998 1997
------ ------
<S> <C> <C>
Balance of loan loss allowance at beginning of period $4,589 $3,788
------ ------
Charge-offs:
Commercial, financial and agricultural 30 3
Real estate, mortgage -- 35
Loans to individuals 195 87
------ ------
225 125
------ ------
Recoveries:
Commercial, financial and agricultural 13 6
Real estate, mortgage -- 26
Loans to individuals 22 24
------ ------
35 56
------ ------
Net charge-offs 190 69
------ ------
Provision for loan losses<F1> 100 177
------ ------
Balance of loan loss allowance at end of period $4,499 $3,896
====== ======
Percentage of net charge-offs during period to
average net loans outstanding .05% .02%
<FN>
<F1> For financial reporting purposes, management regularly reviews the loan
portfolio and determines a provision for loan losses based upon
the impact of economic conditions on the borrower's ability to
repay, past collection experience, the risk characteristics of
the loan portfolio and such other factors which deserve current
recognition.
</TABLE>
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<PAGE> 104
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The March 31, 1998 and 1997 allowance for loan losses have been
allocated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except for Percentages)
March 31, 1998 March 31, 1997
----------------------- -----------------------
Allocation Allocation
of Percentage of Percentage
Allowance of Loans Allowance of Loans
Amount by in Amount by in
Category Category Category Category
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance applicable to:
Allocated:
Commercial, financial and agricultural $1,047 11% $ 849 9%
Real estate 2,329 74 2,648 76
Installment loans to individuals 1,123 14 399 14
Unallocated: -- 1 -- 1
------ --- ------ ---
$4,499 100% $3,896 100%
====== === ====== ===
</TABLE>
Management regularly reviews the loan portfolio and does not expect any
unusual material amount to be charged off in the future which would be
significantly different than the above historical experience.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes First Financial's nonaccrual, past due 90
days or more and restructured loans as to interest or principal payments as
of March 31, 1998 and 1997:
<TABLE>
<CAPTION>
(In Thousands)
---------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Nonaccrual loans $1,425 $550
Accruing loans past due 90 days or more 783 735
Restructured loans 118 18
</TABLE>
As of March 31, 1998 and March 31, 1997, total nonaccrual loans were
comprised primarily of loans collateralized by real estate. Non-accrual of
interest may occur on any loan whenever one or more of the following criteria
is evident: (a) there is substantial deterioration in the financial position
of the borrower; (b) the full payment of interest and principal can no longer
be reasonably expected; or (c) the principal or interest on the loan has been
in default for a period of 90 days. In all cases, loans must be placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful. All interest accrued but not collected for
loans that are placed on nonaccrual or charged off is reversed to interest
income. The interest on these loans is accounted for on the cash basis or
cost recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are reasonably assured of repayment within a reasonable
time frame and when the borrower has demonstrated payment performance of cash
or cash equivalents. Given the number of nonaccrual loans and related
underlying collateral, management does not anticipate any significant impact
to earnings.
-98-
<PAGE> 105
As of March 31, 1998, First Financial did not have a significant amount
of loans which were past due less than 90 days on which there were serious
doubts as to the ability of the borrowers to comply with the loan repayment
terms.
As of March 31, 1998, First Financial had no individual borrower or
borrowers engaged in the same or similar industry exceeding 10% of total
loans. As of such date, First Financial had no other interest-bearing assets,
other than loans, that meet the nonaccrual, past due, restructured or
potential problem loan criteria, and First Financial had no foreign loans
outstanding.
A loan is considered restructured when First Financial allows certain
concessions to financially troubled debtor that would not normally be
considered. As of March 31, 1998 and 1997 there were no trouble debt
restructuring loans.
NONINTEREST INCOME
Noninterest income for the quarter ending March 31, 1998 totaled
$2,447,000 (when excluding security gains), which is an increase of $642,000,
or 35.6%, when compared to the $1,805,000 of noninterest income reported for
the quarter ending March 31, 1997. Trust fees increased $106,000, or 12.7%, to
$938,000 during the first quarter of 1998 when compared to the same period
during 1997. Other service charges, commissions and fees on increased
$470,000, or 89%, to $938,000 in the first quarter of 1998, compared to
$528,000 as of March 31, 1997. Secondary market loan fees accounted for the
majority of this increase, totaling $448,000 as of March 31, 1998, an
increase of $346,000, or 339.2%, over 1997. The acquisition of West Branch
Bancorp, Inc. accounted for the remaining increase.
Investment security gains of $154,000 were realized in the first three
months of 1998 compared to $44,000 during the same period in 1997.
NONINTEREST EXPENSES
Noninterest expenses totaled $4,491,000 as of March 31, 1998. This
represented an increase of $789,000, or 21.3%, over the $3,702,000 of
noninterest expense recorded for 1997.
TOTAL ASSETS
As of March 31, 1998, First Financial's assets totaled $568,442,000
representing a $18,389,000, or 3.3%, increase over December 31, 1997 assets of
$550,053,000. The majority of this asset growth was funded by approximately
$17,000,000 of seasonal short-term deposits. Average total assets for the
first quarter of 1998 were $549,949,000 compared to $473,882,000 for 1997, an
increase of $76,067,000, or 16.1%, reflecting the acquired assets of West
Branch Bancorp, Inc. and deposit growth previously noted.
TOTAL LOAN BALANCES
Total loan balances decreased by $6,703,000, or 18.4%, to $357,598,000 in
the first quarter of 1998 when compared to year-end loan balances of
$364,301,000. Increased secondary market mortgage refinancing resulted in a
higher volume of in-house real estate loans being sold to the secondary
market. Average loan balances for the first quarter of 1998 increased
$33,446,000, or 10.2%,
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<PAGE> 106
to $359,807,000 when compared to the $326,361,000 in average loan balances
reported for the first quarter of 1997. Again, the majority of this increase
was through acquisition.
TOTAL DEPOSITS
Since December 31, 1997, total deposits increased $21,646,000, or 4.7%, to
$480,461,000 as of March 31, 1998. The majority of this increase was due to
seasonal short-term deposits. Average total deposits for the first quarter
of 1998 were $461,362,000, an increase of $58,796,000, or 14.6%, over first
quarter 1997 average deposits of $402,566,000 as a result of seasonal
deposits and acquired deposits.
CAPITAL POSITION
The strength and soundness of a company is reflected in the adequacy of
its capital position. Total capital as of March 31, 1998 was $64,766,000
which is an increase of $2,597,000, or 4.2%, from total capital of $62,169,000
as of December 31, 1997. The ratio of total capital to total assets as of
March 31, 1998 was 11.4%, which was down 0.2% from the December 31, 1997 ratio
of 11.6%. Stockholders' equity increased 4.7% compared to asset growth of
3.3%, resulting in the lower total capital-to-total asset ratio. This ratio
is substantially higher than the current Federal Reserve Board guideline of
6.0%.
As of March 31, 1998, First Financial's Tier I capital ratio was 16.31%
and its total risk adjusted capital ratio (Tier I plus Tier II) was 17.56%
compared to 15.98% and 17.23%, respectively, as of December 31, 1997. Both of
these ratios exceeded the regulatory minimums of 4.0% for Tier I and 8% for
total risk adjusted capital. First Financial's leverage capital was 11.08% as
of March 31, 1998, compared to 10.59% at December 31, 1997, substantially
higher than the 4% regulatory floor.
CAPITAL EXPENDITURES
Through March 31, 1998, First Financial recorded year-to-date capital
expenditures totaling approximately $205,000, relating to standard
expenditures necessary to conduct its banking business. Cash flow provided
by maturing investment securities funded these capital outlays.
INTEREST RATE SENSITIVITY AND LIQUIDITY ANALYSIS
The following table summarizes various repricing periods of First
Financial's interest-earning assets and interest-paying liabilities
as of March 31, 1998. This table indicates that First
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<PAGE> 107
Financial is slightly liability sensitive over the next twelve-month
timeframe. If interest rates increase in the next year, net interest income
may decrease. If rates would decrease, net interest income may increase. To
offset the effects of decreasing market rates and reduce the exposure of the
positive gap, management could shorten the maturities of investment
securities and could lengthen the maturities of deposits in conjunction with
increasing the interest rates paid on long-term time deposits.
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1998
----------------------------------------------------------------------
After Three After One
Within Through Through Non-
Three Months Twelve Months Five Years sensitive Total
------------ ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 39,300 $ -- $ -- $ -- $ 39,300
Investment securities 8,977 20,758 62,741 26,778 119,254
Loans 45,019 76,485 217,686 18,408 357,598<F2>
-------- ------- -------- ------- --------
Total interest earning assets 93,296 97,243 280,427 45,186 516,152
-------- ------- -------- ------- --------
Interest paying liabilities:
Securities sold under
agreement to repurchase 9,467 -- -- -- 9,467
Deposits 101,958<F1> 77,458 102,689 137,443 419,548<F3>
Long-term debt 2,250 4,512 5,996 150 12,908
-------- ------- -------- ------- --------
Total interest paying liabilities 113,675 81,970 108,685 137,593 441,923
-------- ------- -------- ------- --------
Net noninterest paying liabilities
Noninterest paying deposits
net of cash and due from
banks -- -- -- 37,338 37,338
Other assets, liabilities and
equity net -- -- -- 36,891 36,891
------- --------
Total noninterest rate
sensitive assets and
liabilities -- -- -- 74,229 74,229
------- --------
Interest sensitive
gap (20,379) 15,273 171,742 (166,636) --
Cumulative gap (20,379) (5,106) 166,636 -- --
Cumulative % of
sensitive assets
to liabilities 82% 97% 155% -- --
<FN>
- --------------------
<F1> Based on an historical analysis of NOW, SuperNow, Savings and Money
Market account balances, a percentage of these deposit balances
has been determined to be sensitive to changes in interest rates.
Approximately 30%, 50%, 30% and 25% of these deposit balances,
respectively, were determined to be interest rate sensitive. As
such, these percentages of interest rate sensitive deposit
balances were classified in the first column titled "Within Three
Months." The remainder of the balances were classified as
noninterest rate sensitive deposit balances and placed in the last
column titled "Non-sensitive."
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<PAGE> 108
<F2> Of the $357,598,000 of total loans, $191,822,000 have fixed rates, while
$165,776,000 have variable rates.
<F3> Certificates of deposit comprise $229,892,000 of total deposits, while
interest-paying demand deposits and savings deposit balances
accounted for $189,656,000 of this total.
</TABLE>
<TABLE>
Market Risk Analysis at March 31, 1998 Dollar Amounts Expressed in Thousands
(Expected Maturity Date, Period Ended March 31, 1998)
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Fixed rate loans:
Balance $ 50,906 $31,396 $26,727 $32,448 $33,762 $16,583 $191,822 $190,335
Average interest rate 8.19% 8.48% 8.46% 8.45% 8.25% 6.77% 8.21%
Variable rate loans:
Balance $ 70,598 $39,550 $34,140 $ 6,346 $13,316 $ 1,826 $165,776 $165,776
Average interest rate 8.53% 8.15% 8.02% 7.85% 7.86% 7.64% 8.25%
Investments:<F1>
Balance $ 69,034 $26,141 $20,320 $11,560 $ 4,720 $26,779 $158,554 $158,554
Average interest rate 6.14% 6.47% 6.42% 6.62% 6.74% 5.51% 6.28%
LIABILITIES
Liquid deposits:<F2>
Balance $189,656 -- -- -- -- -- $189,656 $189,656
Average interest rate 2.80% -- -- -- -- -- 2.80%
Fixed-rate time deposits:
Balance $123,622 $64,182 $29,389 $ 2,459 $ 4,181 $ 30 $223,863 $226,022
Average interest rate 5.66% 6.19% 5.89% 5.53% 5.59% 6.62% 5.84%
Variable-rate time deposits:
Balance $ 3,551 $ 2,473 $ 5 -- -- -- $ 6,029 $ 6,029
Average interest rate 5.72% 5.90% 5.05% -- -- -- 5.79%
FHLB advances and notes
payable:
Balance $ 6,762 $ 3,673 $ 2,273 $ 50 -- $ 150 $ 12,908 $ 12,914
Average interest rate 5.98% 6.47% 6.02% 6.45% -- 2.30% 6.13%
Securities sold under
agreement to repurchase:
Balance $ 9,467 -- -- -- -- -- $ 9,467 $ 9,467
Average interest rate 2.53% -- -- -- -- -- 2.53%
<FN>
- --------------------
<F1> Investments include federal funds sold and available for sale
securities.
<F2> Liquid deposits include interest-earning checking accounts, savings
accounts and money market deposit accounts.
</TABLE>
Quantitative and Qualitative Disclosures About Market Risks
Market Risk Exposure
First Financial's primary market risk exposure is to changes in
interest rates. First Financial's asset/liability management, or its
management of interest rate risk, is focused primarily on evaluating and
managing net interest income given various risk criteria. Factors beyond
First Financial's control, such as market interest rates and competition, may
also have an impact on First Financial's interest income and interest
expense. In the absence of other factors, First Financial's overall yield on
interest-earning assets will increase as will its cost of funds in its
interest-bearing liabilities when market rates increase over an extended
period of time. Conversely, First Financial's yields and cost of funds will
decrease when market rates decline. First Financial is able to manage these
swings to some extent by attempting to control the maturity or rate
adjustments of its interest-earning assets and interest-bearing liabilities
over given periods of time.
<PAGE>
In order to effectively manage market risk exposure and insure adequate
liquidity, First Financial, at the level of FNBI, has established a standing
Asset Liability Management Committee ("ALCO"). Under the auspices of ALCO,
the Company has undertaken an analysis of the potential market risk of both
increased and decreased levels of interest rates projected into both the
immediate and longer-term future.
Based on the following data, net interest income should decline with
instantaneous increases in interest rates while net interest income should
increase with instantaneous declines in interest rates. Generally during
periods of increasing interest rates, First Financial's interest rate
sensitive liabilities would reprice faster than its interest rate sensitive
assets causing a decline in First Financial's interest rate spread and
margin. This would result from an increase in First Financial's cost of
funds that would not be immediately offset by an increase in its yield on
earning assets. An increase in the cost of funds would have a negative
effect on First Financial's net interest income without equivalent increase
in the yield on earning assets. In times of decreasing interest rates, fixed
rate assets could increase in value and the lag in repricing of interest rate
sensitive assets could be expected to minimize the potential effects of
decreases in market interest rates to net interest income. First Financial
has an asset/liability management program in place which is designed to
mitigate interest rate sensitivity. The program emphasizes the origination
of adjustable rate loans, which are held in portfolio, the investment of
excess cash in short or intermediate term interest earning assets and the
solicitation of regular savings and transaction deposit accounts which are
less sensitive to changes in interest rates and can be repriced rapidly. The
table presented on the next page provides quantitative information with
respect to interest sensitive assets and liabilities.
<TABLE>
Market Risk Analysis at December 31, 1997 Dollar Amounts Expressed in Thousands
(Expected Maturity Date, Year Ended December 31, 1997)
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Fixed rate loans:
Balance $ 51,929 $32,589 $26,629 $30,105 $27,773 $22,655 $191,950 $198,123
Average interest rate 8.53% 8.46% 8.52% 8.47% 8.33% 8.11% 8.44%
Variable rate loans:
Balance $ 71,627 $42,934 $38,229 $ 6,292 $11,591 $ 1,678 $172,351 $172,351
Average interest rate 8.67% 8.60% 8.19% 7.92% 8.19% 7.41% 8.48%
Investments:
Balance $ 56,815 $20,861 $13,373 $18,033 $ 4,410 $27,386 $140,680 $140,680
Average interest rate 6.32% 6.50% 6.70% 6.59% 6.97% 6.04% 6.38%
LIABILITIES
Liquid deposits:
Balance $168,736 -- -- -- -- -- $168,736 $168,736
Average interest rate 2.90% -- -- -- -- -- 2.90%
Fixed-rate time deposits:
Balance $134,727 $54,390 $29,034 $ 3,888 $ 2,671 $ 47 $224,757 $222,728
Average interest rate 5.72% 6.16% 6.06% 5.49% 5.73% 6.38% 5.87%
Variable-rate time deposits:
Balance $ 572 $ 5,432 $ 74 -- -- -- $ 6,078 $ 6,078
Average interest rate 4.55% 6.00% 3.85% -- -- -- 5.85%
FHLB advances and notes payable:
Balance $ 8,288 $ 6,544 $ 2,500 $ 786 $ 50 $ 50 $ 18,188 $ 18,245
Average interest rate 5.91% 6.31% 6.12% 6.50% 6.45% 6.60% 6.11%
</TABLE>
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<PAGE> 109
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 24, 1998 the number of shares
of First Financial Common Stock beneficially owned and the percentage of
ownership of outstanding shares of First Financial Common Stock by (a) each
director and executive officer of First Financial, (b) each person who is
known by First Financial to own beneficially more than 5% of First Financial
Common Stock and (c) all directors and executive officers of First Financial as
a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS<F1> BENEFICIALLY OWNED COMMON STOCK<F2>
-------------------- ------------------ ----------------------
<S> <C> <C>
John R. Balmer 10,311<F3> <F*>%
Fritz L. Duda 150<F4> <F*>%
Mary Lee Nagle Duda 214,527<F5> 6.04
Robert J. Latham 54,016<F6> 1.51
Ralph J. Russell 1,200<F7> <F*>
A. Russell Schmeiser 73,350<F8> 2.07
Robert M. Sierk 42,750<F9> 1.20
Larry D. Ward 61,801<F10> 1.74
Stephen H. Wolken 18,750<F11> <F*>
Directors and Executive Officers
as a Group (8 persons) 262,328<F12> 7.36
<FN>
- ----------
<F*> Less than one percent.
<F1> The percentage calculations for beneficial ownership are based upon
3,553,717 shares of First Financial Common Stock that were issued and
outstanding as of May 31, 1998.
<F2> The address for each person is 204 East Washington Street, P.O. Box
1880, Iowa City, Iowa 52244-1880.
<F3> Mr. Balmer owns 9,771 shares of record and possesses sole voting
power over those shares. In addition, Mr. Balmer possesses
shared voting power over 240 shares held of record jointly with his
wife, Penny M. Balmer. Mr. Balmer also possesses sole voting
power over 150 shares held as Custodian for his son David R. Balmer
and 150 shares held as Custodian for his daughter Elizabeth N.
Balmer.
<F4> Mr. Duda owns 150 shares of record. Mr. Duda disclaims beneficial
ownership of 214,527 shares owned of record by Mary Lee Nagle Duda, as
Trustee of MLND Interests U/T/D November 17, 1981.
<F5> Mary Lee Nagle Duda holds 214,527 shares of record as Trustee of MLND
Interests U/T/D November 17, 1981.
<F6> Mr. Latham owns 46,319 shares of record and possesses sole voting
power over those shares. In addition, Mr. Latham possesses sole
investment and voting power over 6,435 shares held of record in the
name of Firnaticia as the nominee of FNBI, as trustee of the Robert J.
Latham Individual Retirement Account Trust, and possesses shared voting
power over 1,262 shares held of record in the name of Firnaticia as the
nominee of FNBI, as trustee of the Sue B. Latham Individual Retirement
Account Trust.
<F7> Mr. Russell owns 1,200 shares of record and possesses sole voting
power over those shares.
<F8> Mr. Schmeiser owns 55,100 shares of record and possesses shared
voting power over 750 shares held of record jointly with his wife,
Cynthia B. Schmeiser. In addition, Mr. Schmeiser possesses
shared voting power, to the extent of his pro-rata-one-third
interest, over 4,500 shares held of record by Burr Oak Farm, a
general partnership, and he possesses sole investment power over
3,625 shares held of record by Firnaticia as the nominee of FNBI,
as the trustee of the A. Russell Schmeiser Individual Retirement Account
Trust, as to 1,750 shares held of record by A. Russell
-103-
<PAGE> 110
Schmeiser as Custodian for Allyson Schmeiser (the minor daughter of
Mr. Schmeiser and Cynthia B. Schmeiser) under the Iowa Uniform
Transfer to Minors Act, and as to 1,750 shares held of record by A.
Russell Schmeiser as Custodian for Peter Schmeiser (the minor son of
Mr. Schmeiser and Cynthia B. Schmeiser) under the Iowa Uniform
Transfer to Minors Act. Mr. Schmeiser also possesses shared
voting power as to 1,500 shares held of record by his wife, Cynthia
B. Schmeiser, and as to 3,625 shares held of record by Firnaticia as
the nominee of the FNBI, as trustee of the Cynthia B. Schmeiser
Individual Retirement Account Trust. The total also includes 3,750
shares that Mr. Schmeiser has the right to purchase pursuant to stock
options currently or within 60 days after June 24, 1998.
<F9> Director Sierk owns 34,755 shares of record and possesses shared voting
power over 3,495 shares owned of record by his wife, Bonnie J. Sierk.
The total also includes 4,500 shares that Mr. Sierk has the right to
purchase pursuant to stock options currently or within 60 days after
June 24, 1998.
<F10> Mr. Ward owns 48,181 shares of record and possesses sole voting
power over those shares. In addition, Mr. Ward possesses both
investment power and voting power over 3,180 shares held as Custodian
for his son Jeffrey G. Ward; 7,050 shares held of record in the name
of Firnaticia as the nominee of the FNBI, as trustee of the Larry D.
Ward Money Purchase Pension Plan; and 3,390 shares held of record in the
name of Firnaticia as the nominee of the FNBI, as trustee of the Larry
D. Ward Individual Retirement Account Trust.
<F11> Mr. Wolken owns 17,850 shares of record and possesses sole voting
power over those shares. In addition, Mr. Wolken possesses shared
voting power over 900 shares held of record by his wife, Sue C. Wolken.
<F12> Includes shares held directly, including restricted shares, held in
retirement accounts, held by certain family members or held by
trusts of which the director or officer is a trustee or substantial
beneficiary, over which shares the respective directors or officers
may be deemed to have sole or shared voting or investment power.
Also includes 8,250 shares that the directors and executive officers
have the right to purchase pursuant to stock options currently or
within 60 days after June 24, 1998.
</TABLE>
-104-
<PAGE> 111
INFORMATION REGARDING MBI STOCK
-------------------------------
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock,
no par value, and 400,000,000 shares of MBI Common Stock, $0.01 par value.
At March 31, 1998, MBI had no shares of MBI Preferred Stock issued or
outstanding and 134,960,625 shares of MBI Common Stock issued and 133,115,227
outstanding. Under Missouri law, MBI's Board of Directors may generally
approve the issuance of authorized shares of Preferred Stock and Common Stock
without shareholder approval.
MBI's Board of Directors is also authorized to fix the number of shares
and determine the designation of any series of Preferred Stock and to
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any series of MBI Preferred Stock. Except for the
current designation and reservation of Series B Junior Participating
Preferred Stock pursuant to MBI's Preferred Share Purchase Rights Plan, MBI's
Board of Directors has not acted to designate or issue any shares of MBI
Preferred Stock. The existence of a substantial number of unissued and
unreserved shares of MBI Common Stock and undesignated shares of MBI
Preferred Stock may enable the Board of Directors to issue shares to such
persons and in such manner as may be deemed to have an anti-takeover effect.
The following summary of the terms of MBI's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
applicable provisions of MBI's Restated Articles of Incorporation, as
amended, and by-laws and Missouri law.
DIVIDENDS. The holders of MBI Common Stock are entitled to share
ratably in dividends when, as and if declared by the Board of Directors from
funds legally available therefor, after full cumulative dividends have been
paid or declared, and funds sufficient for the payment thereof set apart, on
all series of MBI Preferred Stock ranking superior as to dividends to MBI
Common Stock.
The Board of Directors of MBI intends to maintain its present policy of
paying quarterly cash dividends on MBI Common Stock, when justified by the
financial condition of MBI and its subsidiaries. The declaration and amount
of future dividends will depend on circumstances existing at the time,
including MBI's earnings, financial condition and capital requirements as
well as regulatory limitations, note and indenture provisions and such other
factors as the Board of Directors may deem relevant. The payment of
dividends to MBI by subsidiary banks is subject to extensive regulation by
various state and federal regulatory agencies. See "SUPERVISION AND
REGULATION."
VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each
share held on matters presented for consideration by the shareholders, except
that, in the election of directors, each shareholder has cumulative voting
rights that entitle each such shareholder to the number of votes that equals
the number of shares held by the shareholder multiplied by the number of
directors to be elected. All such votes may be cast for one candidate for
election as a director or may be distributed among two or more candidates.
PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no
preemptive right to acquire any additional unissued shares or treasury shares
of MBI.
-105-
<PAGE> 112
LIQUIDATION RIGHTS. In the event of liquidation, dissolution or
winding up of MBI, whether voluntary or involuntary, the holders of MBI
Common Stock will be entitled to share ratably in any of its assets or funds
that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made
therefor) and after preferences on any outstanding MBI Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will
be, when issued, fully paid and nonassessable. Such shares do not have any
redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share
purchase right is attached to each share of MBI Common Stock. The MBI Rights
trade automatically with shares of MBI Common Stock and become exercisable
and will trade separately from the MBI Common Stock on the tenth day after
public announcement that a person or group has acquired, or has the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of MBI
Common Stock, or upon commencement or announcement of intent to make a tender
offer for 20% or more of the outstanding shares of MBI Common Stock, in
either case without prior written consent of the Board. When exercisable,
each MBI Right will entitle the holder to buy 1/100 of a share of MBI Series
B Junior Participating Preferred Stock at an exercise price of $212 per MBI
Right. In the event a person or group acquires beneficial ownership of 20%
or more of MBI Common Stock, holders of MBI Rights (other than the acquiring
person or group) may purchase MBI Common Stock having a market value of twice
the then current exercise price of each MBI Right. If MBI is acquired by any
person or group after the Rights become exercisable, each MBI Right will
entitle its holder to purchase stock of the acquiring company having a market
value of twice the current exercise price of each MBI Right. The MBI Rights
are designed to protect the interests of MBI and its shareholders against
coercive takeover tactics. The purpose of the MBI Rights is to encourage
potential acquirors to negotiate with MBI's Board of Directors prior to
attempting a takeover and to give the Board leverage in negotiating on behalf
of all shareholders the terms of any proposed takeover. The MBI Rights may
deter certain takeover proposals. The MBI Rights, which can be redeemed by
MBI's Board of Directors in certain circumstances, expire by their terms on
June 3, 2008.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of
MBI is divided into three classes, and the directors are elected by classes
to three-year terms, so that one of the three classes of the directors of MBI
will be elected at each annual meeting of the shareholders. While this
provision promotes stability and continuity of the Board of Directors,
classification of the Board of Directors also may have the effect of
decreasing the number of directors that could otherwise be elected at each
annual meeting of shareholders by a person who obtains a controlling interest
in the MBI Common Stock and thereby could impede a change in control of MBI.
Because fewer directors will be elected at each annual meeting, such
classification also will reduce the effectiveness of cumulative voting as a
means of establishing or increasing minority representation on the Board of
Directors.
OTHER MATTERS. MBI's Restated Articles of Incorporation, as amended,
and by-laws also contain provisions that: (i) require the affirmative vote of
holders of at least 75% of the voting power of all of the shares of
outstanding capital stock of MBI entitled to vote in the election of
directors to remove a director or directors without cause; (ii) require the
affirmative vote of the holders of at least 75% of the voting power of all
shares of the outstanding capital stock of MBI to approve certain "business
combinations" with "interested parties" unless at least two-thirds of the
Board of Directors first approves such business combinations; and (iii) require
an affirmative vote of at least 75% of the voting power of all shares of the
outstanding capital stock of MBI for the amendment, alteration, change or
repeal of any of the above provisions unless at least two-thirds of the Board
of Directors first approves such an
-106-
<PAGE> 113
amendment, alteration, change or repeal. Such provisions may be deemed to have
an anti-takeover effect.
RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES
Under Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"), certain persons who receive MBI Common Stock pursuant to
the Merger and who are deemed to be "affiliates" of First Financial will be
limited in their right to resell the stock so received. The term "affiliate"
is defined to include any person who, directly or indirectly, controls, or is
controlled by, or is under common control with First Financial at the time
the Merger is submitted to a vote of the shareholders of First Financial.
Each affiliate of First Financial (generally any director or executive
officer of First Financial or any shareholder of First Financial who
beneficially owns a substantial number of outstanding shares of First
Financial Common Stock) who desires to resell the MBI Common Stock received
in the Merger must sell such stock either pursuant to an effective
registration statement or in accordance with an applicable exemption, such as
the applicable provisions of Rule 145(d) under the Securities Act.
Rule 145(d) provides that persons deemed to be affiliates may resell
their stock received in the Merger pursuant to certain of the requirements of
Rule 144 under the Securities Act if such stock is sold within the first year
after the receipt thereof. After one year if such person is not an affiliate
of MBI and if MBI is current with respect to its required public filings, a
former affiliate of First Financial may resell the stock received in the
Merger without limitation. After two years from the issuance of the stock,
if such person is not an affiliate of MBI at the time of sale and for at
least three months prior to such sale, such person may resell such stock,
without limitation, regardless of the status of MBI's required public
filings.
First Financial has agreed to provide MBI with a list of those persons
who may be deemed to be affiliates of First Financial at the time of the
Special Meeting. First Financial has agreed to use all reasonable efforts to
cause each such person to deliver to MBI prior to the Effective Time a
written agreement to the effect that no sale will be made of any shares of
MBI Common Stock received in the Merger by an affiliate of First Financial
except in accordance with the Securities Act and until such time as MBI shall
first publish the financial results of at least 30 days of post-Merger
combined operations of First Financial and MBI. The certificates of MBI
Common Stock issued to affiliates of First Financial in the Merger may
contain an appropriate restrictive legend, and appropriate stop transfer
orders may be given to the transfer agent for such certificates.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND FIRST FINANCIAL
MBI is incorporated under the laws of the State of Missouri, while
First Financial is incorporated under the laws of the State of Iowa. The
rights of the shareholders of MBI are governed by MBI's Restated Articles of
Incorporation, as amended, and by-laws and Chapter 351 of the Missouri
Revised Statutes (the "Missouri Act"). The rights of First Financial
shareholders are governed by First Financial's Articles of Incorporation and
by-laws, both as amended, and by the IBCA. The rights of First Financial
shareholders who receive shares of MBI Common Stock in the Merger will
thereafter be governed by MBI's Restated Articles of Incorporation, as
amended, and by-laws and by the Missouri Act. The material rights of such
shareholders and, where applicable, the differences between the rights of MBI
shareholders and First Financial shareholders, are summarized below.
-107-
<PAGE> 114
PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under
"- Preferred Share Purchase Rights Plan," MBI Common Stock has attached
Rights, which may deter certain takeover proposals. First Financial does not
have a rights plan.
SUPERMAJORITY PROVISIONS. MBI's Restated Articles of
Incorporation, as amended, and MBI's by-laws contain provisions requiring a
supermajority vote of the shareholders of MBI to approve certain proposals.
Under both MBI's Restated Articles of Incorporation, as amended, and by-laws,
removal by the shareholders of the entire Board of Directors or any
individual director from office without cause requires the affirmative vote
of not less than 75% of the total votes entitled to be voted at a meeting of
shareholders called for the election of directors. Amendment by the
shareholders of MBI's Restated Articles of Incorporation, as amended, or
by-laws relating to (i) the number or qualification of directors; (ii) the
classification of the Board of Directors; (iii) the filling of vacancies on the
Board of Directors; or (iv) the removal of directors, requires the affirmative
vote of not less than 75% of the total votes of MBI's then outstanding shares
of capital stock entitled to vote, voting together as a single class, unless
such amendment has previously been expressly approved by at least two-thirds
of the Board of Directors. The Restated Articles of Incorporation, as
amended, of MBI additionally provide that, in addition to any shareholder
vote required under the Missouri Act, the affirmative vote of the holders of
not less than 75% of the total votes to which all of the then outstanding
shares of capital stock of MBI are entitled, voting together as a single
class (the "Voting Stock"), shall be required for the approval of any
Business Combination. A "Business Combination" is defined generally to
include sales, exchanges, leases, transfers or other dispositions of assets,
mergers or consolidations, issuances of securities, liquidations or
dissolutions of MBI, reclassifications of securities or recapitalizations of
MBI, involving MBI on the one hand, and an Interested Shareholder or an
affiliate of an Interested Shareholder on the other hand. An "Interested
Shareholder" is defined generally to include any person, firm, corporation or
other entity which is the beneficial owner of 5% or more of the voting power
of the outstanding Voting Stock. If, however, at least two-thirds of the
Board of Directors of MBI approve the Business Combination, such Business
Combination shall require only the vote of shareholders as provided by
Missouri law or otherwise. The amendment of the provisions of MBI's Restated
Articles relating to the approval of Business Combinations requires the
affirmative vote of the holders of at least 75% of the Voting Stock unless
such amendment has previously been approved by at least two-thirds of the
Board of Directors. To the extent that a potential acquiror's strategy
depends on the passage of proposals which require a supermajority vote of
MBI's shareholders, such provisions requiring a supermajority vote may have
the effect of discouraging takeover attempts that do not have Board approval
by making passage of such proposals more difficult.
First Financial's Articles of Incorporation and by-laws, both as
amended, contain provisions requiring a vote of at least two-thirds of the
shareholders to approve certain proposals. Under First Financial's Articles
of Incorporation, as amended, approval of a merger or consolidation with any
other corporation, the sale of substantially all of the assets of First
Financial or any amendment, alteration or repeal of such provisions of the
Articles of Incorporation requires the prior affirmative vote of at least
two-thirds of the then outstanding shares of stock of First Financial.
VOTING FOR DIRECTORS. MBI's by-laws provide for cumulative voting
in the election of directors. Cumulative voting entitles each shareholder to
cast an aggregate number of votes equal to the number of voting shares held,
multiplied by the number of directors to be elected. Each shareholder may
cast all such votes for one nominee or distribute them among two or more
nominees, thus permitting holders of less than a majority of the outstanding
shares of voting stock to achieve board representation.
-108-
<PAGE> 115
First Financial's Articles of Incorporation do not provide for cumulative voting
in the election of directors.
CLASSIFIED BOARD. As described under "- Classification of Board of
Directors," the Board of Directors of MBI is divided into three classes of
directors, with each class being elected to a staggered three-year term. By
reducing the number of directors to be elected in any given year, the
existence of a classified Board diminishes the benefits of the cumulative
voting rights to minority shareholders. First Financial does not have a
classified Board of Directors. Each of its directors is elected annually.
ANTI-TAKEOVER STATUTES. The Missouri Act contains certain
provisions applicable to Missouri corporations such as MBI which may be
deemed to have an anti-takeover effect. Such provisions include Missouri's
business combination statute and the control share acquisition statute.
The Missouri business combination statute protects domestic
corporations after hostile takeovers by prohibiting certain transactions once
an acquiror has gained control. The statute restricts certain "Business
Combinations" between a corporation and an "Interested Shareholder" or
affiliates of the Interested Shareholder for a period of five years unless
certain conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and similar
dispositions of corporate assets or stock and certain reclassifications and
recapitalizations. An "Interested Shareholder" includes any person or entity
which beneficially owns or controls 20% or more of the outstanding voting
shares of the corporation.
During the initial five-year restricted period, no Business Combination
may occur unless such Business Combination or the transaction in which an
Interested Shareholder becomes "interested" (the "Acquisition Transaction")
was approved by the board of directors of the corporation on or before the
date of the Acquisition Transaction. Business Combinations may occur after
the five-year period following the Acquisition Transaction only if: (i) prior
to the stock acquisition by the Interested Shareholder, the board of
directors approves the transaction in which the Interested Shareholder became
an Interested Shareholder or approves the Business Combination in question;
(ii) the holders of a majority of the outstanding voting stock, other than
stock owned by the Interested Shareholder, approve the Business Combination;
or (iii) the Business Combination satisfies certain detailed fairness and
procedural requirements.
The Missouri Act exempts from the provisions of the business
combination statute: (i) corporations not having a class of voting stock
registered under Section 12 of the Exchange Act; (ii) corporations which adopt
provisions in their articles of incorporation or by-laws expressly electing
not to be covered by the statute; and (iii) certain circumstances in which a
shareholder inadvertently becomes an Interested Shareholder. MBI's Restated
Articles of Incorporation and by-laws do not contain an election to "opt out"
of the Missouri business combination statute.
The Missouri Act also contains a "Control Share Acquisition Statute"
which provides that an "Acquiring Person" who after any acquisition of shares
of a publicly traded corporation has the voting power, when added to all
shares of the same corporation previously owned or controlled by the
Acquiring Person, to exercise or direct the exercise of: (i) 20% but less
than 33 1/3%, (ii) 33 1/3% or more but less than a majority or (iii) a majority,
of the voting power of outstanding stock of such corporation, must obtain
shareholder approval for the purchase of the "Control Shares." If approval
is not given, the Acquiring Person's shares lose the right to vote. The
statute prohibits an Acquiring Person
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from voting its shares unless certain disclosure requirements are met and the
retention or restoration of voting rights is approved by both: (i) a majority
of the outstanding voting stock; and (ii) a majority of the outstanding voting
stock after exclusion of "Interested Shares." Interested Shares are defined
as shares owned by the Acquiring Person, by directors who are also employees
and by officers of the corporation. Shareholders are given dissenters' rights
with respect to the vote on Control Share Acquisitions and may demand payment
of the fair value of their shares.
A number of acquisitions of shares are deemed not to constitute Control
Share Acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, mergers involving the
corporation which satisfy the other requirements of the Missouri Act,
transactions with a person who owned a majority of the voting power of the
corporation within the prior year, or purchases from a person who has
previously satisfied the provisions of the Control Share Acquisition Statute
so long as the transaction does not result in the purchasing party having
voting power after the purchase in a percentage range (such ranges are as set
forth in the immediately preceding paragraph) beyond the range for which the
selling party previously satisfied the provisions of the statute.
Additionally, a corporation may exempt itself from application of the statute
by inserting a provision in its articles of incorporation or by-laws
expressly electing not to be covered by the statute. MBI's Restated Articles
of Incorporation and by-laws do not contain an election to "opt out" of the
Control Share Acquisition Statute.
The IBCA applicable to First Financial contains a business combination
statute similar to that contained in the Missouri Act. Like the Missouri
business combination statute, the Iowa business combination statute generally
prohibits a domestic corporation from engaging in mergers or other business
combinations with Interested Shareholders (as defined in the IBCA) for a
statutory time period. The prohibition can be avoided if (i) the business
combination is approved by the board of directors prior to the date on which
the Interested Shareholder acquires the requisite percentage of stock or (ii)
the business combination is approved by the board of directors and authorized
at an annual or special meeting of shareholders by the affirmative vote or at
least sixty-six and two-thirds percent of the outstanding voting stock which
is not owned by the Interested Shareholder. The Missouri Act imposes a
longer prohibition period on transactions with Interested Shareholders (five
years) than the IBCA (three years), thereby potentially increasing the period
during which a hostile takeover may be frustrated. In addition, the IBCA,
unlike its Missouri counterpart, does not apply if the Interested Shareholder
obtains at least 85% of the corporation's voting stock upon consummation of
the transactions which resulted in the shareholder becoming an Interested
Shareholder. Thus, a person acquiring at least 85% of the corporation's
voting stock could circumvent the defensive provisions of the IBCA while
being unable to do so under the Missouri Act. The IBCA does not contain a
control share acquisition statute similar to that contained in the Missouri
Act.
DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a
shareholder of any corporation which is a party to a merger or consolidation,
or which sells all or substantially all of its assets, has the right to
dissent from such corporate action and to demand payment of the value of such
shares. Under the IBCA, shareholders of First Financial are entitled to
dissenters' rights upon the consolidation or merger of First Financial which
are similar but not identical to those under the Missouri Act. Specifically,
the procedures and the filing deadlines applicable to dissenters' rights under
the Missouri Act are somewhat different than those applicable in dissenters'
rights proceedings under the IBCA. For example, the Missouri Act does not
require payment to be made by the surviving company to the merger until the
end of the dissenters' rights proceedings. The IBCA requires a payment of an
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amount equal to the surviving corporation's estimate of fair value for the
dissenting shareholder's shares prior to the final determination of fair
value.
SHAREHOLDERS' RIGHT TO INSPECT. Under the IBCA, any shareholder
may inspect the corporation's stock ledger, shareholder list and other books
and records if the shareholder's demand for inspection is made in good faith
and for a proper purpose. The IBCA specifically provides that a shareholder
may appoint an agent for the purpose of examining the books and records of
the corporation. The right of shareholders to inspect under the Missouri Act
is generally similar to that of shareholders under the IBCA. Neither the
Missouri Act nor Missouri case law, however, provides any specific guidance
as to whether a shareholder may appoint an agent for the purpose of examining
books and records or the extent to which a shareholder must have a "proper
purpose." Accordingly, in comparison with the IBCA, in a given situation a
Missouri shareholder may be provided with less guidance as to the scope of
his or her ability to inspect the books and records of the corporation.
SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act,
the number of directors on the Board of Directors of MBI is set forth in
MBI's by-laws, which provide that the number of directors may be fixed from
time to time at not less than 12 nor more than 24 by an amendment of the
by-laws or by a resolution of the Board of Directors, in either case, adopted
by the vote or consent of at least two-thirds of the number of directors then
authorized under the by-laws. MBI's Board of Directors currently has 12
members. Similarly to the Missouri Act, the IBCA provides that a corporation
may fix the number of directors in its Articles of Incorporation or by-laws.
The number of directors on the Board of Directors of First Financial is set
forth in First Financial's by-laws, which provide that the number of
directors may be fixed from time to time at not less than 5 and not more than
15 directors by resolution adopted by a majority of the full Board of
Directors.
The supermajority vote required for the amendment of MBI's by-laws
regarding a change in the number of directors may have the effect of making
it more difficult to force an immediate change in the composition of a
majority of the Board of Directors and may be deemed to have an anti-takeover
effect.
SUPERVISION AND REGULATION
--------------------------
GENERAL
As a bank holding company, MBI is subject to regulation under the BHCA
and its examination and reporting requirements. Under the BHCA, a bank
holding company may not directly or indirectly acquire the ownership or
control of more than 5% of the voting shares or substantially all of the
assets of any company, including a bank or savings and loan association,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
MBI and its subsidiaries are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of MBI's
subsidiaries, and therefore, the earnings of MBI, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve
Board, the Federal Deposit Insurance Corporation ("FDIC"), the Office of the
Comptroller of the Currency (the "Comptroller") and
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various state financial institution regulatory agencies. In addition, there
are numerous governmental requirements and regulations that affect the
activities of MBI and its subsidiaries.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank
holding company and certain of its nonbank subsidiaries can borrow or
otherwise obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be on
non-preferential terms and secured by designated amounts of specified
collateral and be limited, as to the holding company or any one of such
nonbank subsidiaries, to 10% of the lending institution's capital stock and
surplus and, as to the holding company and all such nonbank subsidiaries in
the aggregate, to 20% of such capital stock and surplus.
PAYMENT OF DIVIDENDS
MBI is a legal entity separate and distinct from its financial
institutions and other subsidiaries. The principal source of MBI's revenues
is dividends from its financial institution subsidiaries. Various federal
and state statutory provisions limit the amount of dividends an affiliate
financial institution can pay to MBI without regulatory approval. The
approval of federal and state bank regulatory agencies, as appropriate, is
required for any dividend if the total of all dividends declared in any
calendar year would exceed the total of the institution's net profits, as
defined by regulatory agencies, for such year combined with its retained net
profits for the preceding two years. In addition, a national bank or a state
member bank may not pay a dividend in an amount greater than its net profits
then on hand. The payment of dividends by any financial institution
subsidiary also may be affected by other factors, such as the maintenance of
adequate capital.
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework
for use by financial institutions operating in major international financial
markets. The banking regulators have issued standards for banks that are
similar to, but not identical with, the standards for bank holding companies.
In general, the risk-related standards require financial institutions
and financial institution holding companies to maintain certain capital
levels based on "risk-adjusted" assets, so that categories of assets with
potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks and bank holding
companies are required to maintain capital to support off balance sheet
activities such as loan commitments. MBI and each of its subsidiary
financial institutions exceed all applicable capital adequacy standards.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI is expected to act as a source
of financial strength to each subsidiary bank and to commit resources to
support each of the subsidiaries in circumstances where it might not choose
to do so absent such a policy. This support may be required at times when
MBI may not find itself able to provide it. In addition, any capital loans
by MBI to any of its
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subsidiaries also would be subordinate in right of payment to deposits and
certain other indebtedness of such subsidiary.
Consistent with this policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
FIRREA AND FDICIA
The Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended ("FIRREA"), contains a cross-guarantee provision that could
result in insured depository institutions owned by MBI being assessed for
losses incurred by the FDIC in connection with assistance provided to, or the
failure of, any other insured depository institution owned by MBI. Under
FIRREA, failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal
regulatory authorities, including the termination of deposit insurance by the
FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991, as
amended ("FDICIA"), made extensive changes to the federal banking laws.
FDICIA instituted certain changes to the supervisory process, including
provisions that mandate certain regulatory agency actions against
undercapitalized institutions within specified time limits. FDICIA contains
various other provisions that may affect the operations of banks and savings
institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under
FDICIA, capital requirements include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the
federal banking regulators for measuring the capital adequacy of an insured
depository institution. All institutions, regardless of their capital
levels, are restricted from making any capital distribution or paying any
management fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii)
had a ratio of Tier I capital to risk-adjusted assets of 6% or greater; (iii)
had a ratio of Tier I capital to adjusted total assets of 5% or greater; and
(iv) was not subject to an order, written agreement, capital directive or
prompt corrective action directive to meet and maintain a specific capital
level for any capital measure. An association will be adequately capitalized
if it was not "well capitalized" and: (i) had a risk-based capital ratio of 8%
or greater; (ii) had a ratio of Tier I capital to risk-adjusted assets of 4%
or greater; and (iii) had a ratio of Tier I capital to adjusted total assets
of 4% or greater (except that certain associations rated "Composite 1" under
the federal banking agencies' CAMEL rating system may be adequately
capitalized if their ratios of core capital to adjusted total assets were 3%
or greater). All MBI subsidiary financial institutions as of March 31, 1998
were categorized as "well capitalized."
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<PAGE> 120
Banking agencies have recently adopted final regulations that mandate
that regulators take into consideration concentrations of credit risk and
risks from non-traditional activities, as well as an institution's ability to
manage those risks, when determining the adequacy of an institution's
capital. This evaluation will be made as part of the institution's regular
safety and soundness examination. Banking agencies also have recently
adopted final regulations requiring regulators to consider interest rate risk
(when the interest rate sensitivity of an institution's assets does not match
the sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies
intend to propose further regulations to establish an explicit risk-based
capital charge for interest rate risk.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for deposits
and certain claims for administrative expenses and employee compensation
against an insured depository institution in the liquidation or other
resolution of such an institution by any receiver. Such obligations would be
afforded priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, as well as any
obligation to shareholders of such an institution in their capacity as such.
FDIC INSURANCE ASSESSMENTS
The subsidiary depository institutions of MBI are subject to FDIC
deposit insurance assessments. The FDIC has adopted a risk-based premium
schedule. Each financial institution is assigned to one of three capital
groups well-capitalized, adequately capitalized or undercapitalized-and
further assigned to one of three subgroups within a capital group, on the
basis of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors, and on the basis of other information relevant
to the institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC. See "-FIRREA and
FDICIA."
INTERSTATE BANKING AND OTHER RECENT LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal"), enacted in 1994, facilitates the interstate expansion and
consolidation of banking organizations by permitting (i) bank holding
companies that are adequately capitalized and managed to acquire banks
located in states outside their home states regardless of whether such
acquisitions are authorized under the law of the host state, (ii) the
interstate merger of banks, except for banks located in Montana and Texas,
which states enacted legislation to "opt out" of this authority, (iii) banks to
establish new branches on an interstate basis provided that such action is
specifically authorized by the law of the host state, (iv) foreign banks to
establish, with approval of the regulators in the United States, branches
outside their home states to the same extent that national or state banks
located in the home state would be authorized to do so and (v) banks
to receive deposits, renew time deposits, close loans, service loans and receive
payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same state or a different
state. One effect of Riegle-Neal is to permit MBI to acquire banks located
in any state and to permit bank holding companies located in any state to
acquire banks and bank holding companies in Missouri.
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<PAGE> 121
There also have been a number of recent legislative and regulatory
proposals designed to strengthen the federal deposit insurance system and to
improve the overall financial stability of the United States banking system
and to provide for other changes in the bank regulatory structure, including
proposals to reduce regulatory burdens on banking organizations and to expand
the nature of products and services banks and bank holding companies may
offer. It is not possible to predict whether or in what form these proposals
may be adopted in the future and, if adopted, what their effect will be on
MBI.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent accountants for the
year ended December 31, 1997 and continues to serve in such capacity.
Services provided in connection with the audit function included examination
of the annual consolidated financial statements, review and consultation
regarding filings with the Commission and other regulatory authorities and
consultation on financial accounting and reporting matters.
McGladrey & Pullen, LLP served as First Financial's independent
accountants for the year ended December 31, 1997 and continues to serve in
such capacity. Services provided in connection with the audit function
included examination of the annual consolidated financial statements and
consultation on financial accounting and reporting matters. McGladrey &
Pullen, LLP intends to have a representative present at the Special Meeting
to answer relevant questions regarding the Merger.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by Thompson Coburn,
St. Louis, Missouri and for First Financial by Sidley & Austin, Chicago,
Illinois.
EXPERTS
-------
The consolidated financial statements of MBI as of December 31, 1997,
1996 and 1995, and for each of the years in the three-year period ended
December 31, 1997, incorporated by reference in MBI's Annual Report on Form
10-K have been incorporated by reference herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, whose
report is incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheets of First Financial and its subsidiary
at December 31, 1997 and 1996 and the consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
three-year period ended December 31, 1997, included herein, have been included
herein in reliance upon the report of McGladrey & Pullen, LLP, independent
auditors, whose report is included herein, and upon the authority of such firm
as experts in accounting and auditing.
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<PAGE> 122
OTHER MATTERS
-------------
The Board of Directors of First Financial, at the date hereof, is not
aware of any business to be presented at the Special Meeting other than that
referred to in the Notice of Special Meeting and discussed herein. If any
other matter should properly come before the Special Meeting, the persons
named as proxies will have discretionary authority to vote the shares
represented by proxies in accordance with their discretion and judgment as to
the best interests of First Financial.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is approved, the other conditions to the Merger are
satisfied and the Merger is consummated, shareholders of First Financial will
become shareholders of MBI at the Effective Time. MBI shareholders may
submit to MBI proposals for formal consideration at the 1999 Annual Meeting
of MBI's shareholders and inclusion in MBI's proxy statement and proxy for
such meeting. All such proposals for the 1999 Annual Meeting of MBI's
shareholders must be received in writing by the Corporate Secretary at
Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524
by November 16, 1998.
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<TABLE>
FIRST FINANCIAL BANCORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
-----
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 F-2
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996
AND 1995 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (UNAUDITED) F-25
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED) F-26
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED) F-27
NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS F-28
</TABLE>
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<PAGE> 124
[Letterhead of McGladrey & Pullen, LLP]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Financial Bancorporation
Iowa City, Iowa
We have audited the accompanying consolidated balance sheets of First
Financial Bancorporation and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Financial Bancorporation and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Iowa City, Iowa
February 17, 1998
F-1
<PAGE> 125
<TABLE>
FIRST FINANCIAL BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks (Note 11) $ 21,449 $ 20,949
Available for sale securities (amortized cost
1997 $110,891; 1996 $97,431) (Note 2) 112,755 97,802
Federal funds sold 27,925 --
Loans, net (Notes 3, 6 and 10) 359,712 326,951
Bank premises and equipment, net (Note 4) 12,885 12,082
Accrued interest receivable 3,730 3,179
Intangible assets 2,775 624
Prepaid pension cost (Note 8) 3,718 3,240
Other assets 5,104 2,898
-------- --------
$550,053 $467,725
======== ========
LIABILITIES
Noninterest-bearing deposits $ 59,244 $ 47,603
Interest-bearing deposits 399,571 347,804
-------- --------
Total deposits (Note 5) $458,815 $395,407
Federal funds purchased and securities sold under
agreements to repurchase 10,028 3,146
Federal Home Loan Bank advances (Note 6) 12,735 12,355
Notes Payable 5,453 --
Accrued interest payable 2,153 1,516
Accounts payable and other accrued expenses 2,617 2,503
Current and deferred income taxes (Note 7) 672 222
-------- --------
$492,473 $415,149
======== ========
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (Notes 8 and 11)
Capital stock, common, $1.25 par value; authorized
5,000,000 shares; (issued 1997 3,488,680 shares;
1996 3,497,118 shares) $ 4,361 $ 2,914
Additional paid-in capital 2,284 2,606
Retained earnings 49,766 46,824
Unrealized gains on debt securities, net 1,169 232
-------- --------
$ 57,580 $ 52,576
-------- --------
$550,053 $467,725
======== ========
See Notes to Financial Statements.
</TABLE>
F-2
<PAGE> 126
<TABLE>
FIRST FINANCIAL BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $29,182 $26,037 $24,449
Interest on investment securities:
Taxable 4,496 5,316 5,251
Non-taxable 1,721 1,485 1,384
Interest on federal funds sold 1,309 430 658
------- ------- -------
Total interest income $36,708 $33,268 $31,742
------- ------- -------
INTEREST EXPENSE:
Interest on deposits $17,371 $15,394 $14,598
Interest on federal funds purchased and securities
sold under agreements to repurchase 189 60 14
Interest on Federal Home Loan Bank advances 910 995 1,199
Interest on other borrowings 260 -- --
------- ------- -------
Total interest expense $18,730 $16,449 $15,811
------- ------- -------
Net interest income $17,978 $16,819 $15,931
Provision for loan losses (Note 3) 588 591 366
------- ------- -------
Net interest income after provision for loan losses $17,390 $16,228 $15,565
------- ------- -------
NONINTEREST INCOME:
Trust fees $ 3,289 $ 2,998 $ 2,763
Services charges and fees on deposit accounts 2,058 1,825 1,470
Other service charges, commissions and fees 2,643 2,361 2,003
Investment (losses), net (Note 2) 395 (160) --
------- ------- -------
Total noninterest income $ 8,385 $ 7,024 $ 6,236
------- ------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 8) $ 7,758 $ 6,696 $ 7,677
Occupancy, furniture and equipment 2,755 2,624 2,726
Data processing 1,561 1,282 1,155
Office supplies and postage 997 1,095 1,025
Other expenses 3,112 3,105 2,897
------- ------- -------
Total noninterest expenses $16,183 $14,802 $15,480
------- ------- -------
Income before income taxes $ 9,592 $ 8,450 $ 6,321
Federal and state income taxes (Note 7) 2,909 2,534 1,751
------- ------- -------
Net income $ 6,683 $ 5,916 $ 4,570
------- ------- -------
Earnings per share:
Basic $ 1.91 $ 1.68 $ 1.28
Diluted $ 1.90 $ 1.67 $ 1.27
See Notes to Financial Statements.
</TABLE>
F-3
<PAGE> 127
<TABLE>
FIRST FINANCIAL BANCORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<CAPTION>
Common Stock Additional Unrealized Gains
Years Ended December 31, $1.25 Par Value Paid-in Retained (Losses) on Debt
1997, 1996 and 1995 Number Amount Capital Earnings Securities, Net Total
- ------------------- ------ ------ ------- -------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $3,561 $2,967 $ 3,928 $40,095 $(1,745) $45,245
Net income -- -- -- 4,570 -- 4,570
Cash dividends ($.51 per share) -- -- -- (1,811) -- (1,811)
Stock options exercised for
18,131 shares (Note 8) 18 15 233 -- -- 248
Redemption of 4,158 shares
of common stock (4) (3) (66) -- -- (69)
Unrealized gains on debt
securities, net of deferred
tax effect -- -- -- -- 2,024 2,024
------ ------ ------- ------- ------- -------
BALANCE, DECEMBER 31, 1995 $3,575 $2,979 $ 4,095 $42,854 $ 279 $50,207
Net income -- -- -- 5,916 -- 5,916
Cash dividends ($.55 per share) -- -- -- (1,946) -- (1,946)
Stock options exercised for
31,800 shares (Note 8) 32 26 345 -- -- 371
Redemption of 109,544 shares
of common stock (110) (91) (1,834) -- -- (1,925)
Unrealized gains on debt securities
net of deferred tax effect -- -- -- -- (47) (47)
------ ------ ------- ------- ------- -------
BALANCE, DECEMBER 31, 1996 $3,497 $2,914 $ 2,606 $46,824 $ 232 $52,576
Net income -- -- -- 6,683 -- 6,683
3-for-2 stock split effected in the
form of a stock dividend -- 1,456 -- (1,456) -- --
Cash dividends ($.65 per share) -- -- -- (2,283) -- (2,283)
Stock options exercised for
25,800 shares (Note 8) 26 22 320 -- -- 342
Redemption of 34,182 shares
of common stock (34) (31) (642) -- -- (673)
Redemption of 56 fractional shares -- -- -- (2) -- (2)
Unrealized (losses) on debt
securities, net of deferred
tax effect -- -- -- -- -- 937
------ ------ ------- ------- ------- -------
BALANCE, DECEMBER 31, 1997 $3,489 $4,361 $ 2,284 $49,766 $ 1,169 $57,580
====== ====== ======= ======= ======= =======
See Notes to Financial Statements.
</TABLE>
F-4
<PAGE> 128
<TABLE>
FIRST FINANCIAL BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,683 $ 5,916 $ 4,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,084 1,116 1,246
Amortization 274 155 166
Provision for loan losses 588 591 366
Deferred income taxes -- 93 139
Amortization on investment securities 167 140 28
(Increase) decrease in accrued interest receivable (61) 188 (192)
(Increase) decrease in other assets (2,574) (239) (2,251)
Increase (decrease) in accrued interest and
other liabilities 384 (351) 1,406
Change in accrued income taxes (20) 309 (94)
-------- -------- --------
Net cash provided by operating activities $ 6,525 $ 7,918 $ 5,384
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 29,769 $ 21,038 $ 38,063
Sales 19,973 26,747 --
Purchases (48,692) (21,914) (46,511)
Purchases of held to maturity securities -- -- (3,009)
Federal funds sold, net (26,225) 3,225 (2,625)
Net increase (decrease) in loan
balances outstanding (12,273) (36,615) 60
Purchase of bank premises and equipment (1,614) (710) (2,822)
Purchase of stock of West Branch Bancorp, Inc. net of
cash received (Note 9) (1,155) -- --
-------- -------- --------
Net cash (used in) investing activities $(40,217) $ (8,229) $(16,844)
-------- -------- --------
F-5
<PAGE> 129
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 30,619 $ 10,352 $ 22,792
Federal funds purchased and securities sold under
agreements to repurchase 6,882 3,146 (3,200)
Repayment of note principal -- -- (161)
Federal Home Loan Bank advances (620) (5,114) (3,159)
Other borrowings -- (67) 67
Dividends paid (2,283) (1,946) (1,811)
Stock options exercised 342 371 248
Common stock redeemed (748) (1,925) (69)
-------- -------- --------
Net cash provided by financing activities $ 34,192 $ 4,817 $ 14,707
-------- -------- --------
Increase in cash and due from banks $ 500 $ 4,506 $ 3,247
CASH AND DUE FROM BANKS
Beginning balance 20,949 16,443 13,196
-------- -------- --------
Ending balance $ 21,449 $ 20,949 $ 16,443
-------- -------- --------
Supplemental Disclosures (Note 12)
See Notes to Financial Statements.
</TABLE>
F-6
<PAGE> 130
FIRST FINANCIAL BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
First Financial Bancorporation (the "Company") is a bank
holding company which owns 100% of the outstanding common stock
of First National Bank Iowa ("the Bank"). The Bank is engaged
in many areas of commercial banking, including deposits,
lending and a variety of customer services. The Trust and
Asset Management division of the Bank administers fiduciary and
agency accounts and provides the Bank with a significant source
of fee income.
Accounting Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount
of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiary, First National Bank
Iowa, which is wholly-owned. All material intercompany accounts
and transactions have been eliminated in consolidation.
Trust Assets:
Trust accounts (other than cash deposits) held by the Bank in a
fiduciary or agency capacity for its customers are not included
in the accompanying financial statements because such items are
not assets of the Bank.
Presentation of Cash Flows:
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks. Cash flows
from deposits, federal funds purchased, federal funds sold and
loan balances are treated as net increases or decreases.
Investments in Debt and Equity Securities:
Securities available for sale are accounted for at fair value
and the unrealized holding gains or losses are presented as a
separate component of stockholders' equity, net of their
deferred income tax effect. Gains and losses on sale of
investment securities are based on the cost or amortized cost of
the specific securities sold.
F-7
<PAGE> 131
Loans:
Loans are stated at the amount of unpaid principal, reduced by
the allowance for loan losses. The allowance for loan losses is
established through a provision loan losses charged to expense.
Loans are charged against the allowance when management
believes the collectibility of principal is unlikely. The
allowance for possible loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. The Bank makes continuous credit reviews of the
loan portfolios and will consider current economic conditions,
historical loan loss experience, review of specific problem
loans, and other factors in determining the adequacy of the
allowance.
Loans are considered impaired when, based on all current
information and events, it is probable that the Bank will not be
able to collect all amounts due. The portion of allowance for
loan losses applicable to impaired loans has been computed based
on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective
interest rate or on the fair value of the collateral for
collateral dependent loans. The entire change in present value
of expected cash flows of impaired loans is reported as bad debt
expense in the same manner in which impairment initially was
recognized or as a reduction in the amount of bad debt expense
that otherwise would be reported. Interest income on impaired
loans is recognized on the cash basis.
Loan origination and commitment fees and certain direct loan
origination costs are deferred and the net amount is amortized as
an adjustment of the related yield of the loans. The deferred
amounts are amortized over the estimated life of the loans,
anticipating prepayments.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily by the
straight-line method over estimated useful lives of 15-39 years
for buildings and 3-15 years for furniture and equipment.
Intangible Assets:
Intangible assets consist primarily of goodwill which represents
the excess of cost over fair value of net assets acquired in
business combinations accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over 15 years.
The carrying value of goodwill is reviewed periodically for
impairment. Goodwill totaled $2,304,000, net of accumulated
amortization of $122,000, as of December 31, 1997.
Income Taxes:
Deferred income taxes are provided under the liability method
whereby deferred tax assets are recognized for deductible
temporary differences and net operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when,
F-8
<PAGE> 132
in the opinion of management, it is more likely than not that
some or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
Employee Benefit Plans:
Annual expense of the Company's defined benefit pension plan
includes service cost (measured by the projected unit credit
method), interest on the projected benefit obligation, actual
return on plan assets and other amortization and deferral amounts
specified by FASB Statement No. 87.
Deferred benefits under a salary continuation plan are charged
to expense during the period the respective employee attains
full eligibility. The Banks does not provide any other
post-employment benefits.
Compensation expense for stock issued through a stock option
plan is accounted for using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under this method, compensation is
measured as the difference between the estimated market value
of the stock at the date of award less the amount required to
be paid for the stock. The difference, if any, is charged to
expense over periods of service.
Earnings Per Common Share:
In July 1997, the Board of Directors approved a three-for-two
stock split effected in the form of a stock dividend and an
additional 1,165,022 shares of common stock were issued to
stockholders. As a result, fractional shares of stock totaling
56 shares were redeemed. Information with respect to the common
stock outstanding, earnings per common share and other stock
information has been retroactively adjusted to give effect to
the stock split.
The FASB has issued Statement No. 128, Earnings Per Share, which
supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of earnings per share by all entities that have
common stock or potential common stock, such as options,
warrants and convertible securities outstanding that trade in a
public market. Basic per-share amounts are computed by dividing
net income (the numerator) by the weighted-average number of
common shares outstanding (the denominator). Diluted per-share
amounts assume the conversion, exercise or issuance of all
potential common stock unless the effect is to reduce the loss
or increase the income per common share from continuing
operations. Statement No. 128 has been applied for annual and
interim periods ending after December 15, 1997, and earnings per
share for prior periods have been retroactively restated, which
had no effect on reported earnings per share. Following is a
reconciliation of the denominator:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
------------------------ ---- ---- ----
<S> <C> <C> <C>
Weighted average number of shares 3,496,634 3,528,792 3,573,713
Potential number of dilutive shares 30,112 18,470 16,306
--------- --------- ---------
Total shares to compute
diluted earnings per share 3,526,746 3,547,262 3,590,019
========= ========= =========
</TABLE>
F-9
<PAGE> 133
Fair Value of Financial Instruments:
The fair values are based on quoted market prices or, if not
available, on estimates using present value or other techniques.
These assumptions are significantly affected by the assumptions
used, including the discount rates and estimates of future cash
flows. In this regard, fair value estimates cannot be
substantiated by comparison to independent markets and, in many
cases, could not be realized in an immediate settlement. Some
financial instruments and all-nonfinancial instruments are
excluded from the disclosures. The aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Bank in
estimating the fair value of its financial instruments:
Cash and Due from Banks:
Cash and due from banks represent short-term instruments and fair
value is equal to the carrying amounts of the accounts.
Investment Securities:
Investment securities are valued based upon quoted market prices.
Loans:
For variable-rate loans, fair values are based on carrying
values. The fair values for other loans are estimated based
upon discounted cash flows, using current interest rates for
similar loans to borrowers with similar credit. The carrying
value of accrued interest approximates fair value.
Deposits:
The fair value of demand deposits and variable rate money market
and fixed-term deposits is the carrying value of the deposits.
Fair values for fixed rate certificates is based upon discounted
cash flows at current interest rates. The carrying value of
accrued interest payable approximates its current value.
Other Borrowings:
For other borrowings, fair value is based upon discounted cash
flows using the Banks' current incremental borrowing rates for
similar borrowing arrangements.
Off-Balance-Sheet Financial Instruments:
Off-balance-sheet instruments are valued based upon the current
fee structure for outstanding letters of credit, which is not
significant. Unfunded loan commitments are not valued since the
loans are generally priced at market at the time of funding.
F-10
<PAGE> 134
Recently Issued Accounting Standards:
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. The Statement does not
require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
The Statement requires that an enterprise: a) classify items of
other comprehensive income by their nature in a financial
statement; and b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement
of financial position. It is not expected that this Statement
will materially affect the presentation of the Company's
comprehensive income.
NOTE 2. INVESTMENT SECURITIES
The amortized cost and fair value of debt securities available for sale are
as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains (Losses) Value
- ----------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury $ 21,410 $ 113 $ (2) $21,521
U.S. Government agencies
and corporations 43,570 191 (95) 43,666
States and political subdivisions 39,058 583 (38) 39,603
Other debt securities 2,626 -- -- 2,626
Marketable equity securities 4,227 1,124 (12) 5,339
-------- ------ ----- --------
Total $110,891 $2,011 $(147) $112,755
======== ====== ===== ========
December 31, 1996
- -----------------
U.S. Treasury $ 20,886 $ 59 $ (12) $ 20,933
U.S. Government agencies
and corporations 44,511 206 (191) 44,526
States and political subdivisions 29,367 330 (109) 29,588
Other debt securities 2,280 -- -- 2,755
Marketable equity securities 387 88 -- 475
-------- ------ ----- --------
Total $ 97,431 $ 683 $(715) $ 97,802
======== ====== ===== ========
</TABLE>
F-11
<PAGE> 135
The contractual maturity distribution of investment securities is summarized
as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
-----------------------
Amortized Fair
December 31, 1997 Cost Value
- ----------------- --------- --------
<S> <C> <C>
Due in one year or less $ 23,554 $ 23,628
Due after one year through five years 30,916 31,255
Due after five years through ten years 15,961 16,220
Due after ten years 469 485
Mortgage-backed securities 33,138 33,202
Other 2,626 2,626
-------- --------
Total $106,664 $107,416
======== ========
</TABLE>
The Company's wholly-owned subsidiary Bank is required to pledge assets to
secure repurchase agreements and public deposits as permitted or required by
law. As of December 31, 1997, $29,847,000 of U. S. Treasury and Government
agency securities were pledged against these deposits. For the years ended
December 31, 1997, 1996 and 1995, net gains or losses from the sale of
investment securities were as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
Years ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Gross gains $403 $ 30 $--
Gross (losses) (8) (190) --
---- ----- ---
Net gains (losses) $395 $(160) $--
==== ===== ===
</TABLE>
NOTE 3. LOANS
The composition of loans is as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
As of December 31, 1997 1996
- ------------------ ---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 38,349 $ 32,361
Real estate, construction 19,009 16,440
Real estate, mortgage 252,271 230,534
Loans to individuals 52,638 49,386
All others 2,034 2,018
-------- --------
$364,301 $330,739
Less allowance for loan losses (4,589) (3,788)
-------- --------
Net loans $359,712 $326,951
======== ========
</TABLE>
F-12
<PAGE> 136
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Balance, beginning $3,788 $3,602 $3,354
Allowance related to acquired bank 671 -- --
Provision charged to operating income 588 591 366
Recoveries 351 72 157
Loans charged off (809) (477) (275)
------ ------ ------
Balance, ending $4,589 $3,788 $3,602
====== ====== ======
</TABLE>
Information for impaired loans as of and for the year ended December 31,
1997, is as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
1997 1996
---- ----
<S> <C> <C>
Loan receivable for which there is a related
allowance for credit losses $924 $559
Loan receivable for which there is no related
allowance for credit losses -- --
---- ----
Total impaired loans $924 $559
==== ====
Related allowance for credit losses $162 $ 88
Average balance (based on month-end balances) 509 317
Interest income recognized 20 62
</TABLE>
NOTE 4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
As of December 31, 1997 1996
- ------------------ ---- ----
<S> <C> <C>
Land $ 1,927 $ 1,881
Buildings 12,408 11,212
Furniture and equipment 7,071 6,118
------- -------
$21,406 $19,211
Accumulated depreciation (8,521) (7,129)
------- -------
$12,885 $12,082
======= =======
</TABLE>
F-13
<PAGE> 137
NOTE 5. DEPOSITS
A summary of deposits is as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
As of December 31, 1997 1996
- ------------------ ---- ----
<S> <C> <C>
Demand $ 59,244 $ 47,603
Interest-bearing transaction accounts 63,038 56,762
Savings 105,697 100,738
Time deposits of less than $100,000 200,462 163,886
Time deposits of $100,000 or more 30,374 26,418
-------- --------
$458,815 $395,407
======== ========
</TABLE>
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES AND NOTE PAYABLE
The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB). As
of December 31, 1997, the Bank held $2,058,000 of FHLB stock. Advances from
the FHLB are collateralized by 1-4 unit residential mortgages equal to 150%
of total outstanding notes. A summary of FHLB advances as of December 31,
1997, is as follows:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Amount Due Weighted Average Rate
---------- ---------------------
<S> <C> <C>
1 to 3 months 3,568 5.90%
4 to 6 months 2,269 5.40
7 to 12 months 638 6.20
1 to 5 years 6,260 6.16
------- ----
$12,735 5.95%
======= ====
</TABLE>
Notes Payable to individuals totaled $5,453,000 as of December 31, 1997. The
notes bear interest at 6.50%, are unsecured, and are due as follows:
<TABLE>
<CAPTION>
Due in 1998 Due in 1999 Due in 2000 Due in 2001
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Amounts maturing in thousands $1,812 $1,811 $1,074 $756
------ ------ ------ ----
</TABLE>
NOTE 7. INCOME TAXES
The provision for income tax expense is made up of the following components:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $2,422 $2,023 $1,308
State 487 418 304
Deferred -- 93 139
------ ------ ------
$2,909 $2,534 $1,751
====== ====== ======
</TABLE>
F-14
<PAGE> 138
The effective income tax rate is different than the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Income tax at a statutory rate of 34% $3,262 $2,882 $2,149
Tax exempt interest, net of related
disallowed interest expense (641) (659) (668)
State income taxes, net of federal benefit 321 276 201
Other (33) 35 69
------ ------ ------
$2,909 $2,534 $1,751
====== ====== ======
</TABLE>
Deferred income tax liabilities and assets arose from the following temporary
differences:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Deferred income tax assets:
Allowance for loan losses $1,225 $1,037 $ 941
Deferred compensation 233 264 287
Certain accrued expenses 121 125 109
Other 20 -- --
------ ------ ------
$1,599 $1,426 $1,337
------ ------ ------
Deferred income tax liabilities:
Debt securities available for sale $ 695 $ 138 $ 166
Property and equipment 272 274 263
Pension plan asset 1,170 1,001 870
Net deferred loan fees 73 55 35
Other -- 93 71
------ ------ ------
$2,210 $1,561 $1,405
------ ------ ------
Net deferred income tax liability $ (611) $ (135) $ (68)
====== ====== ======
</TABLE>
The net change in the deferred income taxes is reflected in the financial
statements as follows:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Statement of income $ -- $ 93 $ 139
Statement of stockholders' equity 557 (26) 1,204
Adjustments due to business combination (81) -- --
---- ---- ------
$476 $ 67 $1,343
==== ==== ======
</TABLE>
F-15
<PAGE> 139
NOTE 8. EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory defined benefit pension plan for
substantially all employees hired prior to March 1, 1995. Pension benefits
vest after five years of service and are based on years of service and
average final salary. The Company's funding policy is to make contributions
based upon an actuarially-determined cost method; however, no contributions
to the plan were required for 1997, 1996 and 1995. The following items are
the components of the net pension credit:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 90 $ 104 $ 90
Interest cost on projected benefit obligation 172 230 199
Actual return on plan assets (1,693) (1,025) (1,475)
Net amortization and deferral 1,003 323 889
------- ------- -------
Net pension (credit) $ (428) $ (368) $ (297)
======= ======= =======
</TABLE>
The funded status of the plan is as follows:
<TABLE>
<CAPTION>
(Amounts In Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Actuarial present value of benefits for
service rendered to date:
Accumulated benefits based on salaries to date,
including vested benefits 1997, $1,693;
1996, $1,691; 1995, $2,082 $(1,721) $(1,727) $(2,122)
Effect of projected compensation increases (562) (794) (514)
------- ------- -------
Projected benefit obligation $(2,283) $(2,521) $(2,636)
Fair value of plan assets, invested in equities
and bonds 8,915 7,423 8,152
------- ------- -------
Plan assets in excess of projected benefit obligation $ 6,632 $ 4,902 $ 5,516
Unrecognized net asset being recognized
over 18.7 years (721) (829) (936)
Unrecognized net gain on assets and projected
benefit obligation (2,193) (845) (1,720)
------- ------- -------
Prepaid pension cost $ 3,718 $ 3,228 $ 2,860
======= ======= =======
</TABLE>
The discount rate used to determine the actuarial present value of the
projected benefit obligation as of December 31, 1997, 1996 and 1995 was
8.25%. The expected long-term rate of return on plan assets as of December
31, 1997, 1996 and 1995, used in determining net pension expense was 7.50%.
The assumed rate of increase in future compensation levels was 4.50%.
The Company maintains a defined contribution 401(k) plan covering all
employees fulfilling minimum age and service requirements. Employee
contributions to the plan are optional. Employer contributions are made to
the plan equal to 1% of the employee's salary plus a percentage of employee
contributions.
F-16
<PAGE> 140
The expense for this plan was $282,000, $256,000 and $280,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Bank has a salary continuation plan for certain employees which provides
for annual payments of various amounts upon the employee's retirement or
death. The Bank is providing for these benefits by charges to operating
expense during the period the respective employee attains full eligibility.
The amount charged to operating expenses during the years ended December 31,
1997, 1996 and 1995 was $57,000, $69,000 and $75,000 respectively. The Bank
carries life insurance policies with face amounts totaling $875,000 to fund
the salary continuation plan. The cash value of these policies was $485,000
at December 31, 1997.
A nonqualified retirement plan provides a portion of the pension plan
benefits to the highly compensated employees of the Bank. The pension plan
expense associated with the nonqualified plan totaled $76,000, $76,000, and
$73,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
The Company has a stock option plan for certain officers and directors
whereby the Board of Directors authorizes options for shares that may be
granted. As of December 31, 1997, 133,450 shares were reserved for future
grants. A stock option committee has granted options at prices equal to the
fair value of the stock on the dates of the grants. All options are for a
term of five years or less and become exercisable in full or in part within
one year of the date granted. Grants under this plan are accounted for
following Accounting Principles Board (APB) Opinion No. 25 and related
Interpretations. No compensation expense has been charged to expense using the
intrinsic value based method as prescribed by APB No. 25. Had compensation
expense been determined based on the grant date fair values of the awards, as
prescribed by SFAS No. 123, reported net income and basic earnings per common
share would have been as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Pro forma net income (in thousands) $6,645 $5,902 $4,563
Pro forma earnings per share:
Basic $ 1.90 $ 1.67 $ 1.27
Diluted $ 1.88 $ 1.66 $ 1.26
------ ------ ------
</TABLE>
The pro forma effects of applying SFAS No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of SFAS No.
123 have been applied only to options granted after December 31, 1994.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1997, 1996 and 1995, respectively: dividend rate
of 2.9% for all three years; price volatility of 7.91% for all years;
risk-free interest rates of 6.50%, 5,56% and 6.63% for 1997, 1996 and 1995,
respectively; and expected lives of 3.5 years for all years.
F-17
<PAGE> 141
A summary of the Company's stock option plan is as follows (restated to reflect
50% stock dividend in July 1997):
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at January 1, 1995 135,431 $13.86
Granted 34,650 16.31
Exercised (18,131) 11.89
Forfeited (15,000) 15.49
-------- ------
Outstanding at December 31, 1995 136,950 14.56
Granted 22,050 18.51
Exercised (31,800) 11.67
Canceled (11,025) 16.92
-------- ------
Outstanding at December 31, 1996 116,175 5.87
Granted 53,100 21.75
Exercised (25,800) 20.67
Canceled (1,650) 14.34
-------- ------
Outstanding at December 31, 1997 141,825 18.57
======== ======
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Number of options exercisable, end of year 78,600 91,425 94,500
Weighted-average fair value per option of
options granted during the year $ 2.73 $ 2.72 $ 2.75
------- ------- -------
</TABLE>
Other pertinent information related to the options outstanding at December
31, 1997, is as follows:
<TABLE>
<CAPTION>
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$14.00 2,100 1 Month 2,100
$14.17 13,350 1 Month 13,350
$17.00 25,200 13 Months 24,450
$16.75 9,450 25 Months 9,450
$16.08 17,625 30 Months 16,125
$17.00 10,500 37 Months 10,500
$20.17 10,500 47 Months 2,625
$20.83 11,550 49 Months --
$22.00 17,700 39 Months --
$22.00 22,800 51 Months --
$22.33 1,050 53 Months --
------- ------
Total 141,825 78,600
======= ======
</TABLE>
F-18
<PAGE> 142
NOTE 9. ACQUISITION OF A BUSINESS
Effective April 8, 1997, the Company acquired for cash and notes payable all
of the outstanding shares of West Branch Bancorp, Inc., which held 100% of
the common stock of West Branch State Bank. The total acquisition cost was
$7,604,038. The excess of the acquisition cost over fair value of the net
assets acquired was $2,405,690 and is being amortized over fifteen years by
the straight-line method. The acquisition was accounted for as a purchase
and the results of operations since the date of acquisition is included in
the Company's statement of income.
Unaudited pro forma net income for 1997, 1996, and 1995, as though West
Branch Bancorp, Inc. had been acquired as of January 1, 1995 is not
significantly different than reported net income of the Company after
consideration of goodwill amortization and interest on borrowed funds.
NOTE 10. RELATED PARTY TRANSACTIONS
Certain directors of the Company and the Bank and companies with which they
are affiliated, as well as certain principal officers of the Company and its
affiliate Bank, are customers of and have banking transactions with the Bank
in the ordinary course of business. In the case of loans and extensions of
credit, indebtedness has been incurred on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons. The following is an analysis
of the changes in the loans to related parties during the years ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
(Amounts in Thousands)
Years Ended December 31, 1997 1996
- ------------------------ ---- ----
<S> <C> <C>
Beginning balance $ 776 $ 1,666
Additions 1,515 233
Collections (364) (1,123)
------ -------
Ending balance $1,927 $ 776
====== =======
</TABLE>
NOTE 11. REGULATORY CAPITAL REQUIREMENTS, RESTRICTIONS ON SUBSIDIARY
DIVIDENDS, AND CASH RESTRICTIONS
The Company and the Bank are required to maintain minimum amounts of capital
to total risk-weighted assets, as defined by the banking regulators. A
comparison of the Banks' capital as of December 31, 1997, with the minimum
regulatory requirements is presented below:
<TABLE>
<CAPTION>
Actual Minimum Regulatory
Capital Requirement
------- ------------------
<S> <C> <C>
Total risk-based capital 14.42% 8.00%
Tier I risk-based capital 13.17% 4.00%
Leverage ratio 8.88% 4.00%
</TABLE>
F-19
<PAGE> 143
At December 31, 1997, the Bank met the capital criteria required by the "well
capitalized" definition. The ability of the Company to pay dividends to its
stockholders is dependent upon dividends paid to it by its subsidiary Bank.
The Bank is subject to certain statutory and regulatory restrictions on the
amount it may pay in dividends. To maintain acceptable capital ratios in the
subsidiary Bank, certain of its retained earnings is not available for the
payment of dividends. To maintain the minimum of total risk-based capital to
risk-weighted assets to qualify as "well capitalized," retained earnings
which could be available for the payment of dividends to the Company totaled
approximately $15,000,000 as of December 31, 1997.
The Bank is required to maintain reserve balances in cash or with the Federal
Reserve Bank. Reserve balances totaled $859,000 and $888,000 at December 31,
1997 and 1996, respectively.
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Per Share Data)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Cash payments for:
Interest paid to depositors, on note payable, on
federal funds purchased and securities sold under
agreements to repurchase, and other borrowings $18,093 $16,486 $15,541
Income taxes 2,331 1,867 1,474
Noncash transactions:
Net unrealized gains (losses) on debt securities 1,494 (73) 3,228
Deferred income taxes on unrealized gains (losses)
on debt securities 557 (26) 1,204
Investment securities transferred from held to
maturity portfolio to available for sale portfolio,
at fair value -- -- 33,616
Acquisition of certain assets and liabilities from
West Branch Bancorp, Inc.:
Assets acquired:
Cash and cash equivalents $ 996 -- --
Federal funds sold 1,700 -- --
Investment securities 14,690 -- --
Loans 21,076 -- --
Goodwill 2,406 -- --
Other assets 892
------- ------- -------
$41,760 -- --
Liabilities assumed
Deposits (32,789) -- --
Notes payable to sellers (5,453) -- --
Federal Home Loan Bank advances (1,000) -- --
Other liabilities (367) -- --
------- ------- -------
Cash purchase price $ 2,151 -- --
------- ------- -------
</TABLE>
F-20
<PAGE> 144
NOTE 13. COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk:
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheet. The Bank's exposure
to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
December 31, 1997 1996
------------ ---- ----
<S> <C> <C>
Commitments to extend credit $64,805 $49,358
Standby letters of credit 4,265 4,398
------- -------
$69,070 $53,756
======= =======
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's
credit evaluation of the party. Collateral held varies, but may
include accounts receivable, crops, livestock, inventory,
property and equipment, residential real estate and
income-producing commercial properties. Standby letters of
credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to
customers. Collateral held varies as specified above and is
required in instances which the Bank deems necessary.
Concentrations of Credit Risk:
Substantially all of the Bank's loans, commitments to extend
credit, and standby letters of credit have been granted to
customers in the Bank's market area. Investments in securities
issued by state and political subdivisions involve diverse
governmental entities. The concentrations of credit by type of
loan are set forth in Note 3. Standby letters of credit were
granted primarily to commercial borrowers. A substantial portion
of the debtors' ability to honor their loans is dependent upon
economic conditions in the Iowa City/Cedar Rapids and surrounding
area. Investment securities of Iowa political subdivisions
totaled $14,785,000 as of December 31, 1997. No individual
municipality exceeded $750,000.
F-21
<PAGE> 145
Year 2000 Plans:
Information technology experts believe that many data processing
application systems could fail or improperly perform as a result
of erroneous calculations or data integrity problems if they are
unable to process date information beyond December 31, 1999; an
issue known as Year 2000. The Company is heavily dependent upon
computer processing and has addressed this issue through the
implementation of a plan which entails identification, review and
validation of all critical systems and vendors. The Company
anticipates that this process will be essentially completed
during 1998, and management anticipates that the associated
expenses will not be material to the financial statements of the
Company.
NOTE 14. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following is condensed financial information of First Financial
Bancorporation (parent company only):
<TABLE>
<CAPTION>
Balance Sheets
(Amounts in Thousands)
December 31, 1997 1996
- ------------ ---- ----
<S> <C> <C>
Assets
Cash $10,742 $ 4,021
Investment in subsidiaries
Investment securities available for sale 47,148 47,674
(cost 1997 $4,627; 1996 $789) 5,744 887
Accrued interest receivable 26 18
Other assets 38 --
Income taxes receivable -- 13
------- -------
$63,698 $52,613
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Income taxes payable $ 15 $ --
Other liabilities 233 37
Deferred income taxes 417 --
Notes payable 5,453 --
Stockholders' equity:
Capital stock, common 4,361 2,914
Additional paid-in capital 2,284 2,606
Retained earnings 49,766 46,824
Unrealized gain on debt securities, net 1,169 232
------- -------
$63,698 $52,613
======= =======
</TABLE>
F-22
<PAGE> 146
<TABLE>
<CAPTION>
Statements Of Income
(Amounts in Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Operating income, dividends received from subsidiary $15,329 $7,433 $2,252
Interest income 91 31 28
Gain on sale of equity securities 332 -- --
Operating expenses 425 116 54
Interest expense on notes payable 260 -- --
------- ------ ------
Income before income taxes and equity in subsidiary's
undistributed income $15,067 $7,348 $2,226
Income taxes (credits) (89) (24) (10)
------- ------ ------
$15,156 $7,372 $2,236
Equity in subsidiary's undistributed income (8,473) (1,456) 2,334
------- ------ ------
Net Income $ 6,683 $5,916 $4,570
======= ====== ======
Statements of Cash Flows
(Amounts in Thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,683 $ 5,916 $ 4,570
Noncash items included in net income:
Undistributed earnings of subsidiaries 8,473 1,456 (2,334)
Changes in account with subsidiaries 28 (13) (1)
(Increase) in accrued interest receivable (8) (8) (10)
Other (287) (1) 1
------- ------- -------
Net cash provided by operating activities $14,889 $ 7,350 $ 2,226
======= ======= =======
Cash flows (used in) investing activities:
Acquisition of subsidiary $(2,151) -- --
Available for sale securities - purchases (4,950) $ (388) $ (401)
Available for sale securities - sales 1,549 -- --
------- ------- -------
Net cash (used in) investing activities $(5,552) $ (388) $ (401)
------- ------- -------
Cash flows (used in) financing activities:
Stock options exercised $ 342 $ 308 $ 216
Common stock redeemed (675) (1,925) (69)
Dividends paid (2,283) (1,946) (1,811)
------- ------- -------
Net cash (used in) financing activities $(2,616) $(3,563) $(1,664)
------- ------- -------
Increase in cash $ 6,721 $ 3,399 $ 161
Cash balance:
Beginning 4,021 622 461
------- ------- -------
Ending $10,742 $ 4,021 $ 622
======= ======= =======
</TABLE>
F-23
<PAGE> 147
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of First Financial's financial
instruments are as follows:
<TABLE>
<CAPTION>
As of December 31, 1997 As of December 31, 1996
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 21,449 $ 21,449 $ 20,949 $ 20,949
Federal funds sold 27,925 27,925 -- --
Available for sale securities 112,755 112,755 97,802 97,802
Loans:
Variable rate 172,351 172,351 149,538 160,452
Fixed rate 191,950 198,123 181,201 170,287
Accrued interest receivable 3,730 3,730 3,179 3,179
Deposits:
Non interest-bearing 59,244 59,244 47,603 47,603
Interest bearing:
Variable rate 174,814 174,814 172,454 172,454
Fixed rate 224,757 222,728 175,350 178,062
Federal Home Loan Bank advances
and notes payable 18,188 18,245 12,355 12,344
Accrued interest payable 2,153 2,153 1,516 1,516
<CAPTION>
Off-balance-sheet instruments Face Amount Fair Value Face Amount Fair Value
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Loan commitments $ 64,805 $ -- $ 49,358 $ --
Letters of credit 4,265 -- 4,398
</TABLE>
The Registrant does not meet the requirements of item 302 of Regulation S-K
and therefore has not included the supplemental financial information
required by that item.
F-24
<PAGE> 148
<TABLE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<CAPTION>
March 31, 1998
--------------
<S> <C>
ASSETS
Cash and due from banks $ 23,575
Investment securities:
Available for sale securities (cost $117,077) 119,254
Federal funds sold 39,300
Loans, net of unearned income 357,598
Less: allowance for loan losses (4,499)
--------
Net loans 353,099
Bank premises and equipment, net 12,794
Accrued interest receivable 3,732
Intangible assets 2,695
Prepaid pension cost 3,828
Other assets 10,165
--------
$568,442
========
LIABILITIES
Noninterest-bearing deposits $ 60,913
Interest-bearing deposits 419,548
--------
Total deposits 480,461
Securities sold under agreements to repurchase 9,467
Accrued interest payable 2,044
Other Liabilities 2,208
Federal Home advances 9,267
Notes Payable 3,641
Income tax payable 301
Deferred income taxes 786
--------
$508,175
--------
STOCKHOLDERS' EQUITY
Capital stock, common, $1.25 par value; authorized 5,000,000
shares; issued 3,553,717 shares $ 4,442
Additional paid-in capital 3,635
Retained earnings 50,825
Accumulated other comprehensive income, unrealized gains
on debt securities, net 1,365
--------
$ 60,267
--------
$568,442
========
See Notes to Financial Statements.
</TABLE>
F-25
<PAGE> 149
<TABLE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,395 $ 6,738
Interest on investment securities:
Taxable 1,126 1,030
Non-taxable 476 383
Interest on federal funds sold 370 212
------- -------
Total interest income $ 9,367 $ 8,363
------- -------
INTEREST EXPENSE:
Interest on deposits $ 4,573 $ 3,919
Interest on federal funds purchased 118 15
Notes Payable interest expense 58 --
Interest on Federal Home Loan Bank advances 158 188
------- -------
Total interest expense $ 4,907 $ 4,122
------- -------
Net interest income $ 4,460 $ 4,241
Provision for loan losses 100 177
------- -------
Net interest income after provision for loan losses $ 4,360 $ 4,064
------- -------
NONINTEREST INCOME:
Trust fees $ 938 $ 832
Services charges and fees on deposit accounts 511 445
Other service charges, commissions and fees 998 528
Investment gains (losses), net 154 44
------- -------
$ 2,601 $ 1,849
------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits $ 2,164 $ 1,801
Occupancy, furniture and equipment 723 655
Data processing 394 327
Office supplies and postage 295 254
Other expenses 915 665
------- -------
$ 4,491 $ 3,702
------- -------
Income before income taxes $ 2,470 $ 2,211
Federal and state income taxes 736 664
------- -------
Net income $ 1,734 $ 1,547
======= =======
Earnings per share:
Basic $ .49 $ .44
Diluted $ .49 $ .44
See Notes to Financial Statements.
</TABLE>
F-26
<PAGE> 150
<TABLE>
FIRST FINANCIAL BANCORPORATION
AND SUBSIDIARY
UNAUDITED
STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,734 $ 1,547
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 296 267
Amortization 80 38
Provision for loan losses 100 177
Amortization of investment security discount 45 35
(Increase) decrease in accrued interest receivable (2) (212)
(Increase) in prepaid pension costs (110) (91)
Increase in other assets (5,061) 376
Increase (decrease) in accrued interest and other liabilities (518) (84)
Change in accrued income taxes 664 492
--------- --------
Net cash provided by operating activities $ (2,772) $ 2,545
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities $ 6,068 $ 2,767
Sales 589 --
Purchases (12,888) (7,827)
Fed funds sold, net (11,375) (31,500)
Net (increase) decrease in loan balances outstanding 6,513 5,574
Purchases of bank premises and equipment (205) (100)
--------- --------
Net cash (used in) investing activities $ (11,298) $(31,086)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit balances $ 21,646 $ 23,758
Federal funds purchased and securities sold under
agreements to repurchase (561) (2,061)
Repayment of other borrowings (1,812) --
Federal Home Loan Bank advances (3,468) 1,583
Dividends paid (675) (514)
Stock options exercised 1,066 361
Common stock redeemed -- (158)
Common stock purchased -- (144)
Net cash provided by financing activities $ 16,196 $ 22,825
--------- --------
Increase in cash and due from banks $ 2,126 $(5,716)
CASH AND DUE FROM BANKS
Beginning balance 21,449 20,949
--------- --------
Ending balance $ 23,575 $ 15,233
========= ========
See Notes to Financial Statements.
</TABLE>
F-27
<PAGE> 151
FIRST FINANCIAL BANCORPORATION
NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The unaudited 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.
F-28
<PAGE> 152
ANNEX A
-------
[Letterhead of ABN AMRO Incorporated]
-----, 1998
Board of Directors
First Financial Bancorporation
204 East Washington Street
Iowa City, Iowa 52244-1880
Members of the Board:
We understand that First Financial Bancorporation ("FIOW"), Mercantile
Bancorporation Inc. ("MTL") and Ameribanc, Inc. ("Ameribanc"), a wholly owned
subsidiary of MTL, have entered into an Agreement and Plan of Merger dated
May 7, 1998 (the "Agreement") pursuant to which FIOW will be merged with and
into Ameribanc in a transaction (the "Merger") in which each issued and
outstanding share of common stock of FIOW ("FIOW Common Stock"), will be
converted into the right to receive 0.88 (the "Exchange Ratio") of a share of
common stock of MTL and the associated "Rights" under the "Rights Agreement,"
as those terms are defined in Section 3.02 of the Agreement (collectively,
"MTL Common Stock").
You have asked us whether, in our opinion, the Exchange Ratio to be
received by the holders of FIOW Common Stock in the Merger is fair to such
shareholders from a financial point of view.
In connection with this opinion, we have reviewed the Agreement and
certain related documents and held discussions with certain senior officers
and directors of FIOW and certain senior officers of MTL concerning the
businesses, operations and prospects of FIOW and MTL. We examined certain
publicly available business and financial information relating to FIOW and
MTL as well as certain financial information and other data for FIOW and
certain financial information and other data related to MTL which were
provided to or otherwise discussed with us by the respective managements of
FIOW and MTL. We reviewed the financial terms of the Merger as set forth in
the Agreement in relation to: (i) current and historical market prices and
trading volumes of FIOW Common Stock and MTL Common Stock; (ii) the respective
companies' financial and other operating data; and (iii) the capitalization and
financial condition of FIOW and MTL. We also considered, to the extent
publicly available, the financial terms of certain other banking-industry
transactions recently effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of FIOW and MTL. In
connection with our engagement, we held discussions with certain third
parties to solicit indications of interest in a possible transaction with
FIOW.
A-1
<PAGE> 153
In rendering our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information reviewed by us and we
have not made or obtained or assumed any responsibility for independent
verification of such information. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of FIOW or
MTL or any of their respective subsidiaries. With respect to the financial
data of FIOW, we have assumed that it has been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of FIOW as to the future financial performance of FIOW. We have
assumed that the Merger will be consummated in accordance with the terms of
the Agreement including among other things, that the Merger will be accounted
for as a pooling of interests under generally accepted accounting principles
and as a tax-free reorganization for federal income tax purposes. We are not
expressing any opinion as to what the value of MTL Common Stock actually will
be when issued to FIOW shareholders pursuant to the Merger or the price at
which MTL Common Stock will trade subsequent to the Merger.
ABN AMRO Incorporated ("AAI"), as part of its investment banking
business, is continually engaged in the valuation of businesses in connection
with mergers and acquisitions, as well as initial and secondary offerings of
securities and valuations for other purposes. We have acted as financial
advisor to the Board of Directors of FIOW in connection with this transaction
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the
Merger. In the ordinary course of our business, AAI and its affiliates may
actively trade securities of both FIOW and MTL for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is for the benefit and use of the
Board of Directors of FIOW in its consideration of the Merger and may not be
used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose without our prior written
consent, except that this letter may be used as part of any proxy
statement/prospectus relating to the Merger. This letter does not address
FIOW's underlying business decision to enter into the Merger or constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the proposed Merger. Finally, our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us, as of the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the shareholders of FIOW.
Sincerely,
ABN AMRO Incorporated
A-2
<PAGE> 154
ANNEX B
-------
Following is the text of the statutory appraisal right as set forth in
Division XIII of the IBCA.
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII. In this division:
1. "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 490.1302 and who exercises that right when and
in the manner required by sections 490.1320 through 490.1328.
4. "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
5. "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT.
1. A shareholder is entitled to dissent from, and obtain payment of
the fair value of the shareholder's shares in the event of, any of the
following corporate actions:
a. Consummation of a plan of merger to which the corporation
is a party if either of the following apply:
(1) Shareholder approval is required for the merger by
section 490.1103 or the articles of incorporation and the
shareholder is entitled to vote on the merger.
B-1
<PAGE> 155
(2) the corporation is a subsidiary that is merged with
its parent under section 490.1104.
b. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and
regular course of business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash pursuant to
a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year after the
date of sale.
d. An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it does any or all of the following:
(1) Alters or abolishes a preferential right of the
shares.
(2) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights.
(5) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to
be acquired for cash under section 490.604.
(6) Extends, for the first time after being governed by
this chapter, the period of duration of a corporation organized
under chapter 491 or 496A and existing for a period of years on
the day preceding the date the corporation is first governed by
this chapter.
e. Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting shareholders
are entitled to dissent and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
1. A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in that shareholder's name only if the
shareholder dissents with respect to all shares beneficially owned by
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any one person and notifies the corporation in writing of the name and address
of each person on whose behalf the shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the shareholder dissents and the shareholder's other
shares were registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to
shares held on the shareholder's behalf only if the shareholder does both of
the following:
a. Submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights.
b. Does so with respect to all shares of which the shareholder
is the beneficial shareholder or over which that beneficial shareholder
has power to direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS.
1. If proposed corporate action creating dissenters' rights under
section 490.1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this part and be accompanied by a copy of this part.
2. If corporate action creating dissenters' rights under section
490.1302 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in
section 490.1322.
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT.
1. If proposed corporate action creating dissenters' rights under
section 490.1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must do all of the
following:
a. Deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the
shareholder's shares if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of
the proposed action.
2. A shareholder who does not satisfy the requirements of subsection
1 is not entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE.
1. If proposed corporate action creating dissenters' rights under
section 490.1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of section 490.1321.
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2. The dissenters' notice must be sent no later than ten days after
the proposed corporate action is authorized at a shareholders' meeting, or,
if the corporate action is taken without a vote of the shareholders, no later
than ten days after the corporate action is taken, and must do all of the
following:
a. State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received.
c. Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date.
d. Set a date by which the corporation must receive the
payment demand, which date shall not be fewer than thirty nor more than
sixty days after the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division. (Last amended
by Ch. 211, L. `91, eff. 7-1-91.)
490.1323 DUTY TO DEMAND PAYMENT.
1. A shareholder sent a dissenter's notice described in section
490.1322 must demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set forth
in the dissenter's notice pursuant to section 490.1322, subsection 2,
paragraph "c," and deposit the shareholder's certificates in accordance with
the terms of the notice.
2. The shareholder who demands payment and deposits the
shareholder's shares under subsection 1 retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
3. A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this division.
490.1324 SHARE RESTRICTIONS.
1. The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under section
490.1326.
2. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
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<PAGE> 158
490.1325 PAYMENT.
1. Except as provided in section 490.1327, at the time the proposed
corporate action is taken, or upon receipt of a payment demand, whichever
occurs later, the corporation shall pay each dissenter who complied with
section 490.1323 the amount the corporation estimates to be the fair value of
the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year and the latest available interim financial
statements, if any.
b. A statement of the corporation's estimate of the fair value
of the shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment
under section 490.1328.
e. A copy of this division. (Last amended by Ch. 211, L. `91,
eff. 7-1-91.)
490.1326 FAILURE TO TAKE ACTION.
1. If the corporation does not take the proposed action within one
hundred eighty days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was
taken without a vote of the shareholders and repeat the payment demand
procedure. (Last amended by Ch. 171, L. `91, eff. 7-1-91.)
490.1327 AFTER-ACQUIRED SHARES.
1. A corporation may elect to withhold payment required by section
490.1325 from a dissenter unless the dissenter was the beneficial owner of
the shares before the date set forth in the dissenters' notice as the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement of
its estimate of the fair value of the shares, an explanation of how the
interest was calculated and a statement of the dissenter's right to demand
payment under section 490.1328.
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<PAGE> 159
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER.
1. A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and
amount of interest due and demand payment of the dissenter's estimate, less
any payment under section 490.1325, or reject the corporation's offer under
section 490.1327 and demand payment of the fair value of the dissenter's
shares and interest due, if any of the following apply:
a. The dissenter believes that the amount paid under section
490.1325 or offered under section 490.1327 is less than the fair value
of the dissenter's shares or that the interest due is incorrectly
calculated.
b. The corporation fails to make payment under section
490.1325 within sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty days after
the date set for demanding payment.
2. A dissenter waives the dissenter's right to demand payment under
this section unless the dissenter notifies the corporation of the dissenter's
demand in writing under subsection 1 within thirty days after the corporation
made or offered payment for the dissenter's shares.
PART C
490.1330 COURT ACTION.
1. If a demand for payment under section 490.1328 remains unsettled,
the corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district
court of the county where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
3. The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be
served with a copy of the petition. Nonresidents may be served by registered
or certified mail or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is
commenced under subsection 2 is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in
the order
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<PAGE> 160
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to
judgment for either of the following:
a. The amount, if any, by which the court finds the fair value
of the dissenter's shares, plus interest, exceeds the amount paid by
the corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES.
1. The court in an appraisal proceeding commenced under section
490.1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 490.1328.
2. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, for
either of the following:
a. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
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<PAGE> 161
PROXY FIRST FINANCIAL BANCORPORATION
204 EAST WASHINGTON STREET,
P.O. BOX 1880
IOWA CITY, IOWA 52244-1880
For the Special Meeting of Shareholders to be held ------------, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of FIRST FINANCIAL BANCORPORATION
("First Financial"), does hereby nominate, constitute and appoint Margaret N.
Keyes and Gerald W. Buxton, Jr. or each of them (with full power to act
alone), true and lawful proxies and attorneys-in-fact, with full power of
substitution, for the undersigned and in the name, place and stead of the
undersigned to vote all of the shares of common stock, $1.25 par value, of
First Financial standing in the name of the undersigned on its books at the
close of business on ---------, 1998 at the Special Meeting of Shareholders
to be held at --------------------------------------------, on -------,
- -----------, 1998, at ------ -.m. Central Time, and at any adjournments or
postponements thereof, with all the powers the undersigned would possess if
personally present, as follows:
1. To consider and vote upon the adoption and approval of the Agreement
and Plan of Merger, dated May 7, 1998 (the "Merger Agreement"), pursuant to
which First Financial will be merged with and into Ameribanc, Inc., a
Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation
Inc. ("MBI"), in a transaction that would result in the business and
operations of First Financial being continued through such wholly owned
subsidiary, and whereby, upon consummation of the merger, each share of First
Financial common stock will be converted into the right to receive 0.88 of a
share of MBI common stock, as set forth in detail in the accompanying Proxy
Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
The undersigned hereby revokes any other proxies to vote at such
meeting and hereby ratifies and confirms all that the proxies and
attorneys-in-fact, or each of them, appointed hereunder may lawfully do by
virtue hereof. Said proxies and attorneys-in-fact, without limiting their
general authority, are specifically authorized to vote in accordance with
their best judgment with respect to all matters incident to the conduct of
the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO
DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE
PROPOSAL LISTED ABOVE.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY.
RETURN USING THE ENVELOPE PROVIDED
FIRST FINANCIAL BANCORPORATION SPECIAL MEETING
Check appropriate box Date-------------------- NO. OF SHARES
Indicate changes below:
Address Change? / / Name Change? / /
--------------------------------------------------
--------------------------------------------------
Signature(s) In Box
When signing as attorney, executor, administrator,
trustee or guardian, please give your full title.
If more than one person holds the power to vote
the same shares, all must sign. All joint owners
must sign. The undersigned hereby acknowledges
receipt of the notice of Special Meeting and the
Proxy Statement/Prospectus (with all enclosures
and attachments), dated --------, 1998, relating
to the Special Meeting.
<PAGE> 162
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
------------------------------------------
Item 20. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business Corporation Law
of the State of Missouri provide that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that, in the
case of an action or suit by or in the right of the corporation, the
corporation may not indemnify such persons against judgments and fines and no
person shall be indemnified as to any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the corporation, unless and only to the extent
that the court in which the action or suit was brought determines upon
application that such person is fairly and reasonably entitled to indemnity
for proper expenses. Section 351.355(3) provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful
in the defense of any such action, suit or proceeding or any claim, issue or
matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection with such
action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by
a shareholder-approved bylaw or agreement, and provided further that no
person shall thereby be indemnified against conduct which was finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct or which involved an accounting for profits pursuant to Section
16(b) of the Securities Exchange Act of 1934.
Article 12 of the Restated Articles of Incorporation of MBI provides
that MBI shall extend to its directors and executive officers the
indemnification specified in subsections (1) and (2) and the additional
indemnification authorized in subsection (7) and that it may extend to other
officers, employees and agents such indemnification and additional
indemnification.
Pursuant to directors' and officers' liability insurance policies, with
total annual limits of $45,000,000, MBI's directors and officers are insured,
subject to the limits, retention, exceptions and other terms and conditions
of such policy, against liability for any actual or alleged error,
misstatement, misleading statement, act or omission, or neglect or breach of
duty by the directors or officers of MBI, individually or collectively, or
any matter claimed against them solely by reason of their being directors or
officers of MBI.
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<PAGE> 163
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
A. Exhibits. See Exhibit Index.
--------
B. Financial Statement Schedules. Not Applicable.
-----------------------------
Item 22. Undertakings
- ----------------------
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of MBI pursuant to the foregoing provisions, or
otherwise, MBI has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
MBI of expenses incurred or paid by a director, officer or controlling person
of MBI in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, MBI will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) MBI hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of MBI's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) MBI hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(4) MBI undertakes that every prospectus (i) that is filed pursuant
to paragraph (3) immediately preceding or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) MBI hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11 or 13 of this Form, within one
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<PAGE> 164
business day of receipt of such request and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in the documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(6) MBI hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(7) MBI hereby undertakes:
(a) To file during any period in which offers and sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof), which
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement.
(b) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
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<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, State of Missouri, on June 26, 1998.
MERCANTILE BANCORPORATION INC.
By /s/ John Q. Arnold
--------------------------------------------------
John Q. Arnold, Vice Chairman and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of June 26, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
<F*> Chairman of the Board,
- ----------------------------------- President and Chief Executive
Thomas H. Jacobsen Officer
Principal Executive Officer
/s/ John Q. Arnold Vice Chairman and
- ----------------------------------- Chief Financial Officer
John Q. Arnold
Principal Financial Officer
<F*> Senior Vice President - Finance
- ----------------------------------- and Control
Michael T. Normile
Principal Accounting Officer
<F*> Director
- -----------------------------------
Richard E. Beumer
Director
- -----------------------------------
Harry M. Cornell, Jr.
<F*> Director
- -----------------------------------
Dr. Henry Givens, Jr.
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<PAGE> 166
Signature Title
--------- -----
<F*> Director
- -----------------------------------
William A. Hall
<F*> Director
- -----------------------------------
Frank Lyon, Jr.
<F*> Director
- -----------------------------------
Robert W. Murray
<F*> Director
- -----------------------------------
Harvey Saligman
<F*> Director
- -----------------------------------
Craig D. Schnuck
<F*> Director
- -----------------------------------
Alvin J. Siteman
<F*> Director
- -----------------------------------
Patrick T. Stokes
<F*> Director
- -----------------------------------
John A. Wright
<F*>By /s/ John Q. Arnold
--------------------------------------------------
John Q. Arnold
John Q. Arnold, by signing his name hereto, does sign this document
on behalf of the persons named above, pursuant to a power of attorney duly
executed by such persons and previously filed.
</TABLE>
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<PAGE> 167
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated May 7, 1998, by and among MBI, Ameribanc and First
Financial.<F*>
2.2 Stock Option Agreement, dated May 7, 1998, and entered into by and between MBI and First
Financial.<F*>
2.3 Form of Voting Agreement, dated May 7, 1998, by and between MBI and certain of the
directors of First Financial.<F*>
3.1(a) MBI's Restated Articles of Incorporation, as amended and currently in effect, filed as
Exhibit 3.1(a) to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, are incorporated herein by reference.
3.1(b) Third Amended and Restated Certificate of Designation, Preferences and rights of Series
B Junior Participating Stock of MBI, filed as part of Exhibit 1 to MBI's Registration
Statement on Form 8-A dated May 27, 1998, is incorporated herein by reference.
3.2 MBI's by-laws, as amended and currently in effect, filed as Exhibit 3.2 to Amendment No.
2 to MBI's Registration Statement on Form S-4 (No. 333-17757), are incorporated herein
by reference.
4.1 Form of Indenture Regarding Subordinated Securities between MBI and The First National
Bank of Chicago, Trustee, filed on March 31, 1992 as Exhibit 4.1 to MBI's Current Report
on Form 8-K dated September 24, 1992, is incorporated herein by reference.
4.2 Rights Agreement, dated May 20, 1998, between MBI and Mercantile Bank, as Rights Agent
(including as exhibits thereto the form of Certificate of Designation, Preferences and
Rights of Series B Junior Participating Preferred Stock and the form of Right
Certificate), filed as Exhibit 1 to MBI's Registration Statement on Form 8-A dated May
27, 1998, is incorporated herein by reference.
4.3 Form of Indenture Regarding Senior Debt Securities, filed as Exhibit 4.1 to MBI's
Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference.
4.4 Form of Indenture Regarding Subordinated Debt Securities, filed as Exhibit 4.2 to MBI's
Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference.
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<PAGE> 168
Exhibit
Number Description Page
- ------ ----------- ----
4.5 Indenture, dated February 4, 1997, First Supplemental Indenture, dated February 4, 1997,
and Supplemental Indenture of First Supplemental Indenture, dated May 22, 1997, between
MBI, as issuer, and The Chase Manhattan Bank, as Indenture Trustee, filed as Exhibits
4.5, 4.6 and 4.12, respectively, to MBI's Registration Statement on Form S-4 (No.
333-25131), are incorporated herein by reference.
5.1 Opinion of Thompson Coburn as to the legality of the securities being registered.<F*>
8.1 Opinion of Thompson Coburn regarding certain tax matters in the Merger.<F*>
10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed as Exhibit
10-3 to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is
incorporated herein by reference.
10.2 The Mercantile Bancorporation Inc. Amended and Restated Executive Incentive Compensation
Plan, filed as Annex H to MBI's definitive Proxy Statement for the 1997 Annual Meeting
of Shareholders, is incorporated herein by reference.
10.3 The Mercantile Bancorporation Inc. Employee Stock Purchase Plan, filed as Exhibit 10-7
to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is
incorporated herein by reference.
10.4 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-7
to MBI's Annual Report on Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
10.5 Amendment Number One to the Mercantile Bancorporation Inc. 1991 Employee Incentive Plan,
filed as Exhibit 10-6 to MBI's Annual Report on Form 10-K for the year ended December
31, 1994, is incorporated herein by reference.
10.6 The Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan, filed as
Annex G to MBI's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders,
is incorporated herein by reference.
10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors,
filed as Appendix E to MBI's definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
10.8 The Mercantile Bancorporation Inc. Amended and Restated Voluntary Deferred Compensation
Plan, filed as Exhibit 10.1 to MBI's Registration Statement on Form S-8 (file no.
333-47713), is incorporated herein by reference.
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<PAGE> 169
Exhibit
Number Description Page
- ------ ----------- ----
10.9 Employment Agreement for Thomas H. Jacobsen, as amended and restated, filed as Exhibit
10-9 to MBI's Annual Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference.
10.10 Form of Change of Control Employment Agreement for John W. McClure, W. Randolph Adams,
John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-10 to MBI's
Annual Report on Form 10-K for the year ended December 31, 1989, is incorporated herein
by reference.
10.11 The Mercantile Bancorporation Inc. Supplemental Retirement Plan, filed as Exhibit 10-12
to MBI's Annual Report on Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.12 Mercantile Bancorporation Inc. Voluntary Deferred Compensation Plan for Non-Employee
Affiliate Directors and Advisory Directors, filed as Exhibit 10.3 to MBI's Registration
Statement on Form S-8 (File No. 333-47713), is incorporated herein by reference.
10.13 Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan for
Non-Employee Directors, filed as Exhibit 10.2 to MBI's Registration Statement on Form
S-8 (File No. 333-47713), is incorporated herein by reference.
10.14 Agreement and Plan of Reorganization, dated October 27, 1996, by and among MBI,
Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as Exhibit 2.1 to MBI's Current
Report on Form 8-K filed November 6, 1996, is incorporated herein by reference.
10.15 Amendment to Agreement and Plan of Reorganization, dated January 24, 1997, by and among
MBI, Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as Exhibit 10-16 to
Amendment No. 2 to MBI's Registration Statement on Form S-4 (File No. 333-17757), is
incorporated herein by reference.
10.16 Stock Option Agreement, dated October 27, 1996, by and between MBI, as grantee, and Mark
Twain Bancshares, Inc., as issuer, filed as Exhibit 2.2 to MBI's Current Report on Form
8-K filed on November 6, 1996, is incorporated herein by reference.
10.17 Agreement and Plan of Reorganization, dated December 22, 1996, by and between MBI and
Roosevelt Financial Group, Inc., filed as Exhibit 2.1 to MBI's Current Report on Form
8-K filed on December 30, 1996, is incorporated herein by reference.
10.18 Stock Option Agreement, dated December 22, 1996, by and between MBI, as grantee, and
Roosevelt Financial Group, Inc., as issuer, filed as Exhibit 2.1 to MBI's Current Report
on Form 8-K filed on December 30, 1996, is incorporated herein by reference.
II-8
<PAGE> 170
Exhibit
Number Description Page
- ------ ----------- ----
10.19 Employment Agreement for Alvin J. Siteman, dated November 18, 1996, filed as Exhibit
10.3 to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
10.20 Employment Agreement for John P. Dubinsky, dated October 27, 1996, filed as Exhibit 10.4
to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
10.21 Employment Agreement for Stanley J. Bradshaw, dated December 22, 1996, filed as Exhibit
10 to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated herein by reference.
10.22 Agreement and Plan of Reorganization, dated January 30, 1998, by and among MBI,
Ameribanc, Inc. and Firstbank of Illinois Co., filed as Exhibit 2.1 to MBI's Current
Report on Form 8-K filed on February 3, 1998, is incorporated herein by reference.
23.1 Consent of KPMG Peat Marwick LLP with regard to the use of its report on MBI's financial
statements.
23.2 Consent of McGladrey & Pullen, LLP with regard to the use of its report on First
Financial's financial statements.
23.3 Consent of ABN AMRO Incorporated.<F*>
23.4 Consent of Thompson Coburn (included in Exhibit 5.1).<F*>
24.1 Power of Attorney.<F*>
- ------
<F*> Previously filed on June 19, 1998.
</TABLE>
II-9
<PAGE> 1
Exhibit 23.1
------------
Independent Auditors' Consent
To the Board of Directors and Stockholders of
Mercantile Bancorporation Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
June 26, 1998
<PAGE> 1
Exhibit 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
First Financial Bancorporation
Iowa City, Iowa
We hereby consent to the use in this Registration Statement on Form S-4
(No. 333-57345) of our report, dated February 17, 1998, relating to the
consolidated financial statements of First Financial Bancorporation and
subsidiary. We also consent to the reference to our Firm under the captions
"Relationship with Independent Accountants" and "Experts" in the prospectus.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
June 29, 1998
