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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999 COMMISSION FILE NUMBER 1-11792
MERCANTILE BANCORPORATION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-0951744
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
P.O. BOX 524 ST. LOUIS, MISSOURI 63166-0524
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 418-2525
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR
FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE
SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS.
X
--------- ---------
YES NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $.01 PAR VALUE, 158,365,949 SHARES OUTSTANDING AS OF
THE CLOSE OF BUSINESS ON JULY 30, 1999.
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<PAGE>
<PAGE>
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1--Financial Statements
Consolidated Statement of Income (Unaudited)
Three months and six months ended June 30, 1999 and 1998 3
Consolidated Balance Sheet
June 30, 1999 and 1998 (Unaudited), and December 31, 1998 4
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
Six months ended June 30, 1999 and 1998 5
Consolidated Statement of Cash Flows (Unaudited)
Six months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2--Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3--Quantitative and Qualitative Disclosures Regarding Market Risk
There have been no material changes from the information provided in
the December 31, 1998 Form 10-K.
PART II--OTHER INFORMATION
Item 4--Submission of Matters to a Vote of Security Holders 28
Item 6--Exhibits and Reports on Form 8-K 28
Signature 29
Exhibit Index 30
</TABLE>
2
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $432,831 $445,880 $ 864,734 $ 888,212
Investments in debt and equity securities
Trading 2,818 2,846 5,397 4,911
Taxable 140,768 141,066 281,061 277,007
Tax-exempt 4,824 5,944 10,287 12,055
-------- -------- ---------- ----------
Total Investments in Debt and Equity Securities 148,410 149,856 296,745 293,973
Due from banks--interest bearing 3,558 3,483 7,249 6,576
Federal funds sold and repurchase agreements 3,677 4,868 6,686 8,506
-------- -------- ---------- ----------
Total Interest Income 588,476 604,087 1,175,414 1,197,267
INTEREST EXPENSE
Interest bearing deposits 202,631 231,026 413,388 460,829
Foreign deposits 7,657 6,241 13,538 13,858
Short-term borrowings 35,552 47,924 66,409 100,253
Bank notes -- 368 133 2,691
Long-term debt and mandatorily redeemable preferred
securities 57,303 43,226 112,384 71,613
-------- -------- ---------- ----------
Total Interest Expense 303,143 328,785 605,852 649,244
-------- -------- ---------- ----------
NET INTEREST INCOME 285,333 275,302 569,562 548,023
PROVISION FOR POSSIBLE LOAN LOSSES 9,479 7,344 16,958 15,881
-------- -------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE
LOAN LOSSES 275,854 267,958 552,604 532,142
OTHER INCOME
Trust 31,745 28,816 60,887 56,944
Service charges 31,047 29,073 60,687 57,317
Investment banking and brokerage 11,524 9,826 22,606 20,892
Mortgage banking 4,503 8,959 10,702 14,902
Gain on sale of mortgage servicing rights -- -- -- 23,155
Securitization revenue 7,555 4,520 13,006 9,043
Securities gains 3,283 2,834 16,246 7,287
Miscellaneous 36,350 30,723 68,317 62,162
-------- -------- ---------- ----------
Total Other Income 126,007 114,751 252,451 251,702
OTHER EXPENSE
Salaries 103,600 103,747 205,287 206,378
Employee benefits 20,449 18,032 42,101 40,579
Net occupancy 16,704 16,015 33,895 32,199
Equipment 23,888 21,255 47,577 42,113
Intangible asset amortization 14,268 14,462 28,591 29,058
Postage and freight 7,050 6,575 14,654 13,880
Miscellaneous 34,030 44,640 73,238 81,057
-------- -------- ---------- ----------
Total Other Expense 219,989 224,726 445,343 445,264
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES 181,872 157,983 359,712 338,580
INCOME TAXES 61,344 50,836 121,147 116,574
-------- -------- ---------- ----------
NET INCOME $120,528 $107,147 $ 238,565 $ 222,006
======== ======== ========== ==========
PER SHARE DATA
Basic earnings per share $.76 $.71 $1.51 $1.47
Diluted earnings per share .75 .69 1.49 1.44
Dividends declared .34 .31 .68 .62
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS)
<CAPTION>
JUNE 30 JUNE 30
1999 DEC. 31 1998
(UNAUDITED) 1998 (UNAUDITED)
----------- ------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,234,011 $ 1,760,636 $ 1,446,296
Due from banks--interest bearing 263,788 367,304 233,686
Federal funds sold and repurchase agreements 251,609 226,730 261,442
Investments in debt and equity securities
Trading 120,800 126,540 124,839
Available-for-sale (Amortized cost
of $9,395,996, $9,185,770 and $8,915,489,
respectively) 9,199,571 9,246,790 8,959,632
Held-to-maturity (Estimated fair
value of $63,672, $99,336 and
$256,849, respectively) 62,503 97,607 251,040
----------- ----------- -----------
Total Investments in Debt and Equity Securities 9,382,874 9,470,937 9,335,511
Loans held-for-sale 139,035 217,941 205,236
Loans and leases, net of unearned income 22,580,420 22,093,317 21,569,778
----------- ----------- -----------
Total Loans and Leases 22,719,455 22,311,258 21,775,014
Reserve for possible loan losses (309,271) (308,890) (292,795)
----------- ----------- -----------
Net Loans and Leases 22,410,184 22,002,368 21,482,219
Bank premises and equipment 528,973 545,559 538,287
Intangible assets 750,527 781,188 811,070
Other assets 698,127 645,455 636,399
----------- ----------- -----------
Total Assets $35,520,093 $35,800,177 $34,744,910
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 3,814,497 $ 4,453,048 $ 3,900,600
Interest bearing 19,581,897 20,526,576 20,316,577
Foreign 937,233 481,773 328,641
----------- ----------- -----------
Total Deposits 24,333,627 25,461,397 24,545,818
Federal funds purchased and repurchase agreements 2,253,290 2,087,373 1,849,787
Other short-term borrowings 1,293,367 915,287 1,561,572
Bank notes -- 25,000 25,000
Long-term Federal Home Loan Bank advances 3,169,555 2,790,336 2,510,845
Other long-term debt 780,299 782,998 789,525
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 150,000 150,000 150,000
Other liabilities 487,049 514,031 402,219
----------- ----------- -----------
Total Liabilities 32,467,187 32,726,422 31,834,766
Commitments and contingent liabilities -- -- --
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1999 1998 1998
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock--no par value
Shares authorized 5,000 5,000 5,000
Shares issued and outstanding -- -- -- -- -- --
Common stock--$.01 par value
Shares authorized 400,000 400,000 400,000
Shares issued 158,217 157,487 153,699 1,581 1,574 1,537
Capital surplus 1,015,017 999,595 1,074,394
Retained earnings 2,166,302 2,035,157 1,901,396
Accumulated other comprehensive
income (126,911) 41,160 31,171
Treasury stock, at cost 53 83 1,791 (3,083) (3,731) (98,354)
----------- ----------- -----------
Total Shareholders' Equity 3,052,906 3,073,755 2,910,144
----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $35,520,093 $35,800,177 $34,744,910
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
STOCK SURPLUS EARNINGS INCOME STOCK EQUITY
------ ------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $1,489 $1,016,844 $1,724,752 $ 25,222 $ (6,005) $2,762,302
Net income 222,006 222,006
Other comprehensive income:
Holding gains on available-for-sale
securities, net of tax of $5,104 9,478 9,478
Less: Reclassification adjustment for
securities gains included in net income
above, net of tax of $2,550 (4,737) (4,737)
--------- ----------
Other Comprehensive Income Net of Tax 4,741 4,741
----------
Total Comprehensive Income 226,747
Common dividends declared:
Mercantile Bancorporation Inc.--$.62 per
share (83,094) (83,094)
Pooled companies prior to acquisition (10,467) (10,467)
Issuance of common stock in acquisitions of:
HomeCorp, Inc. 9 6,727 13,765 27 20,528
Horizon Bancorp, Inc. 25 10,755 34,434 1,181 357 46,752
Issuance of common stock for:
Employee incentive plans 10 35,808 5,746 41,564
Convertible notes 1 148 149
Purchase of treasury stock (98,452) (98,452)
Pre-merger transactions of pooled companies
and other 3 4,112 4,115
------ ---------- ---------- --------- -------- ----------
BALANCE AT JUNE 30, 1998 $1,537 $1,074,394 $1,901,396 $ 31,171 $(98,354) $2,910,144
====== ========== ========== ========= ======== ==========
BALANCE AT DECEMBER 31, 1998 $1,574 $ 999,595 $2,035,157 $ 41,160 $ (3,731) $3,073,755
Net income 238,565 238,565
Other comprehensive income (loss):
Holding losses on available-for-sale
securities, net of tax benefit of $84,814 (157,511) (157,511)
Less: Reclassification adjustment for
securities gains included in net income
above, net of tax of $5,686 (10,560) (10,560)
--------- ----------
Other Comprehensive Loss Net of Tax
Benefit (168,071) (168,071)
----------
Total Comprehensive Income 70,494
Common dividends declared--$.68 per share (107,420) (107,420)
Issuance of common stock for:
Employee incentive plans 6 14,842 5,173 20,021
Convertible notes 1 580 581
Purchase of treasury stock (4,525) (4,525)
------ ---------- ---------- --------- -------- ----------
BALANCE AT JUNE 30, 1999 $1,581 $1,015,017 $2,166,302 $(126,911) $ (3,083) $3,052,906
====== ========== ========== ========= ======== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 238,565 $ 222,006
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for possible loan losses 16,958 15,881
Depreciation and amortization 39,402 36,629
Provision for deferred income taxes (credits) 4,728 (4,295)
Net change in loans held-for-sale 78,906 (102,207)
Net change in trading securities 36,382 4,326
Net change in accrued interest receivable 1,094 2,786
Net change in accrued interest payable 6,771 (85)
Other, net 5,841 (76,174)
----------- -----------
Net Cash Provided by Operating Activities 428,647 98,867
INVESTING ACTIVITIES
Investments in debt and equity securities, other than
trading securities
Purchases (3,292,033) (4,319,287)
Proceeds from maturities 1,763,991 2,582,417
Proceeds from sales of available-for-sale securities 1,351,007 1,122,789
Net change in loans and leases (532,434) 13,408
Purchases of loans and leases (310,416) (175,230)
Proceeds from sale of mortgage servicing rights -- 26,330
Proceeds from sales of loans and leases 315,078 405,896
Purchases of premises and equipment (39,373) (45,330)
Proceeds from sales of premises and equipment 15,065 13,668
Proceeds from sales of foreclosed property 27,408 21,710
Cash and cash equivalents from acquisitions, net of
cash paid -- 34,448
Sale of banking offices, net of cash paid (110,401) (3,524)
Other, net 10,851 11,799
----------- -----------
Net Cash Used by Investing Activities (801,257) (310,906)
FINANCING ACTIVITIES
Net change in non-interest bearing, savings, interest
bearing demand and money market deposit accounts (892,232) (111,883)
Net change in time certificates of deposit under $100,000 (595,277) (587,014)
Net change in time certificates of deposit $100,000 and
over 47,549 (52,152)
Net change in other time deposits (22,786) (4,472)
Net change in foreign deposits 455,460 (256,798)
Net change in short-term borrowings 518,612 (308,528)
Principal payments on bank notes (25,000) (150,000)
Issuance of long-term FHLB advances and other long-term
debt 1,110,000 1,916,500
Principal payments on long-term debt (732,738) (6,779)
Cash dividends paid (102,729) (91,212)
Proceeds from issuance of common stock from employee
incentive plans 11,014 17,973
Purchase of treasury stock (4,525) (98,452)
----------- -----------
Net Cash Provided (Used) by Financing Activities (232,652) 267,183
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (605,262) 55,144
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,354,670 1,886,280
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,749,408 $ 1,941,424
=========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
6
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
The consolidated financial statements include all adjustments which
are, in the opinion of management, necessary for the fair statement
of the results of these periods and are of a normal recurring
nature. Certain reclassifications have been made to the 1998
historical financial statements to conform to the 1999 presentation.
NOTE B
NEW ACCOUNTING STANDARDS
Financial Accounting Standard ("FAS") 133, "Accounting for
Derivative Instruments and Hedging Activities," which was issued in
June 1998, establishes accounting and reporting standards for
derivative instruments and hedging activities. Under FAS 133,
derivatives are recognized on the balance sheet at fair value as an
asset or liability. Changes in the fair value of derivatives will be
reported as a component of other comprehensive income or recognized
as earnings through the income statement depending on the nature of
the instrument. FAS 137 was issued in June 1999, and deferred the
effectiveness of FAS 133 to all quarters of fiscal years beginning
after June 15, 2000, with earlier adoption permitted. The
Corporation has not adopted FAS 133 yet and is currently evaluating
FAS 133's effect on its financial position and results of
operations, but it is not expected to have a material impact.
NOTE C
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the
period.
Diluted earnings per share gives effect to the increase in the
average shares outstanding that would have resulted from the
exercise of dilutive stock options, the issuance of share
equivalents under other employee incentive plans and the conversion
of the entire balance of outstanding convertible notes. Net income
is increased in the diluted earnings per share computation by
interest expense that would not be incurred on notes if they
converted, net of taxes. The components of basic and diluted
earnings per share are as follows:
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE DATA)
SECOND QUARTER SIX MONTHS
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC
Net income $120,528 $107,147 $238,565 $222,006
Weighted average common shares outstanding 158,018,753 151,685,553 157,826,865 151,372,927
BASIC EARNINGS PER SHARE $.76 $.71 $1.51 $1.47
DILUTED
Net income $120,528 $107,147 $238,565 $222,006
Interest on convertible notes, net of taxes (5) 11 3 23
-------- -------- -------- --------
Diluted Net Income $120,523 $107,158 $238,568 $222,029
======== ======== ======== ========
Weighted average common shares outstanding 158,018,753 151,685,553 157,826,865 151,372,927
Employee incentive plans 2,126,942 2,491,505 2,013,601 2,635,970
Convertible notes 39,004 93,715 55,361 95,893
----------- ----------- ----------- -----------
Diluted Average Shares Outstanding 160,184,699 154,270,773 159,895,827 154,104,790
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $.75 $.69 $1.49 $1.44
</TABLE>
7
<PAGE>
<PAGE>
NOTE D
ACQUISITIONS
On July 1, 1998, the Corporation acquired CBT Corporation ("CBT") of
Paducah, Kentucky, and Firstbank of Illinois Co. ("Firstbank"),
headquartered in Springfield, Illinois. The CBT and Firstbank
acquisitions were accounted for under the pooling-of-interests
method. Net income, net interest income and basic earnings per share
in 1998 for the Corporation, CBT and Firstbank prior to this
restatement were as follows:
(THOUSANDS EXCEPT
PER SHARE DATA)
SIX MONTHS ENDED
JUNE 30, 1998
----------------
CORPORATION
Net income $198,902
Net interest income 482,912
Basic earnings per share 1.50
CBT
Net income 7,151
Net interest income 21,038
Basic earnings per share 1.40
FIRSTBANK
Net income 15,953
Net interest income 44,073
Basic earnings per share 1.21
NOTE E
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
MERCANTILE CAPITAL TRUST I
Mercantile Capital Trust I is a subsidiary of which the Corporation
owns all the outstanding common securities; its sole assets are the
$150,000,000 in mandatorily redeemable preferred securities, and
considered together, the back-up undertakings constitute a full and
unconditional guarantee by Mercantile Bancorporation Inc. of the
trust's obligations under the preferred securities.
NOTE F
PENDING MERGER
On April 30, 1999, a definitive Agreement and Plan of Merger by and
between Mercantile and Firstar Corporation ("Firstar") was signed.
Pursuant to the terms of the Merger Agreement, Mercantile will merge
with and into Firstar in a transaction structured as and intended to
be a "tax-free" reorganization, with Mercantile shareholders to
receive 2.091 shares of Firstar common stock for each share of
Mercantile common stock owned. Firstar is a $38.4 billion-asset bank
holding company headquartered in Milwaukee. The transaction will be
accounted for as a pooling-of-interests, and is expected to close late
in the third or early in the fourth quarter of 1999. Shareholder
approvals for the transaction were received on July 28, 1999. Regulatory
approval was received from the Comptroller of the Currency in July 1999,
and was pending from the Federal Reserve Board and the United States
Department of Justice as of August 11, 1999.
8
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1
HIGHLIGHTS
<CAPTION>
SECOND QUARTER SIX MONTHS
($ IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 CHANGE 1999 1998 CHANGE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Diluted earnings per share $.75 $.69 8.7% $1.49 $1.44 3.5%
Basic earnings per share .76 .71 7.0 1.51 1.47 2.7
Dividends declared .34 .31 9.7 .68 .62 9.7
Book value at June 30 19.30 19.16 .7 19.30 19.16 .7
Market price at June 30 57.13 50.38 13.4 57.13 50.38 13.4
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Taxable-equivalent net interest income $288,974 $279,493 3.4% $577,143 $556,449 3.7%
Tax-equivalent adjustment 3,641 4,191 (13.1) 7,581 8,426 (10.0)
Net interest income 285,333 275,302 3.6 569,562 548,023 3.9
Provision for possible loan losses 9,479 7,344 29.1 16,958 15,881 6.8
Other income 126,007 114,751 9.8 252,451 251,702 .3
Other expense 219,989 224,726 (2.1) 445,343 445,264 --
Income taxes 61,344 50,836 20.7 121,147 116,574 3.9
Net income 120,528 107,147 12.5 238,565 222,006 7.5
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS AND DATA
Return on assets 1.34% 1.23% 1.34% 1.29%
Return on equity 15.40 14.88 15.30 15.45
Efficiency ratio 53.01 57.00 53.68 55.10
Other expense to average assets 2.45 2.57 2.49 2.58
Net interest rate margin 3.55 3.53 3.58 3.58
Tangible equity to tangible assets 6.62 6.19
Equity to assets 8.59 8.38
Tier I capital to risk-adjusted assets 9.93 9.55
Total capital to risk-adjusted assets 12.42 12.46
Leverage 7.48 6.65
Reserve for possible loan losses to
outstanding loans 1.36 1.34
Reserve for possible loan losses to
non-performing loans 296.45 319.73
Non-performing loans to outstanding
loans .46 .42
Banks 7 30
Banking offices 461 514
Full-time equivalent employees 10,353 10,991
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Total assets $35,846,384 $34,941,329 2.6% $35,701,619 $34,492,416 3.5%
Earning assets 32,675,970 31,727,147 3.0 32,528,287 31,379,005 3.7
Loans and leases 22,600,598 21,813,425 3.6 22,466,211 21,699,554 3.5
Deposits 24,845,958 25,130,037 (1.1) 24,946,284 25,008,523 (.2)
Shareholders' equity 3,131,020 2,881,078 8.7 3,118,828 2,873,617 8.5
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<PAGE>
PERFORMANCE SUMMARY
Net income for Mercantile Bancorporation Inc. ("Mercantile" or
"Corporation") was $120,528,000 in the second quarter of 1999
versus $107,147,000 in the same period of 1998, an increase of
12.5%. Basic earnings per share was $.76 compared with $.71 in
the second quarter of 1998 and diluted earnings per share
increased by 8.7% to $.75. Net income for the six months ended
June 30, 1999 was $238,565,000 compared with $222,006,000 last
year and diluted earnings per share was $1.49, up 3.5% from 1998.
Other financial highlights and performance ratios for the three
and six month periods ending June 30, 1999 and 1998 are presented
on Exhibit 1. There were significant transactions in both years
and their impact on the results of operations are discussed
below.
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------
EXHIBIT 2
ACQUISITIONS
($ IN THOUSANDS)
<CAPTION>
CONSIDERATION
--------------------
GROSS ACCOUNTING
DATE ASSETS DEPOSITS CASH SHARES METHOD
---- ------ -------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
BANK ACQUISITIONS COMPLETED
First Financial
Bancorporation Sept. 28, 1998 $ 558,483 $ 477,573 $12 3,138,823 Pooling<F1>
Financial Services
Corporation of the Midwest Aug. 3, 1998 514,051 414,350 4 2,071,448 Pooling<F1>
CBT Corporation July 1, 1998 1,006,384 695,923 34 5,123,214 Pooling
Firstbank of Illinois Co. July 1, 1998 2,285,146 1,969,600 64 13,352,641 Pooling
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>
NONBANK ACQUISITION COMPLETED
Bruno Stolze & Company, Inc. Sept. 30, 1998 <F2> <F2> Purchase
<FN>
<F1> The Corporation's historical financial statements were not restated for
the acquisition due to the immateriality of the acquiree's financial
condition and results of operations to those of Mercantile.
<F2> Terms of the transaction not disclosed.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation believes it is significant to also disclose cash
based earnings, which excludes intangible asset amortization.
Second quarter 1999 cash based diluted earnings per share was
$.84, up 6.3% from the $.79 earned in 1998. See Exhibit 3 for
other cash based performance ratios.
On April 30, 1999, a definitive Agreement and Plan of Merger by
and between Mercantile and Firstar Corporation ("Firstar") was
signed. The transaction was approved by shareholders of
Mercantile and Firstar in special shareholder meetings held on
July 28, 1999. Firstar received regulatory approval from the
Comptroller of the Currency in July 1999. After the necessary
approvals from the Federal Reserve Board and the United States
Department of Justice are obtained, Mercantile will merge with
and into Firstar in a transaction intended to be a tax-free
reorganization, with Mercantile shareholders to receive 2.091
shares of Firstar common stock for each share of Mercantile
common stock owned. Firstar, headquartered in Milwaukee, is a
$38.4 billion-asset bank holding company with approximately 715
full-service banking offices in Ohio, Wisconsin, Kentucky,
Illinois, Indiana, Iowa, Minnesota, Tennessee and Arizona. The
transaction is expected to close in the late third or early fourth
quarter of 1999, and will be accounted for as a pooling-of-interests.
Net interest income increased 3.6% to $285,333,000 for the second
quarter of 1999 and was up 3.9% to $569,562,000 for the first six
months of 1999. The net interest rate margin was 3.55% this
quarter compared with 3.61% in the first quarter of this year and
3.53% for the second quarter of 1998, while the year-to-date
margin was 3.58%, the same level as in 1998. Average earning
assets for the first half of 1999 of $32.5 billion were 3.7%
higher than the $31.4 billion reported last year, as average loan
volume increased by 3.5%. The growth was primarily in commercial
loans and in securities, partially offset by the paydown of
residential mortgage loans.
For the first six months of 1999, other income was $252,451,000,
an increase of $749,000 or .3% from last year. The first quarter
of 1998 was favorably influenced by the $23,155,000 pre-tax gain
on the sale of mortgage servicing rights and gains of $2,002,000
10
<PAGE>
<PAGE>
on the sale of an acquired corporate trust business and
$2,658,000 on the sale of an out-of-market credit card portfolio.
Excluding those gains from 1998 results and securities gains from
both years, non-interest income was up by $19,605,000 or 9.1%
from 1998. Fee growth in core businesses largely accounted for
the increase. The Corporation introduced a program titled "Profit
2000" late in 1998 to proceed with initiatives to grow fee-based
businesses and streamline the organization. That program is
consistent with the Firstar banking model.
<TABLE>
------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 3
CASH BASED EARNINGS
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
SECOND QUARTER SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net Income $120,528 $107,147 12.5% $238,565 $222,006 7.5%
Add Back:
Goodwill amortization 13,792 13,847 (.4) 27,582 27,801 (.8)
Other intangible asset amortization 476 615 (22.6) 1,009 1,257 (19.7)
-------- -------- -------- --------
Total Intangible Asset Amortization 14,268 14,462 (1.3) 28,591 29,058 (1.6)
Less:
Tax effect (181) (223) (18.8) (378) (452) (16.4)
-------- -------- -------- --------
CASH BASED NET INCOME $134,615 $121,386 10.9 $266,778 $250,612 6.5
======== ======== ======== ========
CASH BASED DILUTED EARNINGS PER SHARE $.84 $.79 6.3 $1.67 $1.63 2.5
CASH BASED PERFORMANCE RATIOS
Return on tangible assets 1.53% 1.42% 1.53% 1.49%
Return on tangible equity 22.69 23.55 22.68 24.48
Efficiency ratio 49.57 53.33 50.24 51.50
Other expense to average tangible assets 2.35 2.46 2.39 2.47
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Second quarter non-interest expenses were $219,989,000 compared
with $224,726,000 last year, a decrease of 2.1%. Year-to-date
operating expenses in the current year were at the same level as
in 1998. The year-to-date efficiency ratio was 53.68% compared
with 55.10% last year, and the expense to average assets ratio
improved to 2.49% compared with 2.58% in the prior year. The
year-to-date cash based efficiency ratio was 50.24% compared with
51.50% last year, and the expense to tangible assets ratio was
2.39% versus 2.47% in 1998. Gains on the sales of selected
branches reduced non-interest expense by $5,906,000 in 1999
compared with $1,200,000 last year.
The provision for possible loan losses for the second quarter of
1999 was $9,479,000 compared with $7,344,000 the prior year, and
was $16,958,000 for the first six months of 1999 compared with
$15,881,000 in 1998. Net charge-offs for the first six months of
1999 and 1998 were $16,577,000 and $15,007,000, respectively, and
on an annualized basis were at historical lows at .15% of average
loans in 1999 and .14% last year. At June 30, 1999, the reserve
for possible loan losses was $309,271,000 and provided coverage
of 296.45% of non-performing loans compared with 335.25% at
year-end and 319.73% last June 30.
Non-performing loans (i.e., non-accrual and renegotiated loans)
as of June 30, 1999 were $104,326,000 or .46% of total loans
compared with $108,515,000 or .48% at March 31, 1999 and
$91,575,000 or .42% at June 30, 1998. Impaired securities
declined to $45,451,000 at June 30, 1999 from $73,909,000 last
June 30 due to paydowns and first quarter 1999 selective sales.
Foreclosed assets declined by $3,981,000 from March 31, 1999. No
single foreclosed property exceeded $1,000,000 in book value at
June 30, 1999.
Consolidated assets of $35.5 billion were up 2.2% from a year
ago. Core deposits decreased by 4.5% to $21.4 billion, loans were
up 4.3% to $22.7 billion, and shareholders' equity of $3.0
billion was 4.9% higher than at June 30, 1998. All measures of
capital adequacy remained adequate. As of June 30, 1999, tier I
capital to risk-adjusted assets was 9.93% and total capital to
risk-adjusted assets was 12.42%. The ratio of tangible equity to
tangible assets was 6.62% at June 30, 1999.
At June 30, 1999, Mercantile's assets were distributed as
follows: St. Louis metropolitan areas $18.5 billion, outstate
Missouri $4.4 billion, metropolitan Kansas City $4.1 billion,
Iowa and northwestern Illinois $3.5 billion, Arkansas $1.9
billion, outstate Illinois $2.2 billion and western Kentucky
$.9 billion.
11
<PAGE>
<PAGE>
The following financial commentary presents a more thorough
discussion and analysis of the results of operations and
financial position of the Corporation for the first half and
second quarter of 1999.
LINE OF BUSINESS RESULTS
The financial performance of Mercantile is monitored by an
internal profitability measurement system that produces line of
business results and key performance measures on a pre-tax basis.
Mercantile's three major business units in 1999 include general
commercial and retail banking ("Banking"), Private Banking &
Investments, and specialty retail banking ("Mercantile Credit
Corp."). Asset/Liability Management ("ALM") includes the
investment portfolio and the treasury function, and is also a
reportable business line under Financial Accounting Standard
("FAS") 131, "Disclosures about Segments of an Enterprise and
Related Information". In 1998, the Corporation presented line of
business results with ALM as a part of Banking. The management of
ALM was separated from Banking in January 1999, and 1998 results
have been restated for this change.
The reported results reflect the underlying economics of the
businesses which are match-funded for interest rate risk.
Expenses for centrally provided services are allocated based on
usage of those services, and loan loss provision is allocated
based on credit quality. The contribution of Mercantile's major
business units to consolidated results for the second quarter and
first six months of 1999 with comparable amounts for 1998 is
summarized in Exhibit 4.
Banking includes the Corporation's branch network and deposit
gathering outside the St. Louis and Kansas City metropolitan
areas, commercial lending and non-specialty retail lending. It is
the largest business unit, and it houses most staff department
functions. Pre-tax income improved by $29,000,000 or 21.3% from
the first six months of 1998. Loan growth, increases in net
demand deposits and an expanded net interest rate margin
accounted for a $16,000,000 increase in net interest income. The
provision for loan losses increased by $11,000,000 from 1998, yet
net charge-offs represented only 12 basis points of average
loans, portraying continued exceptional credit quality. The
Banking segment had higher net recoveries during the first six
months of last year. Fee income improved by $18,000,000 due to
growth in cash management fees, leasing income, service charges
and miscellaneous ancillary sources. Operating expenses declined
by $6,000,000, resulting primarily from expense control efforts
and gains on branch sales in 1999.
Mercantile Credit Corp. includes the retail branch network in the
St. Louis and Kansas City metropolitan areas, residential
mortgage origination and servicing, credit card, indirect
lending, insurance activities and consumer product management.
The management of St. Louis and Kansas City retail moved to
Mercantile Credit Corp. from Banking in early 1999, and 1998
results were restated for this transfer. Pre-tax income declined
by $29,000,000 from 1998, due primarily to the $25,813,000 in
one-time gains on sales of mortgage servicing rights and an
out-of-market credit card loan portfolio recorded in the first
quarter of 1998. Increased pre-tax profits in 1999 in the
indirect lending and credit card businesses were more than offset
by declines in mortgage banking and insurance income this year.
Private Banking & Investments was structured to serve the
investment management needs of high net worth individuals. This
line of business includes private banking offices, personal and
institutional trust activities, institutional money management
and retail brokerage. Pre-tax income improved by $3,000,000 or
10.0% due to expanded deposit and loan bases as well as growth in
trust fees and brokerage revenue.
Parent Company & Other includes interest expense on Parent
Company debt, goodwill amortization, consolidation eliminations,
provision for loan losses not allocated to the business units and
some general corporate expenses not allocated to the business
units. The ALM unit pre-tax profit improved by $7,000,000, due
primarily to a higher level of securities gains in 1999.
12
<PAGE>
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------
EXHIBIT 4
LINE OF BUSINESS RESULTS
($ IN MILLIONS)
<CAPTION>
PRIVATE ASSET/ PARENT
MERCANTILE BANKING & LIABILITY COMPANY
BANKING CREDIT CORP. INVESTMENTS MANAGEMENT & OTHER CONSOLIDATED
------- ------------ ----------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
SECOND QUARTER 1999
-------------------
OPERATING RESULTS
Taxable-equivalent net
interest income $ 170 $ 68 $ 4 $ 51 $ (4) $ 289
Provision for possible loan
losses 10 8 -- -- (8) 10
Non-interest income 47 35 41 3 -- 126
Non-interest expense 121 53 27 -- 19 220
------- ------ ----- ------ ------ -------
Taxable-equivalent Income
before Income Taxes $ 86 $ 42 $ 18 $ 54 $ (15) $ 185
======= ====== ===== ====== ====== =======
Percent of Taxable-equivalent
Income before Income Taxes 46.5% 22.7% 9.7% 29.2% (8.1)% 100.0%
AVERAGE BALANCES
Loans and leases $15,971 $6,717 $ 178 -- $ (265) $22,601
Deposits 14,116 8,422 437 $1,220 651 24,846
PERFORMANCE RATIOS
Efficiency ratio 56.13% 51.29% 60.41% N/A N/A 53.01%
Net interest rate margin 4.18 4.04 8.42 N/A N/A 3.55
Net charge-offs to average
loans .13 .27 -- N/A N/A .16
-----------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1998
-------------------
OPERATING RESULTS
Taxable-equivalent net
interest income $ 162 $ 71 $ 3 $ 51 $ (8) $ 279
Provision for possible loan
losses 2 3 -- -- 2 7
Non-interest income 39 37 37 3 (1) 115
Non-interest expense 128 59 23 -- 15 225
------- ------ ----- ------ ------ -------
Taxable-equivalent Income
before Income Taxes $ 71 $ 46 $ 17 $ 54 $ (26) $ 162
======= ====== ===== ====== ====== =======
Percent of Taxable-equivalent
Income before Income Taxes 43.8% 28.4% 10.5% 33.3% (16.0)% 100.0%
AVERAGE BALANCES
Loans and Leases $14,911 $7,004 $ 99 -- $ (201) $21,813
Deposits 14,072 9,176 317 $ 762 803 25,130
PERFORMANCE RATIOS
Efficiency ratio 64.00% 53.05% 59.60% N/A N/A 57.00%
Net interest rate margin 4.04 4.03 7.76 N/A N/A 3.53
Net charge-offs to average
loans .08 .22 -- N/A N/A .15
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS 1999
---------------
OPERATING RESULTS
Taxable-equivalent net
interest income $ 335 $ 143 $ 8 $ 102 $ (11) $ 577
Provision for possible loan
losses 15 10 -- -- (8) 17
Non-interest income 92 67 78 15 -- 252
Non-interest expense 247 110 53 -- 35 445
------- ------ ----- ------ ------ -------
Taxable-equivalent Income
before Income Taxes $ 165 $ 90 $ 33 $ 117 $ (38) $ 367
======= ====== ===== ====== ====== =======
Percent of Taxable-equivalent
Income before Income Taxes 44.9% 24.5% 9.0% 31.9% (10.3)% 100.0%
AVERAGE BALANCES
Loans and leases $15,711 $6,821 $ 173 -- $ (239) $22,466
Deposits 14,045 8,665 426 $1,142 668 24,946
PERFORMANCE RATIOS
Efficiency ratio 58.21% 52.60% 61.42% N/A N/A 53.68%
Net interest rate margin 4.16 4.19 8.42 N/A N/A 3.58
Net charge-offs to average
loans .12 .22 -- N/A N/A .15
-----------------------------------------------------------------------------------------------------------------------------
<PAGE>
SIX MONTHS 1998
---------------
OPERATING RESULTS
Taxable-equivalent net
interest income $ 319 $ 147 $ 5 $ 102 $ (17) $ 556
Provision for possible loan
losses 4 8 -- -- 4 16
Non-interest income 74 99 71 8 -- 252
Non-interest expense 253 119 46 -- 27 445
------- ------ ----- ------ ------ -------
Taxable-equivalent Income
before Income Taxes $ 136 $ 119 $ 30 $ 110 $ (48) $ 347
======= ====== ===== ====== ====== =======
Percent of Taxable-equivalent
Income before Income Taxes 39.2% 34.3% 8.6% 31.7% (13.8)% 100.0%
AVERAGE BALANCES
Loans and Leases $14,658 $7,143 $ 99 -- $ (201) $21,699
Deposits 13,837 9,069 303 $1,000 800 25,009
PERFORMANCE RATIOS
Efficiency ratio 64.55% 48.26% 61.74% N/A N/A 55.10%
Net interest rate margin 4.07 4.10 7.88 N/A N/A 3.58
Net charge-offs to average
loans .08 .24 -- N/A N/A .14
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<PAGE>
NET INTEREST INCOME
Net interest income for the second quarter of 1999 was
$285,333,000, a 3.6% increase from the $275,302,000 earned last
year, and for the first six months of 1999 was $569,562,000 or
3.9% higher than last year. For the quarter, the net interest
rate margin was 3.55% compared with 3.53% last year, and the
year-to-date margin was 3.58%, unchanged from last year.
Average earning assets for the first six months of 1999 grew by
$1.1 billion or 3.7% when compared with 1998, as average loans
grew by $766,657,000 or 3.5%. This growth was funded by a
$256,713,000 increase in average purchased deposits, a
$245,211,000 increase in shareholders' equity and a $1.9 billion
increase in long-term Federal Home Loan Bank ("FHLB") advances,
partially offset by a $318,952,000 decline in core deposits and a
$845,927,000 or 22.7% decrease in short-term borrowings.
Securities are the largest category of earning assets after
loans, and averaged $9.5 billion in the first six months of 1999,
an increase of 3.8% from 1998. The held-to-maturity and
available-for-sale portfolios as of June 30, 1999 consisted of
67.16% in U.S. and other government agency securities, (including
35.54% in mortgage-related issues), 3.93% in state and municipal
securities, and 28.91% of other miscellaneous securities. The
comparable distribution at June 30, 1998 was 68.20%, 30.74%,
5.07% and 26.73%, respectively.
The largest dollar volume of loan growth occurred in the
commercial loan category. When compared with the first six months
of 1998, average commercial loans grew by $1.1 billion or 19.7%.
The expertise of experienced lenders in certain specialized
industries, coupled with a strong regional economy, largely
accounted for the growth. Agriculture is a segment of the
regional economy that did not contribute to commercial loan
growth, and agriculture-related commercial loans declined by
4.1%. An additional factor adding to the commercial loan growth
was Mercantile's portfolio of $220,000,000 in loan participations
purchased in the national markets and held for investment,
compared with $70,000,000 last year. Other than these loans,
commercial lending has a heavy relationship focus. The
Corporation does not engage in commercial lending to emerging
markets, including those in Latin America, Eastern Europe and in
the Asia Pacific Region. Average commercial real estate mortgage
and construction loans increased by $374,312,000 or 8.6%, also
reflecting the strength of the regional economy.
<TABLE>
---------------------------------------------------------------------
EXHIBIT 5
LOANS AND LEASES
($ IN THOUSANDS)
<CAPTION>
JUNE 30
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
Commercial $ 6,736,331 $ 5,565,996 21.0%
Real estate--commercial 3,702,152 3,728,619 (.7)
Real estate--construction 977,794 737,452 32.6
Real estate--residential
mortgage 7,805,515 8,363,823 (6.7)
Real estate--home equity
credit loans 559,788 557,220 .5
Consumer 2,895,591 2,701,295 7.2
Credit card loans managed 442,284 520,609 (15.0)
Securitized credit card
loans (400,000) (400,000) --
----------- -----------
Total Loans and Leases $22,719,455 $21,775,014 4.3
=========== ===========
---------------------------------------------------------------------
</TABLE>
Average residential real estate mortgage loans decreased by
$697,102,000 or 8.1%. The low interest rate environment
encouraged borrowers to prepay or refinance into conforming
fixed-rate loans that Mercantile generally sold in the market.
The recent increase in interest rates has since modified that
behavior and the rate of reduction in loans has diminished.
Average residential mortgage loans as a percentage of earning
assets decreased from 27.48% in the first six months of 1998 to
24.36% in 1999. Home equity credit loans also declined on average
by 7.5%, due to customer refinancing of those debts, although the
volume did grow from the first quarter of 1999.
<PAGE>
Average consumer loans grew by $215,499,000 or 8.3%, with
the growth occurring in indirect consumer loans. Such growth
in indirect lending was largely attributable to the
centralization of that function and the use of risk-based pricing
across the Mercantile system. Mercantile does not engage in
significant subprime consumer lending in its own portfolio.
Due to the securitization of credit card loans in the 1995
Mercantile Credit Card Master Trust, credit card outstandings
classified as loans averaged only $41,191,000 in the first six
months of 1999. Average credit card loans declined in 1999 as
successful targeted marketing efforts, aimed at expanding
relationships with the current Mercantile customer base, were
offset by the sale of $112,000,000 in out-of-market credit card
loans in the first quarter of 1998 and the third quarter 1998
reclassification of $80,000,000 in loans to investment securities
in compliance with FAS 125 and terms of the credit card
securitization agreement.
14
<PAGE>
<PAGE>
On a managed portfolio basis, credit card loans averaged
$623,910,000 in 1999 versus $703,047,000 in 1998. This decline
was due to the sale noted above.
For the first six months of 1999, average non-interest and
interest bearing demand deposits, and money market accounts
increased while savings deposits, certificates of deposit under
$100,000 and other time deposits declined. Core deposits remain
Mercantile's largest, most reliable and most important funding
source and include the deposits listed above. In total, average
core deposits declined by $318,952,000 or 1.4%. Partially
contributing to the decline was the sale of $120,000,000 of
deposits as five non-strategic branches were sold in 1999. For
the first six months of 1999, Mercantile remained substantially
core funded at 89.32% of average deposits and 68.50% of earning
assets. Mercantile's average of consumer certificates to total
core deposits declined to 39.69% from 43.19% in 1998. Changes in
average core deposits for the past six quarters are shown in the
Consolidated Quarterly Average Balance Sheet on pages 25 and 26
of this report.
Average non-interest bearing deposits increased by $224,706,000
or 5.8% from 1998. Cash and due from banks volume is related to
non-interest bearing deposit volume and increased on average by
$76,509,000 or 5.5%, thus net non-interest bearing deposits grew
by $148,197,000 or 6.0%. Successful efforts in managing float and
minimizing reserve requirements coupled with deposit volume
growth resulted in the increase in average net non-interest
bearing funds. Much of the growth came from the U.S. government,
a significant cash management customer of Mercantile Bank N.A.,
which pays for services rendered via compensating balances. These
average non-interest bearing deposits increased from $692,171,000
in the first six months of 1998 to $869,122,000 in 1999.
Average interest bearing demand and money market accounts
increased by 2.1% and 8.7%, respectively, as customers preferred
these types of more liquid deposits to retail certificates.
Year-to-date average short-term borrowings declined by
$845,927,000, to $2.9 billion in 1999 as short-term FHLB advances
were refunded with comparable longer term borrowings, which
averaged $3.3 billion in the first six months of 1999 compared
with $1.4 billion in the prior year. Throughout 1998, these
borrowings became a significant funding source for Mercantile due
to their attractive pricing. As of June 30, 1999, there were no
borrowings outstanding under the current $3.0 billion bank note
program initiated in 1998. The remainder of bank notes issued
under the prior program matured during the first quarter of 1999.
The factors discussed previously are consistent with Mercantile's
overall corporate policy relative to rate sensitivity and
liquidity, which is to produce the optimal yield and maturity mix
consistent with interest rate expectations and projected
liquidity needs. The Consolidated Quarterly Average Balance
Sheet, with rates earned and paid, is summarized by quarter on
pages 25 and 26.
OTHER INCOME
Non-interest income increased by 9.8% during the second quarter
of 1999 to $126,007,000, and for the six months was $252,451,000
compared with $251,702,000 a year ago, an increase of .3%. In the
first quarter of 1998, the Corporation recorded gains on the
sales of: 1) mortgage servicing rights of $23,155,000; 2) an
acquired corporate trust business of $2,002,000 and; 3) an
acquired out-of-market credit card portfolio for $2,658,000. If
these 1998 items as well as securities gains in both years are
excluded, non-interest income grew by 9.1% in the six months
ended June 30, 1999. Exhibit 6 portrays such transactions and a
summary of all categories of fee income in the second quarter and
first six months of 1999 and 1998.
In 1999, trust fees were $60,887,000 compared with $56,944,000
during 1998, an increase of 6.9%. There was an increase in
personal trust fees earned by Mercantile Trust Company N.A.
Mississippi Valley Advisors Inc., the investment management
subsidiary of Mercantile, experienced a reduced rate of revenue
growth. In addition, there were some reclassifications from trust
income in 1998 to miscellaneous fees in 1999 resulting from the
integration of Firstbank of Illinois Co. in late 1998, thereby
making the annual comparisons difficult. Increases in the value
of assets managed and successful new business development efforts
largely accounted for the increase in trust fees. Mississippi
Valley Advisors Inc. manages the 19 Mercantile Mutual Funds.
These funds had assets of $4.3 billion at June 30, 1999 compared
with $4.2 billion on June 30, 1998.
15
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 6
OTHER INCOME
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Trust $ 31,745 $ 28,816 10.2% $ 60,887 $ 56,944 6.9%
Service charges 31,047 29,073 6.8 60,687 57,317 5.9
Retail brokerage revenue 7,553 5,312 42.2 13,814 10,194 35.5
Other investment banking 3,971 4,514 (12.0) 8,792 10,698 (17.8)
Mortgage banking 4,503 8,959 (49.7) 10,702 38,057 (71.9)
Credit card fees 3,835 2,558 49.9 7,338 6,083 20.6
Securitization revenue 7,555 4,520 67.1 13,006 9,043 43.8
Securities gains 3,283 2,834 15.8 16,246 7,287 --
Electronic Federal Tax Payment System (EFTPS) fees 2,091 3,060 (31.7) 4,824 5,378 (10.3)
ATM fees 4,210 3,877 8.6 7,982 7,437 7.3
Income on operating leases 3,835 2,325 64.9 7,355 4,245 73.3
Loan commitment fees<F*> 2,243 1,904 17.8 4,075 3,903 4.4
Loan late charges<F*> 2,182 2,220 (1.7) 4,488 4,443 1.0
Letters of credit fees 2,291 1,831 25.1 4,085 3,366 21.4
Official check fees 2,851 2,112 35.0 5,774 3,726 55.0
Safe deposit box rental 1,428 1,442 (1.0) 3,079 3,033 1.5
Insurance commissions 2,219 2,535 (12.5) 3,992 4,354 (8.3)
Debit card income 2,165 1,353 60.0 3,720 2,387 55.8
Miscellaneous 7,000 5,506 27.1 11,605 13,807 (15.9)
-------- -------- -------- --------
Total Other Income 126,007 114,751 9.8 252,451 251,702 .3
Less gains from:
Sale of available-for-sale securities (3,283) (2,834) 15.8 (16,246) (7,287) --
Sale of mortgage servicing rights -- -- -- -- (23,155) --
Sale of out-of-market credit card portfolio -- -- -- -- (2,658) --
Sale of corporate trust -- -- -- -- (2,002) --
-------- -------- -------- --------
Total Other Income After Gains $122,724 $111,917 9.7 $236,205 $216,600 9.1
======== ======== ======== ========
<FN>
<F*>Excludes such fees from the Corporation's mortgage banking and credit card operations, which are included in mortgage
banking and credit card revenue.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deposit service charges totaled $60,687,000 in the first six
months of 1999, which represented an increase of $3,370,000 or
5.9% over 1998. Growth occurred in both commercial and retail
lines of business.
In January 1998, the Corporation sold $1.9 billion in residential
mortgage loan servicing that reduced originated mortgage
servicing assets by approximately $3,200,000. This sale was
consistent with the Corporation's goals to "right size" the
servicing portfolio as all Mercantile servicing operations were
consolidated in Nevada, Missouri. The sale also lowered the
prepayment risk associated with the servicing portfolio and
funded the Corporation's 1998 systems cost to become Year 2000
compliant. Excluding the gain on sale, mortgage banking income
was $10,702,000 in the first six months of 1999 versus
$14,902,000 the prior year. Amortization of mortgage servicing
rights, which reduces mortgage banking income, was $2,308,000
higher than in the first six months of 1998. The increased
amortization was primarily caused by two factors. In the second
quarter of 1999, the Corporation began computing mortgage
servicing amortization using the level yield method. In addition,
loan specific amortization was initiated for the entire portfolio
in 1999 versus the prior method of pooling certain loans for
servicing right purposes. Mortgages serviced totaled $11.3
billion at June 30, 1999 compared with $10.6 billion at June 30,
1998. Total originated and purchased mortgage servicing assets on
the balance sheet at June 30, 1999 totaled $47,510,000. The
associated risk for impairment was not considered to be material
even before the recent increase in interest rates.
Year-to-date retail brokerage and other investment banking
revenue was $22,606,000 compared with $20,892,000 last year;
second quarter fees totaled $11,524,000 versus $9,826,000 last
year. The Bruno Stolze & Company, Inc. discount brokerage
acquisition in late 1998 favorably impacted 1999 revenues and
foreign exchange revenue growth remained strong.
16
<PAGE>
For the first six months of 1999, credit card income was
$7,338,000 compared with $6,083,000 last year. Credit card income
primarily represents interchange fees received on transactions of
Mercantile cardholders and cardholders' miscellaneous fees. In
the fourth quarter of 1998, Mercantile credit cards were reissued
under Missouri law, allowing the Corporation greater flexibility
in pricing and the opportunity to increase fee revenue in 1999.
Securitization revenue for the first six months of 1999 was
$13,006,000 compared with $9,043,000 last year, and represents
amounts accruing to Mercantile on the $400,000,000 in credit card
loans securitized in the Mercantile Credit Card Master Trust
during May 1995, as well as amounts recognized under FAS 125 for
investor certificate loans that were sold and reclassified to the
investment portfolio. In 1999, the Corporation increased pricing
on credit card loans, including the securitized portion. For
securitized loans, amounts that would previously have been
reported as interest income, interest expense, credit card fees
and provision for loan losses are instead netted in non-interest
income as securitization revenue. Because credit losses are
absorbed against credit card servicing income over the life of
these transactions, such income may vary depending upon the
credit performance of the securitized loans. Mercantile acts as
servicing agent and receives loan servicing fees equal to 2% per
annum of the securitized receivables. As servicing agent,
Mercantile continues to provide customer service to collect past
due accounts and to provide other services typically performed
for its customers. Accordingly, Mercantile's relationship with
its credit card customers is not affected by the securitization.
The securitized loans will start amortizing in November 1999, and
credit card loans will be purchased by Mercantile from the trust
for 12 consecutive months.
Significant other revenue growth categories in both years
included operating lease income, both ATM and debit card fees,
official check fees and letters of credit fees. All these
businesses are key focuses of the Corporation.
Net securities gains on investment securities totaled $3,283,000
and $2,834,000 in the second quarter of 1999 and 1998,
respectively. Year-to-date securities gains were $16,246,000 in
1999 and $7,287,000 in 1998. Repositioning of 1998 acquired
investment portfolios and more active portfolio management in the
current interest rate environment accounted for the increased
gains in early 1999. Additionally, the Corporation disposed of
$8,036,000 of impaired investment securities in the first quarter
of 1999 at gains of $1,275,000. The corresponding impaired
balance declined to $45,451,000 from $63,296,000 at year-end
1998.
OTHER EXPENSE
For the first half of 1999, expenses other than interest expense
and the provision for possible loan losses were $445,343,000,
which approximates the 1998 level.
Year-to-date salary expenses decreased by $1,091,000 or .5% from
last year. The impact of merit increases was more than offset by
lower staff levels resulting from 1998 acquisition synergies,
Profit 2000 initiatives, branch closings and better use of
technology. The announcement of the Firstar transaction also
resulted in higher staff turnover during the second quarter of
1999 and thus lower salary levels. Employee benefit costs
increased in the first six months of 1999 by 3.8% to $42,101,000,
primarily due to increased 401(k) plan expense.
Occupancy and equipment costs through June 30, 1999 increased by
9.6% from the prior year, reflecting a consistent program of
investing in new technology to improve customer service and
enhance employee efficiency. Additionally, with the growth of
Mercantile's leasing business, depreciation of equipment the
Corporation leases to customers increased by $2,807,000 over the
first six months of 1998. The rent received on this equipment is
a component of non-interest income.
Exhibit 7 details the composition of all other operating
expenses. Communications expense totaled $11,122,000 in the first
six months of 1999 compared with $9,268,000 last year, reflecting
the costs of technology to expand both voice and data networking.
Marketing and business development expense declined in 1999 as a
corporate-wide image advertising campaign that began in 1997
wound down last year. Additionally, marketing of the Mercantile
name has been reduced in 1999 because of the pending Firstar
transaction. In 1999, there were reductions in miscellaneous
expense of $5,906,000 from gains realized on the sales of
non-strategic Mercantile branch offices. During the first six
months of 1998, a comparable expense reduction totaling
$1,200,000
17
<PAGE>
<PAGE>
was recorded on the sale of one branch office. Intangible asset
amortization was $28,591,000 in the first six months of 1999
compared with $29,058,000 in 1998.
During 1998, Mercantile recorded acquisition-related accruals of
$89,192,000. Of that original liability, $65,951,000 has been
utilized at June 30, 1999 and $23,241,000 remains to absorb
future cash payments. Payment streams may change from what was
originally anticipated due to Mercantile's pending sale to
Firstar. Substantially all the merger-related liabilities made
for acquisitions prior to 1998 have been exhausted.
During the fourth quarter of 1998, Mercantile recorded a
$45,130,000 charge relating to cost management programs and
customer service initiatives. The charge was expected to fund the
costs related to 26 branch closings and severance for
approximately 1,400 staff reductions that would result from
further centralization, consolidation of back office functions,
branch closures and a wider span of control. These initiatives
are continuing throughout 1999. Any additional costs that do not
qualify for recognition in the charge are being expensed as
incurred, but are not expected to be material. Total payments
through June 30, 1999 were $14,724,000, and the remaining balance
of $30,406,000 represents the estimated liability for the future
cash outflows associated with these specific actions. These
scheduled Profit 2000 projects are being reevaluated jointly by
Firstar and Mercantile as to viability and/or timing.
<TABLE>
------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 7
OTHER EXPENSE
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1999 1998 CHANGE 1999 1998 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries $103,600 $103,747 (.1)% $205,287 $206,378 (.5)%
Employee benefits 20,449 18,032 13.4 42,101 40,579 3.8
-------- -------- -------- --------
Total Personnel Expense 124,049 121,779 1.9 247,388 246,957 .2
Net occupancy 16,704 16,015 4.3 33,895 32,199 5.3
Equipment 23,888 21,255 12.4 47,577 42,113 13.0
Postage and freight 7,050 6,575 7.2 14,654 13,880 5.6
Marketing/business development 4,411 4,590 (3.9) 7,717 8,623 (10.5)
Office supplies 3,926 4,336 (9.5) 8,472 8,689 (2.5)
Communications 5,488 4,840 13.4 11,122 9,268 20.0
Legal and professional 3,576 4,500 (20.5) 7,702 7,935 (2.9)
Credit card 1,167 1,788 (34.7) 2,394 3,077 (22.2)
FDIC insurance 1,384 1,455 (4.9) 2,658 2,822 (5.8)
Foreclosed property expense (recoveries) 451 (260) -- 1,204 (88) --
Miscellaneous 13,627 23,391 (41.7) 31,969 40,731 (21.5)
-------- -------- -------- --------
Other Expense Before Intangible Asset
Amortization 205,721 210,264 (2.2) 416,752 416,206 .1
Intangible asset amortization 14,268 14,462 (1.3) 28,591 29,058 (1.6)
-------- -------- -------- --------
Total Other Expense $219,989 $224,726 (2.1) $445,343 $445,264 --
======== ======== ======== ========
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
For the six months ended June 30, 1999, the Corporation recorded
income tax expense of $121,147,000 compared with 1998 expense of
$116,574,000. The effective tax rate was relatively stable at
33.68% compared with 34.43% in 1998. The implementation of
various business strategies and receipt of certain state tax
refunds from prior years resulted in the lower effective tax rate
in 1999. This 1999 lower effective tax rate is anticipated in the
third and fourth quarters.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses was $309,271,000 or 1.36% of
loans outstanding at June 30, 1999 compared with $308,890,000 or
1.38% at year's end and $292,795,000 or 1.34% at June 30, 1998.
Approximately one-third of the Corporation's total loan portfolio
is invested in residential real estate loans for which the loan
loss experience averaged only .03% for the past
18
<PAGE>
<PAGE>
three years. If residential mortgages and its allocated reserve
are excluded, the remaining reserve for possible loan losses
represents 1.99% of outstanding loans at June 30, 1999.
The year-to-date 1999 provision for possible loan losses was
$16,958,000, which exceeded net charge-offs of $16,577,000 by
$381,000 or 2.3%. The annualized ratio of net charge-offs to
average loans for the first six months of 1999 was .15%,
comparable to the .14% ratio in 1998.
For the total managed portfolio of credit card loans (including
securitized loans), the ratio of net charge-offs to average loans
was 5.39% in 1999 versus 7.21% last year. By credit policy,
losses are taken on credit card loans after six cycles of
nonpayment, or within 15 days of receipt of personal bankruptcy
notice, if earlier. Due to the 1995 securitization and FAS 125
accounting, very few credit card outstandings are accounted for
as loans as of June 30, 1999. Over a 12-month period commencing
in November 1999, $600,000,000 of loans in the Mercantile Credit
Card Master Trust will return to the Corporation's balance sheet.
Currently $400,000,000 of credit card loans are off the balance
sheet and in the trust as collateral for the debt of the trust.
The other $200,000,000 in loans are also in the trust but are
classified as investor certificates and held on Mercantile's
balance sheet in the investment portfolio.
Mercantile evaluates the reserve for loan losses on a quarterly
basis to ensure the timely charge-off of loans and to determine
the adequacy of the reserve. Management believes the consolidated
reserve of 1.36% of loans and 296.45% of non-performing loans as
of June 30, 1999 was adequate based on the risks identified at
such date in the portfolio.
<TABLE>
------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 8
RESERVE FOR POSSIBLE LOAN LOSSES
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BEGINNING BALANCE $309,048 $293,565 $308,890 $284,165
PROVISION 9,479 7,344 16,958 15,881
Charge-offs (14,470) (14,667) (27,212) (27,439)
Recoveries 5,214 6,617 10,635 12,432
-------- -------- -------- --------
NET CHARGE-OFFS (9,256) (8,050) (16,577) (15,007)
Acquired Reserves -- (64) -- 7,756
-------- -------- -------- --------
ENDING BALANCE $309,271 $292,795 $309,271 $292,795
======== ======== ======== ========
LOANS AND LEASES
June 30 balance $22,719,455 $21,775,014 $22,719,455 $21,775,014
=========== =========== =========== ===========
Average balance $22,600,598 $21,813,425 $22,466,211 $21,699,554
=========== =========== =========== ===========
RATIOS
Reserve balance to outstanding loans 1.36% 1.34% 1.36% 1.34%
Reserve balance to non-performing loans 296.45 319.73 296.45 319.73
Net charge-offs to average loans .16 .15 .15 .14
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, renegotiated
loans, foreclosed property and investment securities with an
impairment in value that is considered other than temporary. A
summary of these assets is presented in Exhibit 9. Non-performing
loans (non-accrual and renegotiated loans) were $104,326,000 or
.46% of total loans at June 30, 1999, compared with $92,137,000
or .41% at December 31, 1998 and $91,575,000 or .42% at June 30,
1998. By the Corporation's definition, all non-accrual and
renegotiated commercial-related loans are considered impaired.
Impaired loans totaled $57,273,000 at June 30, 1999 and averaged
$60,631,000 for the first six months of 1999. Foreclosed assets
at June 30, 1999 were $12,142,000 compared with $13,500,000 at
year's end and $23,293,000 last year.
19
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 9
NON-PERFORMING ASSETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1999 1998 1998
------- ------- -------
<S> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial $ 31,048 $ 21,799 $ 33,469
Real estate--commercial 24,502 20,935 24,289
Real estate--construction 1,674 3,411 1,404
Real estate--residential
mortgage 35,791 31,355 21,723
Real estate--home equity
credit loans 522 551 421
Consumer 10,740 12,633 8,697
-------- -------- --------
Total Non-accrual Loans 104,277 90,684 90,003
RENEGOTIATED LOANS 49 1,453 1,572
-------- -------- --------
TOTAL NON-PERFORMING LOANS 104,326 92,137 91,575
FORECLOSED ASSETS
Foreclosed real estate 8,383 8,983 18,936
Other foreclosed assets 3,759 4,517 4,357
-------- -------- --------
TOTAL FORECLOSED ASSETS 12,142 13,500 23,293
-------- -------- --------
TOTAL NON-PERFORMING LOANS
AND FORECLOSED ASSETS<F1> 116,468 105,637 114,868
Impaired investment securities 45,451 63,296 73,909
-------- -------- --------
TOTAL NON-PERFORMING ASSETS $161,919 $168,933 $188,777
======== ======== ========
PAST-DUE LOANS
(90 DAYS OR MORE)<F2>
Commercial $ 8,893 $ 12,263 $ 7,049
Real estate--commercial 1,766 1,621 1,590
Real estate--construction 97 -- 300
Real estate--residential
mortgage 43,002 48,572 33,337
Real estate--home equity
credit loans 509 503 524
Consumer 6,107 7,396 5,220
Credit card 278 672 1,322
-------- -------- --------
Total Past-due Loans $ 60,652 $ 71,027 $ 49,342
======== ======== ========
RATIOS<F2>
Non-performing loans to
outstanding loans .46% .41% .42%
Non-performing loans and
foreclosed assets to
outstanding loans and
foreclosed assets .51 .47 .53
Non-performing assets to total
assets .46 .47 .54
<FN>
<F1> Excludes insured FHA and government-guaranteed VA loans that are
contractually past due more than 90 days. Since these loans are fully
insured or guaranteed for the payment of both principal and interest, the
Corporation does not consider these loans to be non-performing assets. The
total of such insured or guaranteed loans was $12,503,000 at June 30,
1999, $7,855,000 at December 31, 1998, and $9,556,000 at June 30, 1998.
<F2> Past-due loans 90 days or more are not included in non-performing asset
totals or ratios.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Non-accrual loans declined by $2,795,000 from the March 31, 1999 level
and foreclosed property decreased by 24.7% from the prior quarter-end.
As of June 30, 1999, Mercantile had only two non-accrual loans with
balances in excess of $2,000,000, the largest of which amounted to
$3,500,000. As significant, the Corporation held no foreclosed assets
with a book value exceeding $1,000,000. All loans classified as
renegotiated were paying in accordance with their modified terms at
June 30, 1999. Loans past due 90 days or more and still accruing interest
consisted largely of credit card loans, consumer loans and residential
real estate mortgage loans. Exhibit 9 details the composition of loans
past due 90 days and over.
The Corporation's impaired investment securities represent selected
pools of privately issued mortgage-backed securities and have declined
by $17,845,000 from December 31, 1998, to $45,451,000, due to paydowns
and sales. In the first quarter of 1999, $8,036,000 in impaired securities
were sold at gains of $1,275,000 which is part of securities gains reported
in the Consolidated Statement of Income. The current yield on the net book
value of these impaired securities was 9.43% at June 30, 1999.
CAPITAL RESOURCES
Mercantile maintains a capital base that provides a foundation that
promotes both depositor and investor confidence. Capital management
is a continuous process at Mercantile, and is focused on ensuring
that adequate capital is provided for both current needs and anticipated
growth. This strategy has enabled Mercantile to profitably expand its
balance sheet, while maintaining capital ratios that exceed minimum
regulatory capital requirements.
At June 30, 1999, shareholders' equity was $3.1 billion, an increase
of 4.9% from June 30, 1998. Retained earnings were partially offset by
an unfavorable FAS 115 adjustment of $168,071,000 in the first six months
of 1999, which was caused by the rise in interest rates. As of June 30,
1999, the balance of the valuation on available-for-sale securities
reduced shareholders' equity by $126,911,000.
The tangible equity to tangible assets ratio increased to 6.62% at June
30, 1999 from 6.19% a year ago. Additionally, the tier I and leverage
ratios have improved since last year and all regulatory capital ratios
significantly exceed regulatory requirements. Exhibit 10 details
significant capital information for June 30, 1999, December 31, 1998
and June 30, 1998.
20
<PAGE>
<PAGE>
In the first six months of 1998, the Corporation repurchased
1,778,125 shares of its common stock via designated
broker-dealers at an average cost of $53.60 per share. These
repurchases in the first quarter of 1998 occurred through an
accelerated stock repurchase program, and were reissued for the
1994 Stock Incentive Plan and the July 1, 1998 acquisitions of
CBT Corporation and Firstbank of Illinois Co. This year's
repurchases of 56,250 shares through June 30 followed
Mercantile's systematic reacquisition plan for the 1994 Stock
Incentive Plan. As of June 30, 1999, Mercantile had only 52,781
treasury shares outstanding, and none were tainted for
pooling-of-interests accounting purposes.
The Corporation's 9.00% mortgage-backed notes that totaled
$53,450,000 matured on July 26, 1999. Additionally, Mercantile's
$400,000,000 credit card securitization is scheduled to begin a
12-month amortization period in November 1999. Excluding FHLB
advances, the maturities of remaining long-term debt are laddered
between 2001 and 2007.
<TABLE>
------------------------------------------------------------------------
EXHIBIT 10
RISK-BASED CAPITAL
($ IN THOUSANDS)
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1999 1998 1998
------- ------- -------
<S> <C> <C> <C>
Capital
Tier I $ 2,631,844 $ 2,451,449 $ 2,270,127
Total 3,291,164 3,125,488 2,962,242
Risk-adjusted assets 26,496,612 24,907,551 23,773,542
Tier I capital to
risk-adjusted assets 9.93% 9.84% 9.55%
Total capital to
risk-adjusted assets 12.42 12.55 12.46
Leverage 7.48 7.16 6.65
Tangible equity to
tangible assets 6.62 6.55 6.19
Double leverage 117.75 120.75 123.79
------------------------------------------------------------------------
</TABLE>
The Parent Company's double leverage ratio, which measures the
extent to which the equity capital of its subsidiaries is
supported by Parent Company debt rather than equity, improved to
117.75% at June 30, 1999 compared with 123.79% last year.
Intangible assets, which consisted largely of goodwill, totaled
$750,527,000 at June 30, 1999 compared with $811,070,000 a year
ago.
The Corporation paid a quarterly cash dividend of $.34 on July 1,
1999. On July 21, 1999, the Board of Directors declared a cash
dividend of $.34 per share, payable October 1, 1999 to
shareholders of record at the end of business September 1, 1999.
Book value per share was $19.30 at June 30, 1999 compared with
$19.16 a year earlier. Public debt ratings of the Corporation and
Mercantile Bank N.A. are shown in Exhibit 11.
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------------------
EXHIBIT 11
DEBT RATINGS
<CAPTION>
JUNE 30, 1999
---------------------------------------------------------------
FITCH THOMSON STANDARD
MOODY'S IBCA BANKWATCH & POOR'S
------- ----- --------- --------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer rating B
Commercial paper F1 TBW-1
6.800% senior notes, due 2001 A2 A- BBB+
7.050% senior notes, due 2004 A2 A- BBB+
7.625% subordinated notes, due 2002 A3 BBB+ BBB
7.300% subordinated notes, due 2007 A3 BBB+ BBB
Floating rate capital trust pass-through securities(SM) a2 BBB-
MERCANTILE BANK N.A.
Bank notes (long-term/short-term) A1/P-1 A/TBW-1 A/A-2
6.375% subordinated notes, due 2004 A2 A A- BBB+
9.000% mortgage-backed notes, due July 1999<F*> Aaa
Certificates of deposit (long-term/short-term) A1/P-1 A/A-2
<FN>
<F*>Mortgage-backed notes matured on July 26, 1999.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<PAGE>
YEAR 2000
Financial institutions are vulnerable to Year 2000 issues because
of industry reliance on electronic data processing and funds
transfer systems. In 1996, the Corporation initiated a formal and
centralized Year 2000 Program ("Program") with the objective of
addressing all aspects of the Year 2000 issue. All business units
of the organization were brought into the Program through the
creation of a Year 2000 Task Force. A Program Manager, who
provides monthly Year 2000 status reports to executive management
and quarterly reports to the Board of Directors, was appointed.
The Corporation has substantially completed the assessment,
analysis, remediation and validation phases of its Year 2000
Program and is well into the execution phase. As part of the
Program, a comprehensive Year 2000 Program Plan ("Plan") was
developed and implemented in the third quarter of 1997. The Plan
addresses both Information Technology ("IT") projects, such as
insuring that data processing and data network applications are
Year 2000 compliant, and non-IT projects, such as insuring that
all building facilities and security systems having "embedded
technology" will be operational when Year 2000 arrives. Of the
plan projects identified, approximately 96% have been completed.
As part of its Plan, Mercantile identified those systems and
business applications that are "mission-critical," that is,
systems and business applications which, if they failed, would
render Mercantile incapable of performing core business
processes. As of June 30, 1999, renovation and testing of such
identified mission-critical applications were 100% complete.
As a financial institution, Mercantile's Year 2000 efforts are
subject to regulation and monitoring by bank and bank holding
company regulatory agencies. These agencies, under the auspices
of the Federal Financial Institutions Examination Council
("FFIEC"), have established specific guidelines and interim
deadlines for achieving Year 2000 compliance. Mercantile's
Program has met all of the deadlines and complied with all
guidelines to date, and expects to continue to do so.
In addition to Year 2000 compatibility of all Mercantile
applications, Mercantile's Year 2000 Program addresses
third-party Year 2000 issues. Mercantile has numerous customers,
vendors, service providers, counterparties and other business
relationships with third parties. Failure of any of these parties
to address Year 2000 issues could result in significant and in
some cases material disruptions of business and costs to
Mercantile. Mercantile has undertaken an assessment of all
third-party credit relationships and thus far has completed its
evaluation of such relationships which are considered to be
material. Follow-up plans have been put in place to deal with
such relationships that have been identified as "high risk." In
addition, all customers with whom Mercantile exchanges electronic
data have received notification of Year 2000-related date format
impacts. Year 2000 date testing has been completed with
approximately 95% of material third-party relationships. Review
of third-party customers and supplies will be an ongoing process
throughout 1999.
Mercantile estimates that its total costs related to Year 2000
remediation will be approximately $31,000,000. Expenses of the
Program in the first six months of 1999 declined to $3,377,000
from $7,804,000 in the same period of 1998. Personnel costs for
Mercantile employees and outside consultants working on the
Program, and the cost of setting up testing environments are the
largest components of the total Program cost. Other costs include
costs for communication and training, and for required hardware
and software replacement, upgrade or renovation. Year 2000
expenditures are expensed as incurred. It is not expected that
Year 2000 costs or activities will have a material adverse impact
on operations of the Corporation.
The principal risks associated with the Year 2000 problem can be
grouped into two categories. The first is the risk that
Mercantile does not successfully ready its operations for the
next century. The second is the risk of disruption of Mercantile
operations due to operational failures of third parties. The
first category includes those risks that are largely under
Mercantile's control. As set forth above, the Corporation
believes it has made the necessary corrections to its
mission-critical systems, and therefore believes there is little
risk of any critical system or asset not being able to process
date-related functions. In the event that Mercantile has not
successfully completed the remediation of its mission-critical
systems, it could be materially adversely affected as a result of
disruption of core business processes.
The second risk category is largely outside of Mercantile's
control. Computer failure of third parties may jeopardize
Mercantile operations. The most serious impact on Mercantile
operations from Year 2000 failures of others would result if
basic services
22
<PAGE>
<PAGE>
such as telecommunications, electric power and service provided
by other financial institutions and governmental agencies were
disrupted. Similarly, operational failures affecting Mercantile's
sources of major funding, larger borrowers and capital market
counterparties could affect the ability of such parties to
continue to provide funding or meet obligations when due. Public
disclosure of the state of readiness among basic infrastructure
and other suppliers, funding sources and counterparties indicates
significant progress in their Year 2000 preparedness. At this
time, the Corporation believes the likelihood of such significant
disruptions is minimal. A Year 2000 Liquidity Plan has been
completed and approved, with implementation occurring later in
1999. Review of this plan will be an ongoing process throughout
1999. There can be no assurance that Year 2000 failures of third
parties will not have a material adverse impact on Mercantile.
Mercantile has developed business resumption contingency plans
specific to Year 2000 issues. Business resumption contingency
plans address the actions that would be taken if core business
processes and critical business functions cannot be carried out
in the normal manner upon entering the next century due to system
or supplier failure. The effort to develop and validate business
resumption contingency plans was complete as of June 30, 1999, as
required by FFIEC guidelines. The review of these plans will be
an ongoing process throughout the remainder of 1999. As stated
before, Mercantile is expected to merge with and into Firstar
late in the third quarter or early in the fourth quarter of 1999.
However, conversions to Firstar's systems are not scheduled until
the first quarter of 2000, and therefore, will not impact Mercantile's
Year 2000 preparedness.
23
<PAGE>
<PAGE>
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
1998 1999
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR.
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and
leases $442,332 $445,880 $443,631 $439,392 $431,903 $432,831
Investments in debt and equity
securities 144,117 149,856 146,296 150,417 148,335 148,410
Short-term investments 6,731 8,351 7,334 7,781 6,700 7,235
-------- -------- -------- -------- -------- --------
Total Interest Income 593,180 604,087 597,261 597,590 586,938 588,476
Tax-equivalent adjustment 4,235 4,191 3,906 4,332 3,940 3,641
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INTEREST
INCOME 597,415 608,278 601,167 601,922 590,878 592,117
INTEREST EXPENSE
Deposits 237,420 237,267 231,983 225,046 216,638 210,288
Borrowed funds 83,039 91,518 92,199 89,386 86,071 92,855
-------- -------- -------- -------- -------- --------
Total Interest Expense 320,459 328,785 324,182 314,432 302,709 303,143
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT NET
INTEREST INCOME 276,956 279,493 276,985 287,490 288,169 288,974
PROVISION FOR POSSIBLE LOAN
LOSSES 8,537 7,344 23,871 11,402 7,479 9,479
OTHER INCOME
Trust 28,128 28,816 27,442 28,613 29,142 31,745
Service charges 28,244 29,073 30,498 31,462 29,640 31,047
Investment banking and
brokerage 11,066 9,826 9,760 10,485 11,082 11,524
Mortgage banking 29,098 8,959 6,149 10,249 6,199 4,503
Securities gains 4,453 2,834 2,297 5,851 12,963 3,283
Other 35,962 35,243 85,693 41,717 37,418 43,905
-------- -------- -------- -------- -------- --------
Total Other Income 136,951 114,751 161,839 128,377 126,444 126,007
OTHER EXPENSE
Personnel expense 125,178 121,779 124,155 124,847 123,339 124,049
Net occupancy and equipment 37,042 37,270 38,608 39,509 40,880 40,592
Other 58,318 65,677 148,389 105,985 61,135 55,348
-------- -------- -------- -------- -------- --------
Total Other Expense 220,538 224,726 311,152 270,341 225,354 219,989
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INCOME
BEFORE INCOME TAXES 184,832 162,174 103,801 134,124 181,780 185,513
INCOME TAXES
Income taxes 65,738 50,836 36,751 39,639 59,803 61,344
Tax-equivalent adjustment 4,235 4,191 3,906 4,332 3,940 3,641
-------- -------- -------- -------- -------- --------
Adjusted Income Taxes 69,973 55,027 40,657 43,971 63,743 64,985
-------- -------- -------- -------- -------- --------
NET INCOME $114,859 $107,147 $ 63,144 $ 90,153 $118,037 $120,528
======== ======== ======== ======== ======== ========
PER SHARE DATA
Basic earnings per share $.76 $.71 $.41 $.57 $.75 $.76
Diluted earnings per share .75 .69 .41 .57 .74 .75
SIGNIFICANT RATIOS
Return on assets 1.35% 1.23% .74% 1.03% 1.33% 1.34%
Return on equity 16.03 14.88 8.48 11.66 15.20 15.40
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN MILLIONS)
<CAPTION>
1998
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
------------------- ------------------- ------------------- -------------------
VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1>
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of unearned
income
Commercial $ 5,152 8.48% $ 5,608 8.38% $ 5,566 8.19% $ 5,820 7.81%
Real estate--commercial 3,585 8.53 3,631 8.47 3,750 8.58 3,874 8.42
Real estate--construction 729 8.86 726 8.78 742 8.69 877 8.37
Real estate--residential
mortgage 8,742 7.66 8,505 7.60 8,203 7.60 8,105 7.41
Real estate--home equity
credit loans 579 9.64 562 9.65 536 9.63 534 9.00
Consumer 2,550 9.15 2,655 9.08 2,763 9.04 2,803 8.97
Credit card 248 9.30 126 6.76 113 2.51 32 --
------- ------- ------- -------
Total Loans and Leases 21,585 8.22 21,813 8.20 21,673 8.21 22,045 8.00
Investments in debt and equity
securities
Trading 125 6.67 169 6.69 115 6.24 132 6.21
Taxable 8,404 6.47 8,728 6.47 8,560 6.49 8,825 6.47
Tax-exempt 434 8.38 417 8.47 411 7.94 437 7.73
------- ------- ------- -------
Total Investments in Debt and
Equity Securities 8,963 6.57 9,314 6.56 9,086 6.56 9,394 6.52
Short-term investments 479 5.62 600 5.51 517 5.55 575 5.30
------- ------- ------- -------
Total Earning Assets 31,027 7.81 31,727 7.69 31,276 7.63 32,014 7.46
Non-earning assets 3,012 3,214 2,984 3,023
------- ------- ------- -------
Total Assets $34,039 $34,941 $34,260 $35,037
======= ======= ======= =======
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 3,746 $ 4,003 $ 3,801 $ 4,047
Interest bearing demand 3,128 1.98 3,136 1.90 3,009 1.82 3,081 1.66
Money market accounts 3,884 4.11 3,979 4.08 3,960 4.06 4,141 3.89
Savings 1,647 2.50 1,762 2.62 1,774 2.72 1,770 2.49
Consumer time certificates under
$100,000 9,836 5.60 9,685 5.57 9,420 5.53 9,363 5.46
Other time 196 5.93 196 5.50 174 5.20 173 4.51
------- ------- ------- -------
Total Core Deposits 22,437 4.41 22,761 4.36 22,138 4.33 22,575 4.18
Time certificates $100,000 and
over 1,908 5.62 1,928 5.62 1,837 5.65 1,901 5.43
Foreign 541 5.63 441 5.60 397 5.61 267 5.32
------- ------- ------- -------
Total Purchased Deposits 2,449 5.64 2,369 5.63 2,234 5.65 2,168 5.42
------- ------- ------- -------
Total Deposits 24,886 4.55 25,130 4.50 24,372 4.47 24,743 4.31
Short-term borrowings 3,876 5.40 3,570 5.31 2,860 5.32 2,886 4.78
Bank notes 152 6.13 25 5.82 25 5.85 25 5.60
Long-term debt<F2> 1,823 6.23 2,911 5.87 3,641 5.69 3,796 5.55
------- ------- ------- -------
Total Acquired Funds 30,737 4.82 31,636 4.77 30,898 4.75 31,450 4.55
Other liabilities 436 424 383 495
SHAREHOLDERS' EQUITY 2,866 2,881 2,979 3,092
------- ------- ------- -------
Total Liabilities and
Shareholders' Equity $34,039 $34,941 $34,260 $35,037
======= ======= ======= =======
SIGNIFICANT RATIOS
Net interest rate spread 2.99% 2.92% 2.88% 2.91%
Net interest rate margin 3.62 3.53 3.51 3.56
<FN>
<F1> Taxable-equivalent basis.
<F2> Includes company-obligated mandatorily redeemable preferred securities of
Mercantile Capital Trust I.
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN MILLIONS)
<CAPTION>
1999 1998 1999
1ST QTR. 2ND QTR. SIX MONTHS SIX MONTHS
------------------ ------------------ ------------------ ------------------
VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1>
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of unearned
income
Commercial $ 6,263 7.57% $ 6,622 7.62% $ 5,381 8.43% $ 6,442 7.60%
Real estate--commercial 3,767 8.21 3,738 8.11 3,607 8.50 3,752 8.16
Real estate--construction 948 8.11 967 7.93 728 8.82 958 8.02
Real estate--residential mortgage 8,008 7.40 7,844 7.32 8,623 7.63 7,926 7.37
Real estate--home equity credit
loans 518 8.72 537 8.41 570 9.65 528 8.56
Consumer 2,785 8.79 2,852 8.62 2,603 9.12 2,819 8.71
Credit card 41 12.77 41 -- 187 8.46 41 --
------- ------- ------- -------
Total Loans and Leases 22,330 7.76 22,601 7.68 21,699 8.21 22,466 7.72
Investments in debt and equity
securities
Trading 161 6.45 173 6.49 147 6.68 167 6.47
Taxable 8,926 6.29 8,945 6.30 8,567 6.47 8,936 6.29
Tax-exempt 399 8.12 368 7.81 426 8.43 383 7.97
------- ------- ------- -------
Total Investments in Debt and
Equity Securities 9,486 6.37 9,486 6.36 9,140 6.56 9,486 6.36
Short-term investments 563 4.76 589 4.86 540 5.56 576 4.81
------- ------- ------- -------
Total Earning Assets 32,379 7.40 32,676 7.27 31,379 7.75 32,528 7.33
Non-earning assets 3,176 3,170 3,113 3,174
------- ------- ------- -------
Total Assets $35,555 $35,846 $34,492 $35,702
======= ======= ======= =======
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 4,050 $ 4,149 $ 3,875 $ 4,100
Interest bearing demand 3,153 1.60 3,239 1.66 3,132 1.94 3,196 1.63
Money market accounts 4,244 3.82 4,300 3.77 3,932 4.09 4,272 3.79
Savings 1,754 2.49 1,620 2.28 1,705 2.56 1,687 2.39
Consumer time certificates under
$100,000 9,012 5.29 8,676 5.15 9,760 5.58 8,843 5.22
Other time 194 3.91 172 4.07 196 5.71 183 3.99
------- ------- ------- -------
Total Core Deposits 22,407 4.03 22,156 3.92 22,600 4.39 22,281 3.98
Time certificates $100,000 and
over 2,164 5.27 2,075 5.12 1,918 5.62 2,119 5.20
Foreign 477 4.93 615 4.93 491 5.62 546 4.93
------- ------- ------- -------
Total Purchased Deposits 2,641 5.22 2,690 5.09 2,409 5.64 2,665 5.16
------- ------- ------- -------
Total Deposits 25,048 4.18 24,846 4.08 25,009 4.53 24,946 4.13
Short-term borrowings 2,701 4.57 3,050 4.61 3,722 5.36 2,876 4.59
Bank notes 10 5.47 -- -- 88 6.08 5 5.47
Long-term debt<F2> 4,134 5.33 4,321 5.25 2,370 6.01 4,228 5.29
------- ------- ------- -------
Total Acquired Funds 31,893 4.41 32,217 4.33 31,189 4.79 32,055 4.37
Other liabilities 556 498 429 528
SHAREHOLDERS' EQUITY 3,106 3,131 2,874 3,119
------- ------- ------- -------
Total Liabilities and
Shareholders' Equity $35,555 $35,846 $34,492 $35,702
======= ======= ======= =======
SIGNIFICANT RATIOS
Net interest rate spread 2.99% 2.94% 2.96% 2.96%
Net interest rate margin 3.61 3.55 3.58 3.58
<FN>
<F1> Taxable-equivalent basis.
<F2> Includes company-obligated mandatorily redeemable preferred securities of
Mercantile Capital Trust I.
</TABLE>
26
<PAGE>
<PAGE>
SPECIAL NOTE
Certain statements in this report that relate to the plans,
objectives or future performance of Mercantile Bancorporation
Inc. may be deemed to be forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve certain risks and
uncertainties. For example, by accepting deposits at fixed rates,
at different times and for different terms, and lending funds at
fixed rates for fixed periods, a bank accepts the risk that the
cost of funds may rise and the use of the funds may be at a fixed
rate. Similarly, the cost of funds may fall, but a bank may have
committed by virtue of the term of a deposit to pay what becomes
an above-market rate. Investments may decline in value in a
rising interest rate environment. Because the business of banking
is highly regulated, decisions of governmental authorities, such
as the rate of deposit insurance, can have a major effect on
operating results. Unanticipated events associated with Year 2000
compliance, relating to work on developments or modifications to
the Corporation's computer systems and software, including work
performed by suppliers or vendors or relating to the failure of
third parties upon whom the Corporation relies, including
customers, suppliers, governmental entities and others, to
address their own Year 2000 issues, could affect Mercantile's
future financial condition and operating results. Actual charges
associated with completed acquisitions may prove to be greater
than current estimates. In addition, management's objectives with
respect to the Corporation's capital base and equity levels may
not reach the targeted objectives within the targeted periods due
to numerous factors, including those previously mentioned. All of
these uncertainties, as well as others, are present in a banking
operation and shareholders are cautioned that management's view
of the future on which it prices its products, evaluates
collateral, sets loan reserves and estimates costs of operation
and regulation may prove to be other than as anticipated. Actual
strategies and results in future periods may differ materially
from those currently expected.
27
<PAGE>
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of Shareholders of the Registrant was held
on July 28, 1999 to consider and vote upon a proposal to approve
an Agreement and Plan of Merger, dated as of April 30, 1999, as
amended as of June 17, 1999, by and between the Registrant and
Firstar Corporation ("Firstar"), a Wisconsin corporation, and
the transactions contemplated thereby, including the merger of
the Registrant with and into Firstar. Of 158,156,398 shares
outstanding and eligible to be voted at the meeting, 122,436,284
shares, constituting a quorum, were represented in person or by
proxy at the meeting. The voting results were as follows:
FOR AGAINST ABSTENTIONS BROKER
119,362,897 1,815,638 697,852 559,897
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K on May 4,
1999. Under Item 5 of the Form 8-K, the Registrant disclosed
that on April 30, 1999 it had entered into an Agreement and
Plan of Merger with Firstar. Pursuant to the Agreement and
Plan of Merger, as described in the Form 8-K, the Registrant
is to be merged with and into Firstar, with the shareholders
of the Registrant to receive 2.091 shares of the common
stock of Firstar for each share of common stock of the
Registrant. The Form 8-K also briefly described the terms of
two Option Agreements between the Registrant and Firstar,
pursuant to which the Registrant received an option to
purchase approximately 9.9% of Firstar's outstanding common
stock and Firstar received an option to purchase
approximately 19.9% of the Registrant's outstanding common
stock. The options are exercisable only upon the occurrence
of certain triggering events. Finally, the Form 8-K also
disclosed that the Registrant had entered into an amendment
to its Rights Agreement in connection with and immediately
prior to entering into an Agreement and Plan of Merger and
Option Agreements.
Under Item 7 of the Form 8-K, the following documents were
filed as Exhibits thereto:
4.1 Amendment to Rights Agreement, dated as of May 20, 1998,
by and between Mercantile Bancorporation Inc. and Harris
Trust and Savings Bank as Rights Agent.
99.1 Press Release issued April 30, 1999.
28
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MERCANTILE BANCORPORATION INC.
(Registrant)
Date August 13, 1999 /s/ JOHN W. MCCLURE
- -------------------------- --------------------------------
John W. McClure
Chief Financial Officer
29
<PAGE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
27 Financial Data Schedule Included herein
30
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,234,011
<INT-BEARING-DEPOSITS> 263,788
<FED-FUNDS-SOLD> 251,609
<TRADING-ASSETS> 120,800
<INVESTMENTS-HELD-FOR-SALE> 9,199,571
<INVESTMENTS-CARRYING> 62,503
<INVESTMENTS-MARKET> 63,672
<LOANS> 22,719,455
<ALLOWANCE> 309,271
<TOTAL-ASSETS> 35,520,093
<DEPOSITS> 24,333,627
<SHORT-TERM> 3,546,657
<LIABILITIES-OTHER> 487,049
<LONG-TERM> 4,099,854
0
0
<COMMON> 1,581
<OTHER-SE> 3,051,325
<TOTAL-LIABILITIES-AND-EQUITY> 35,520,093
<INTEREST-LOAN> 864,734
<INTEREST-INVEST> 296,745
<INTEREST-OTHER> 13,935
<INTEREST-TOTAL> 1,175,414
<INTEREST-DEPOSIT> 426,926
<INTEREST-EXPENSE> 605,852
<INTEREST-INCOME-NET> 569,562
<LOAN-LOSSES> 16,958
<SECURITIES-GAINS> 16,246
<EXPENSE-OTHER> 445,343
<INCOME-PRETAX> 359,712
<INCOME-PRE-EXTRAORDINARY> 238,565
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238,565
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.49
<YIELD-ACTUAL> 3.58
<LOANS-NON> 104,277
<LOANS-PAST> 60,652
<LOANS-TROUBLED> 49
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 308,890
<CHARGE-OFFS> 27,212
<RECOVERIES> 10,635
<ALLOWANCE-CLOSE> 309,271
<ALLOWANCE-DOMESTIC> 309,271
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Reported only at fiscal year-end date.
</TABLE>
