-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Od5RfwFsgr/r5NUzmakf0ii7h9TxrG6j70MnQrOIGdCUxE8CSKIKBqSn5CRbLV9l U1aGHT9UsqZE5HPdGSRv1Q== 0000950114-97-000075.txt : 19970222 0000950114-97-000075.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950114-97-000075 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970220 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK TWAIN BANCSHARES INC/MO CENTRAL INDEX KEY: 0000100307 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 430895344 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12101 FILM NUMBER: 97540083 BUSINESS ADDRESS: STREET 1: 8820 LADUE RD CITY: ST LOUIS STATE: MO ZIP: 63124 BUSINESS PHONE: 3147271000 10-K405 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ Annual Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number 0-4543 MARK TWAIN BANCSHARES, INC. (Exact name of registrant as specified in its charter) Missouri 43-0895344 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 8820 Ladue Road, St. Louis, Missouri 63124 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 727-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class ------------------- Common Stock, $1.25 par value 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. Yes /X/ No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/. Aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price as of January 31, 1997: $673,181,426. Indicate the number of shares outstanding of each of the registrants' classes of Common Stock, as of the latest practicable date. Class Outstanding at February 14, 1997 - ------------------------------ -------------------------------- Common Stock, $1.25 par value 16,819,376 DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1996 Annual Report to Shareholders, expected to be mailed to shareholders on or about March 15, 1997, are incorporated by reference into Parts I, II and IV. 1 2 PART I ITEM 1. BUSINESS Mark Twain Bancshares, Inc. ("Company" or "Registrant") is a Missouri chartered multi-bank holding company which owns or controls substantially all the capital stock of four banks: Mark Twain Bank, which operates 20 separate banking locations in the metropolitan St. Louis areas; Mark Twain Kansas City Bank, which operates fifteen separate locations in the metropolitan Kansas City bi-state area; Mark Twain Illinois Bank, which operates four locations on the Illinois side of the St. Louis metropolitan area; and First City National Bank, which operates three separate locations in the metropolitan Springfield, Missouri area. The Company was organized in 1967. The Company's subsidiaries encounter substantial competition in all of their banking and related financial service activities from other banking institutions and from an increasing number of non-banking financial institutions in its primary market areas. On October 27, 1996, the Company and Mercantile Bancorporation Inc. ("Mercantile"), entered into an Agreement and Plan of Reorganization, pursuant to which the Company will be merged with Ameribanc, Inc. a wholly owned subsidiary of Mercantile. See Part III, Item 12c of this Form 10-K for further information. Non-Banking Subsidiaries The Company wholly owns the following: Mark Twain Properties, Inc., which owns, holds under lease, or manages properties occupied by present banking centers; Mark Twain Community Development Corporation, which provides services and housing opportunities for low- to moderate-income persons; Tarquad Corporation, which acts as trustee of deeds of trust of which Company subsidiaries are the lenders and beneficiaries; and Mark Twain Asset Recovery, Inc., which acts as purchaser of certain assets acquired by subsidiary banks in the collection of loans. Mark Twain Bank wholly owns Mark Twain Brokerage Services, Inc., a member of the National Association of Securities Dealers, which provides customers with complete brokerage services on all exchanges and provides the sale of various insurance company products. Mark Twain Bank also wholly owns Mark Twain St. Louis Investment Company which is a holding company for Mark Twain St. Louis Real Estate Investment Trust. Mark Twain St. Louis Real Estate Investment Trust was organized to invest solely in mortgage loans originated by the Company's banking subsidiaries. Mark Twain Bank and Mark Twain Kansas City Bank each wholly own a Mark Twain Real Estate Development Corporation subsidiary and a Mark Twain Community Development Corporation subsidiary. Supervision and Regulation The Company is registered with and subject to regulation by the Board of Governors of the Federal Reserve System and is subject to the Bank Holding Company Act of 1956, as amended. All Company-owned non-bank subsidiaries are subject to regulation by the Board of Governors of the Federal Reserve System. The subsidiary state-chartered banks are subject to regulation and supervision by the banking regulators of the states in which the banking units are located and the states in which the bank is chartered. The subsidiary national-chartered bank is subject to regulation and supervision by the Office of the Comptroller of the Currency. All subsidiary banks are subject to regulation by and are members of the Federal Deposit Insurance Corporation. The earnings of the subsidiary banks are affected not only by competing financial institutions and general economic conditions, but also by the policies of various governmental regulatory authorities, and state and federal laws, particularly as they relate to powers authorized to banks and bank holding companies. The Company and all subsidiary banks are subject to the provisions of the Community Reinvestment Act. Mark Twain Brokerage Services, Inc., is subject to supervision and regulation by the National Association of 2 3 Securities Dealers, Securities and Exchange Commission, Missouri Division of Securities, Missouri Division of Insurance, and Missouri Division of Finance, among others. The mortgage department is subject to supervision by Department of Housing and Urban Development, Federal Housing Authority, Veteran's Administration, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, and Government National Mortgage Association, among others, concerning mortgage lending. Further information called for by this item is contained on pages 2 to 14 and Note 2 "Acquisitions and Pending Affiliation" on page 21 of the Company's 1996 Annual Report to Shareholders and is incorporated by reference herein and in Part III, Item 12c of this Form 10-K. ITEM 2. PROPERTIES The Company leases its principal executive office which is located at 8820 Ladue Road, Ladue, Missouri. As of December 31, 1996, the Company conducts its business and operations out of 46 locations, which are either owned or leased, in the St. Louis bi-state, Kansas City bi-state, Springfield, Missouri and Chicago, Illinois metropolitan areas. The Company's physical properties are in satisfactory condition and suitable and adequate for present operations. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to a number of lawsuits, most of which are considered routine litigation incidental to doing business. The Company, after consultation with legal counsel, does not expect the outcome of any litigation to have a material effect on its consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1996. EXECUTIVE OFFICERS OF REGISTRANT See Part III, Item 10 of this Form 10-K. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS On September 19, 1996, the Common Stock of the Company ($1.25 par value) commenced trading on the New York Stock Exchange (ticker symbol - MTB). Prior to September 19, 1996, the Common Stock of the Company was traded on the Nasdaq Stock Market (symbol - MTWN). The following table presents the range of high and low sales prices, as furnished by the New York Stock Exchange and the Nasdaq Stock Market, Inc., as well as the quarterly dividends declared and paid per share. Common Stock Share Data High Low Dividends - ---------------------------------------------------------------------- 1996 Fourth Quarter $50.25 $41.87 $0.31 Third Quarter $42.63 $35.25 $0.31 Second Quarter $38.50 $36.00 $0.31 First Quarter $39.75 $36.50 $0.31 1995 Fourth Quarter $39.50 $32.75 $0.27 Third Quarter $35.75 $31.50 $0.27 Second Quarter $32.75 $29.63 $0.27 First Quarter $30.00 $26.00 $0.27 3 4 At December 31, 1996, there were approximately 2,500 holders of record of Common Stock. The information in Note 11, "Restrictions of Subsidiary Dividends," on page 25 of the Company's 1996 Annual Report to Shareholders is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA Information called for by this item is contained on page 1 of the Company's 1996 Annual Report to Shareholders and is incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information called for by this item is contained on pages 2 to 14 of the Company's 1996 Annual Report to Shareholders and is incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information called for by this item is contained on pages 15 to 32 of the Company's 1996 Annual Report to Shareholders and is incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following is a summary of information related to Directors and Executive Officers of the Registrant.
Position and Offices with Registrant and Prior Business Name Age Experience (if not with Registrant During Past Five Years) - --------------------------------------------------------------------------------------------------- Directors: Robert J. Baudendistel 64 Vice Chairman of Mark Twain Bancshares, Inc since 1979; Director Mark Twain Bancshares, Inc. since 1967; Partner, Fox Associates, a theatrical production company; consultant and investor; former Chairman, St. Anthony's Hospital. Peter F. Benoist 49 Director of Mark Twain Bancshares, Inc. since 1991; Executive Vice President of Mark Twain Bancshares, Inc. since 1984; Chairman of Mark Twain Bank from 1986 until June 1996; Director of Mark Twain Bank since 1986; President of Mark Twain Bank from 1986 until 1989; Chairman of Mark Twain Kansas City Bank from 1992 until June 1996; Director of Mark Twain Kansas City Bank since 1992; Director of First City National Bank since 1996; Director of Earthgrains, Inc. since 1995; Director, President and Executive Committee, Ecumenical Housing Production Corp; Director and Vice Chairman, St. Louis Priory; Trustee, Maryville University; Director, St. Louis Equity Fund. Robert A. Bernstein 58 Director of Mark Twain Bancshares, Inc. since 1994; Director, President, and Chief Executive Officer, Bernstein-Rein Advertising, Inc., an advertising agency; Director, Mark Twain Kansas City Bank; Steering Committee Member, COMBAT (Community Backed Anti-Drug Tax) Community Action Coalition in Jackson County, Missouri; Director, Kansas City Art Institute; President of the Board, Starlight Theatre Association; Board of Governors, Jewish Community Center. 4 5 Robert C. Butler 63 Director of Mark Twain Bancshares, Inc. since 1973; Executive Vice President of Mark Twain Bancshares, Inc. since 1982; Senior Vice President from 1974 to 1982; Vice President of Mark Twain Bancshares, Inc. from 1970 to 1974; Chairman of the Board, Mark Twain South County Bank, 1973-1978; President, Mark Twain State Bank, 1970-1974; President, Mark Twain National Bank, 1976-1979. Jack Deutsch 58 Director of Mark Twain Bancshares, Inc. sine 1990; President of Standard Machine and Manufacturing Company since 1991, prior thereto Executive Vice President since 1980, a manufacturer of refrigeration and industrial valves; Executive Vice President of Dema Engineering Company since 1982, manufacturer of automatic and hydraulic dispensing devices; Director, Vice President, and Treasurer, Jewish Federation of St. Louis. John Dubinsky 53 Director of Mark Twain Bancshares, Inc. since 1973; President and Chief Executive Officer of Mark Twain Bancshares, Inc. since 1986, President since 1975; Director, Barnes-Jewish Hospital; Co-Chairman, Barnes-Jewish Hospital Foundation; Trustee, St. Louis Science Center; Director, BJC Health System, Inc.; National Trustee, National Symphony Orchestra, Washington, D.C.; Director and Vice Chairman, Regional Housing Alliance; Director, Mark Twain Bank; Director, Mark Twain Kansas City Bank; Director of First City National Bank since 1996. Henry J. Givens, Jr., 64 Director of Mark Twain Bancshares, Inc. since 1992; President, Harris-Stowe Ph.D. State College since 1979; Director, Laclede Gas Company; Director, Mark Twain Bank St. Louis, a division of Mark Twain Bank; Director, Arts and Education Council; Director, American Red Cross, St. Louis Bi-State Chapter; Director, National Conference of Christians and Jews; Director, Urban League of Metropolitan St. Louis; Director, Blue Cross/Blue Shield of Missouri; Director, Automobile Club of Missouri. B.D. Hunter 67 Director of Mark Twain Bancshares, Inc. since 1981; Chairman and Chief Executive Officer of Huntco Inc., which owns and operates Steel Processing Centers; Director, Service Corporation International; Director, Cash America International, Inc.; Director, Celebrity Inc. Michael M. McCarthy 58 Director of Mark Twain Bancshares, Inc. since 1981; Chairman of the Board and Chief Executive Officer since 1977, McCarthy Building Companies, a group of construction and building design consulting companies; Chairman and Chief Executive Officer since 1976, McCarthy Brothers Company, a building construction company; Director of Huntco Inc. James J. Murphy, Jr. 53 Director of Mark Twain Bancshares, Inc. since 1992; President and Chief Executive Officer, Murphy Company Mechanical Contractors and Engineers; Director, Mark Twain Bank; Director, Mechanical Contractors Association of America; Chair, Trustee, Maryville University; Director, PRIDE; Director, St. Louis Priory. Alvin Siteman 69 Director of Mark Twain Bancshares, Inc. since 1972; Chairman of the Board of Mark Twain Bancshares, Inc. since 1986; Vice Chairman of the Board of Mark Twain Bancshares, Inc. from 1979 to 1986; President and Director, Flash Oil Corporation, a petroleum product distributor; President and Director, The Siteman Organization, Inc., a real estate development and management company; Director and President, Site Oil Company of Missouri; Honorary Trustee, St. Louis Art Museum; Director, Barnes-Jewish Hospital; Director, Insituform Technologies, Inc. Non-Director Executive Officers: Robert F. Borchert 52 Chairman and Chief Executive Officer, Mark Twain Bank, June 1996; President and Chief Operating Officer, Mark Twain Bank through June 1996; Director of Mark Twain Illinois Bank since 1996. Sandra Friedman Burnham 46 Senior Vice President and Auditor, Mark Twain Bancshares, Inc., April 1996; Vice President, Audit of Mark Twain Bancshares, Inc. through April 1996 Kevin J. Cody 36 Vice President, Treasurer/Assistant Secretary of Mark Twain Bancshares, Inc., April 1995; Vice President, Accounting and Chief Accounting Officer of Mark Twain Bancshares, Inc., May 1993; Staff through Senior Manager, Ernst & Young LLP, June 1982 - May 1993. Nancy E. Graves 44 Senior Vice President, Director of Retail Banking of Mark Twain Bancshares, Inc., December 1994; Senior Vice President of Mark Twain Bank, 1990 - December 1994. Keith Miller 45 Executive Vice President, Finance and Chief Financial Officer Mark Twain Bancshares, Inc., April 1996; Senior Vice President, Finance and Chief Financial Officer of Mark Twain Bancshares, Inc. through April 1996. 5 6 Timothy C. Peterson 52 Senior Vice President, Corporate Development, Mark Twain Bancshares, Inc., April 1996; Senior Vice President, Compliance of Mark Twain Bancshares, Inc., December 1994; President of Mark Twain Bank Ladue, 1990 - December 1994; Director of First City National Bank since 1996. W. Thomas Reeves 42 Senior Vice President, Lending, Mark Twain Bancshares, Inc., June 1996; Senior Vice President, Director of Loan Production, Mark Twain Bank through June 1996; Director of Mark Twain Kansas City Bank since 1996. Jack L. Sutherland 53 Chairman, President and Chief Executive Officer, Mark Twain Kansas City Bank, April 1996; President and Chief Executive Officer, Mark Twain Kansas City Bank through April 1996; Director of First City National Bank since 1996. Carl A. Wattenberg, Jr. 58 Senior Vice President, Secretary and General Counsel of Mark Twain Bancshares, Inc. Thomas R. Wickenhauser 49 Senior Vice President, Administration, Mark Twain Bancshares, Inc., April 1996; Vice President, Administration, Mark Twain Bancshares, Inc. Frederick E. Zimmer 48 Senior Vice President of Mark Twain Bank, Director of Loan Administration. - -------------- Dr. Givens is a director of Laclede Gas Company, the securities of which are registered pursuant to the Exchange Act. Mr. Hunter is Chairman and Chief Executive Officer of Huntco Inc., a Director (and formerly Vice Chairman) of Service Corporation International, and a Director of Cash America Investment, Inc., and Celebrity, Inc., the securities of each of which are registered pursuant to the Exchange Act. Mr. McCarthy is a Director of Huntco Inc., the securities of which are registered pursuant to the Exchange Act. Mr. Siteman is a Director of Insituform Technologies, Inc., the securities of which are registered pursuant to the Exchange Act. Mr. Benoist is a Director of Earthgrains, Inc., the securities of which are registered pursuant to the Exchange Act.
No family relationship exists among any of the Executive Officers of Registrant. Each officer of the Registrant is appointed to serve, at the pleasure of its Board of Directors, for the annual period next following the Annual Meeting of the Shareholders of the Registrant, and until his respective successor shall have been appointed and qualified. Certain officers were offered employment agreements; see Exhibit 10.9 below. No officer of the Registrant was selected so to serve pursuant to any arrangement or understanding between him and any person other than the directors and one or more officers of Registrant acting solely in that capacity. ITEM 11. EXECUTIVE COMPENSATION Information called for by this item is contained in Exhibit 99 to this Form 10-K and which is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners - The only person who is known to be the beneficial owner of more than 5% of its voting securities is Alvin Siteman, who beneficially owns 2,304,234 shares (13.2%) of Common Stock. This amount includes currently exercisable stock options to acquire 21,250 shares of Common Stock. Mr. Siteman is Chairman of Board of the Company and can be contacted through the Company. 6 7 (b) Security Ownership of Management - The following table sets forth information concerning the beneficial ownership of the Company's Common Stock as of January 31, 1997, for (a) each director; (b) each of the executive officers named in the Summary Compensation Table not listed as a director; and (c) directors and executive officers as a group. Except as otherwise noted, the individuals have sole voting and investment power with respect to such securities. Included are amounts of shares which may be acquired on January 31, 1997 or within 60 days of January 31, 1997 pursuant to exercisable employee stock options or through conversion of Mark Twain Bancshares, Inc. 7% Convertible Subordinated Capital Notes due 1999 ("Notes"). Common Stock Ownership Table
Amount and Nature Percent Name of Beneficial Ownership of Class - ------------------------------ ----------------------- -------- (a) Robert J. Baudendistel 52,500 .3% Peter F. Benoist 120,805 .7% Robert A. Bernstein 12,443 .1% Robert C. Butler 96,633 .6% Jack Deutsch 142,507 .8% John Dubinsky 276,382 1.6% Henry J. Givens, Jr., Ph.D. 600 B.D. Hunter 20,238 .1% Michael M. McCarthy 180,028 1.0% James J. Murphy, Jr. 19,512 .1% Alvin Siteman 2,304,234 13.2% (b) Robert F. Borchert 110,744 .6% W. Thomas Reeves 68,641 .4% (c) Directors and Executive Officers as a Group (22 persons) 3,750,516 21.5% - -------------- less than .1% Includes 7,500 shares held by a partnership affiliate of Mr. Baudendistel. Includes 44,000 shares subject to currently exercisable stock options. Includes 8,652 shares subject to currently exercisable stock options. Includes 85,642 shares held by Mr. Deutsch or his wife as Trustee or Custodian for their children or other family members, and 4,500 shares owned by a company of which Mr. Deutsch is a shareholder and President, the beneficial ownership of all of which is disclaimed. Includes 311 shares owned by Mr. Dubinsky or his wife as custodian for their daughter, 33,000 shares held by three trusts of which Mr. Dubinsky is trustee and 800 shares owned by his wife, the beneficial ownership of all of which is disclaimed. Also includes 3,146 shares available through conversion of Notes and 58,000 shares subject to currently exercisable stock options. Includes 8,488 shares held by an affiliate of Mr. Hunter. Includes 2,103 shares held in a trust of which Mr. McCarthy is trustee, the beneficial ownership of which is disclaimed, and 157,999 shares held by an affiliate of Mr. McCarthy. Includes 1,873 shares owned by the wife of Mr. Murphy, the beneficial ownership of which is disclaimed. Includes 193,208 shares owned by the wife of Mr. Siteman individually or by Mr. Siteman as trustee of trust for daughters or other family members, the beneficial ownership of all of which is disclaimed and 423,325 shares held by two corporate affiliates of Mr. Siteman. Also includes 21,250 shares subject to currently exercisable stock options. Includes 28,025 shares subject to currently exercisable stock options. Includes 45 shares held by Mr. Reeves as custodian for his children, the beneficial ownership of which is disclaimed. Also includes 29,725 shares subject to currently exercisable stock options. Includes 294,942 shares subject to currently exercisable stock options and 3,146 shares available through conversion of Notes.
7 8 As required by the Securities and Exchange Commission rules under Section 16 of the Securities and Exchange Act of 1934, the Company believes, based upon review and representations that during 1996 all Securities and Exchange Commission filing requirements applicable to executive officers and directors have been complied with. (c) Changes in Control - On October 27, 1996, the Company and Mercantile Bancorporation Inc. ("Mercantile"), entered into an Agreement and Plan of Reorganization (the "Merger Agreement"), pursuant to which the Company will be merged with Ameribanc, Inc., a wholly owned subsidiary of Mercantile (the "Merger"). The Board of Directors of the Company and the Executive Committee of the Board of Directors of Mercantile approved the Merger at their meetings held on October 27 and October 23, 1996, respectively. In accordance with the terms of the Merger Agreement, (i) each share of the Company's common stock, par value $1.25 per share ("Bancshares Common Stock"), outstanding immediately prior to the effective time of the Merger (the "Effective Time") will be converted into the right to receive 0.952 of a share (the "Exchange Ratio") of Mercantile common stock, par value $5.00 per share ("Mercantile Common Stock"), and associated preferred share purchase rights under Mercantile's Rights Agreement, dated May 23, 1988. The Merger is intended to constitute a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and to be accounted for as a pooling of interest. Consummation of the Merger is subject to various conditions, including: (i) receipt of approval by the shareholders of each of the Company, Mercantile, and Ameribanc, Inc. of appropriate matters relating to the Merger Agreement and the Merger; (ii) receipt of requisite regulatory approvals from the Board of Governors of the Federal Reserve system and other federal and state regulatory authorities as necessary; (iii) receipt of an opinion of counsel as to the tax treatment of certain aspects of the Merger; (iv) registration of the shares of Mercantile Common Stock to be issued in the Merger under the Securities Act of 1933, as amended (the "1933 Act") and all applicable state securities laws; and (v) satisfaction of certain other conditions. Certain directors and officers of the Company, who in the aggregate have voting power over approximately 14.9% of the outstanding shares of Bancshares Common Stock, based upon 16,384,722 shares of Bancshares Common Stock outstanding as of September 30, 1996, as represented by the Company, have agreed with Mercantile to vote all such shares of Bancshares Common Stock to approve the Merger and not to sell any of such shares other than pursuant to the Merger without Mercantile's consent. The Merger Agreement and the transactions contemplated thereby will be submitted for approval at meetings of the shareholders of each of the Company and Mercantile. Prior to such meetings, Mercantile will file a registration statement with the Securities and Exchange Commission registering under the 1933 Act the Mercantile Common Stock to be issued in the Merger. Such shares of Mercantile Common Stock will be offered to the Company's shareholders pursuant to a prospectus that will also serve as a joint proxy statement for the shareholders' meetings. The preceding description of the Merger Agreement is qualified in its entirety by reference to the copy of the Merger Agreement included as Exhibit 10.10 to this Form 10-K and which is hereby incorporated herein by reference. In connection with the Merger Agreement, the Company and Mercantile entered into a Stock Option Agreement, dated October 27, 1996 (the "Stock Option Agreement"), pursuant to which Bancshares granted to Mercantile an irrevocable option to purchase, under certain circumstances, up to 3,261,522 authorized and unissued shares of Bancshares Common Stock at a price, subject to certain adjustments, of $42.375 per share (the "Mercantile Option"). The Mercantile Option, if exercised, would equal, before giving effect to the exercise of the Mercantile Option, 19.9% of the total number of shares of Bancshares Common Stock outstanding. The Mercantile Option was granted by the Company as a condition and inducement to Mercantile's willingness to enter into the Merger Agreement. Under certain circumstances, the Company may be required to repurchase the Mercantile Option or the shares acquired pursuant to the exercise of the Mercantile Option. 8 9 The preceding description of the Stock Option Agreement is qualified in its entirety by reference to the copy of the Stock Option Agreement included as Exhibit 10.11 to this Form 10-K and which is hereby incorporated herein by reference ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 1996, as in prior years, the Company's Subsidiary Banks made loans to certain directors and executive officers of Mark Twain Bancshares, Inc. and its principal subsidiaries, as well as to certain persons or organizations related to directors and executive officers. All such loans were made in the ordinary course of business, and on substantially the same terms, including interest rates and collateral, as those prevailing at the time comparable loans to other persons, and non involved more than a normal risk of collectibility or presented other unfavorable features. During 1996, rental payment for certain premises of the Company and its subsidiaries, aggregating approximately $75,700 were made to the Siteman Organization, Inc., a real estate development and management company which is an affiliate of Mr. Siteman. Management believes that all such rental payments are comparable to fair market rates for such premises. During 1996, the Company entered into a construction contract for renovations to a facility to be opened in 1997 in Clayton, Missouri. Murphy Company Mechanical Contractors and Engineers ("Murphy Co."), which is an affiliate of Mr. Murphy, is a subcontractor for the renovation project. Murphy Co. is engaged to designed and construct the HVAC system for the renovated building. Payments to be made under the construction contract are estimated to be approximately $498,000. In addition, during 1996, the Company and its subsidiaries made payments aggregating approximately $32,700 to Murphy Co. for routine repairs and maintenance to the HVAC systems at various facilities. Management believes that such contract and repair amounts are comparable to fair market rates for such services. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements - The following consolidated financial statements of Mark Twain Bancshares, Inc. and Subsidiaries and the accountants' report thereon are incorporated by reference from the 1996 Annual Report to Shareholders of Mark Twain Bancshares, Inc.: Consolidated Balance Sheet - December 31, 1996 and 1995 Consolidated Statement of Income - Years ended December 31, 1996, 1995 and 1994 Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994 Consolidated Statement of Cash Flows - Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (a) (2) Financial Statement Schedules - All schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or the notes thereto. 9 10 (a) (3) Exhibits Exhibit 10 Material contracts: Exhibit 10.1 - Mark Twain Bancshares, Inc. 1983 Incentive Stock Option Plan, as amended 4/4/84, 2/11/87, 3/1/90 and 2/28/95 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). Exhibit 10.2 - Mark Twain Bancshares, Inc. 1992 Stock Option Plan, as amended 2/28/95 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995). Exhibit 10.3 - Mark Twain Bancshares, Inc. 1995 Stock Option Plan, as amended 1/12/96 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995). Exhibit 10.4 - Mark Twain Bancshares, Inc. Executive Benefit Plan, as amended and restated 7/1/83 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). Exhibit 10.5 - First Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 8/4/92 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). Exhibit 10.6 - Second Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). Exhibit 10.7 - Third Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). Exhibit 10.8 - Supplemental Executive Retirement Plan for Joseph N. Millard (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). Exhibit 10.9 - Form of Employment Agreements (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994): The initial term of the Employment Agreements offered was for either 12, 18, or 24 months. The initial terms of the Employment Agreements offered to Executive Officers named in Part I of this Form were as follows: Initial Term of 24 months - Alvin Siteman, John P. Dubinsky, Peter F. Benoist, Keith Miller, W. Thomas Reeves, Frederick E. Zimmer, Robert F. Borchert and Jack L. Sutherland. Initial Term of 18 months - Sandra Friedman Burnham, Nancy E. Graves, Timothy C. Peterson, Carl A. Wattenberg, Jr. and Thomas R. Wickenhauser. Initial Term of 12 months - Kevin J. Cody. Exhibit 10.10 - Agreement and Plan of Reorganization, dated as of October 27, 1996, between Mercantile Bancorporation Inc., Ameribanc, Inc., and Mark Twain Bancshares, Inc. (incorporated by reference from exhibit 2.1 of the Registrant's Form 8-K filed November 6, 1996). 10 11 Exhibit 10.11 - Stock Option Agreement, dated as of October 27, 1996, between Mercantile Bancorporation Inc., as grantee, and Mark Twain Bancshares, Inc., as grantor (incorporated by reference from exhibit 2.2 of the Registrant's Form 8-K filed November 6, 1996). Exhibit 11 - Computation of Earnings Per Share. Exhibit 13 - Mark Twain Bancshares, Inc.'s Annual Report to Shareholders for the year ended December 31, 1996. Exhibit 21 - Subsidiaries of Mark Twain Bancshares, Inc. Exhibit 23 - Consent of Independent Auditors. Exhibit 27 - Financial Data Schedule. Exhibit 99 - Executive Compensation
(b) Reports on Form 8-K: The Company filed a Form 8-K dated October 10, 1996 announcing earnings for the three and nine month periods ending September 30, 1996. The Company filed an 8-K on November 6, 1996 related to entering into the Agreement and Plan of Reorganization with Mercantile Bancorporation Inc. and entering into the Stock Option Agreement with Mercantile Bancorporation Inc. The Company filed a Form 8-K dated January 15, 1997 announcing earnings for the three and twelve month periods ended December 31, 1996. 11 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bancshares has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of St. Louis, and the State of Missouri, on the 20th day of February, 1997. MARK TWAIN BANCSHARES, INC. /s/ JOHN P. DUBINSKY ------------------------------------- John P. Dubinsky President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURES TITLES DATE ---------- ------ ---- /s/ ALVIN J. SITEMAN Chairman of the Board February 20, 1997 - ------------------------------------ and Director Alvin J. Siteman /s/ JOHN P. DUBINSKY President and Chief Executive February 20, 1997 - ------------------------------------ Officer and Director John P. Dubinsky (Principal Executive Officer) /s/ KEITH MILLER Executive Vice President, Finance February 20, 1997 - ------------------------------------ and Chief Financial Officer Keith Miller (Principal Financial Officer) /s/ KEVIN J. CODY Vice President, Treasurer/ February 20, 1997 - ------------------------------------ Assistant Secretary Kevin J. Cody (Principal Accounting Officer) /s/ PETER F. BENOIST Executive Vice President and February 20, 1997 - ------------------------------------ Director Peter F. Benoist /s/ ROBERT J. BAUDENDISTEL Director February 20, 1997 - ------------------------------------ Robert J. Baudendistel Director - ------------------------------------ Robert A. Bernstein /s/ ROBERT C. BUTLER Executive Vice President and February 20, 1997 - ------------------------------------ Director Robert C. Butler /s/ JACK DEUTSCH Director February 20, 1997 - ------------------------------------ Jack Deutsch /s/ HENRY J. GIVENS, JR., PH.D. Director February 20, 1997 - ------------------------------------ Henry J. Givens, Jr., Ph.D /S/ B.D. HUNTER Director February 20, 1997 - ------------------------------------ B.D. Hunter /s/ MICHAEL M. MCCARTHY Director February 20, 1997 - ------------------------------------ Michael M. McCarthy Director - ------------------------------------ James J. Murphy, Jr.
12 13 INDEX TO EXHIBITS
NUMBER EXHIBIT - --------------------------------------------------------------------------------------------------- 10.1 Mark Twain Bancshares, Inc. 1983 Incentive Stock Option Plan, as amended 4/4/84, 2/11/87 3/1/90 and 2/28/95 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). 10.2 Mark Twain Bancshares, Inc. 1992 Stock Option Plan, as amended 2/28/95 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995). 10.3 Mark Twain Bancshares, Inc. 1995 Stock Option Plan, as amended 1/12/96 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995). 10.4 Mark Twain Bancshares, Inc. Executive Benefit Plan, as amended and restated 7/1/83 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). 10.5 First Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 8/4/92 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). 10.6 Second Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). 10.7 Third Amendment to Mark Twain Bancshares, Inc. Executive Benefit Plan dated 10/15/93 (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). 10.8 Supplemental Executive Retirement Plan for Joseph N. Millard (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994). 10.9 Form of Employment Agreements (incorporated by reference from exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1994): The initial term of the Employment Agreements offered was for either 12, 18, or 24 months. The initial terms of the Employment Agreements offered to Executive Officers named in Part I of this Form were as follows: Initial Term of 24 months - Alvin Siteman, John P. Dubinsky, Peter F. Benoist, Keith Miller, W. Thomas Reeves, Frederick E. Zimmer, Robert F. Borchert, and Jack L. Sutherland. Initial Term of 18 months - Sandra Friedman Burnham, Nancy E. Graves, Timothy C. Peterson, Carl A. Wattenberg, Jr. and Thomas R. Wickenhauser. Initial Term of 12 months - Kevin J. Cody. 10.10 Agreement and Plan of Reorganization, dated as of October 27, 1996, between Mercantile Bancorporation Inc., Ameribanc, Inc., and Mark Twain Bancshares, Inc. (incorporated by reference from exhibit 2.1 of the Registrants Form 8-K filed November 6, 1996). 10.11 Stock Option Agreement, dated as of October 27, 1996, between Mercantile Bancorporation Inc., as grantee, and Mark Twain Bancshares, Inc., as grantor (incorporated by reference from exhibit 2.2 of the Registrant's Form 8-K file November 6, 1996). 11 Computation of Earnings Per Share. 13 Mark Twain Bancshares, Inc.'s Annual Report to Shareholders for the year ended December 31, 1996. 21 Subsidiaries of Mark Twain Bancshares, Inc. 23 Consent of Independent Auditors. 27 Financial Data Schedule. 99 Executive Compensation 13
EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 MARK TWAIN BANCSHARES, INC. AND SUBSIDIARIES Computation of Earnings Per Share
For the Years Ended December 31, (In thousands of dollars except per share data) 1996 1995 1994 ---- ---- ---- PRIMARY Earnings: Net income $53,268 $47,713 $40,982 ======= ======= ======= Shares: Weighted average number of common shares outstanding 16,168,262 16,056,927 15,887,699 Weighted average number of common share equivalents 304,928 231,912 215,410 ---------- ---------- ---------- 16,473,190 16,288,839 16,103,109 ---------- ---------- ---------- Primary earnings per common share $3.23 $2.93 $2.54 ===== ===== ===== ASSUMING FULL DILUTION Earnings: Net Income $53,268 $47,713 $40,982 After tax interest applicable to convertible notes 120 343 505 After tax amortization of capital note fees 63 51 62 ------- ------- ------- Fully diluted net income $53,451 $48,107 $41,470 ======= ======= ======= Shares: Weighted average number of common shares outstanding 16,168,262 16,056,927 15,887,699 Assuming conversion of Convertible Notes and dilutive stock options 644,803 847,186 828,164 ---------- ---------- ---------- 16,813,065 16,904,113 16,715,863 ========== ========== ========== Earnings per common share assuming full dilution $3.18 $2.85 $2.48 ===== ===== =====
EX-13 3 ANNUAL REPORT 1 Annual Report 1996 Mark Twain Bancshares, Inc. 2 Operational Highlights
1996 1995 % Change - ------------------------------------------------------------------------------------------------------------ Financial Highlights Net Income (in thousands) $ 53,268 $ 47,713 +11.6% Net Interest Income (in thousands) $127,721 $128,241 - 0.4% Return on Average Assets 1.79% 1.72% -- Return on Realized Shareholders' Equity 18.66% 18.41% -- Total Assets (in millions) $3,133.3 $2,968.2 + 5.6% Loans (in millions) $2,177.9 $1,971.9 +10.4% Total Deposits (in millions) $2,594.9 $2,457.4 + 5.6% Total Shareholders' Equity (in millions) $ 311.6 $ 275.9 +12.9% Per Share Data Primary Earnings $ 3.23 $ 2.93 +10.2% Fully Diluted Earnings $ 3.18 $ 2.85 +11.6% Dividends Paid $ 1.24 $ 1.08 +14.8% Book Value, Fully Diluted $ 18.66 $ 17.05 + 9.4% Market Price December 31 $ 48.75 $ 38.75 +25.8%
What's inside - ------------------------------------------------------------ Financial Highlights 1 Management's Discussion & Analysis 2 Statement by Management and Report of Independent Auditors 15 Consolidated Balance Sheet 16 Consolidated Statement of Income 17 Consolidated Statement of Changes in Shareholders' Equity 18 Consolidated Statement of Cash Flows 19 Notes to Consolidated Financial Statements 20 Shareholder Interests, Board of Directors and Executive Officers 33
3 Financial Highlights
Years Ended December 31, ---------------------------------------------------------------- (in thousands of dollars, except per share data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Interest income, fully tax equivalent $ 230,830 $ 224,361 $ 195,959 $ 177,079 $ 178,954 Interest expense 101,920 94,932 70,592 63,896 79,195 - ------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Net interest income, fully tax equivalent 128,910 129,429 125,367 113,183 99,759 Provision for loan losses 2,002 5,003 5,526 6,282 8,687 - ------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 126,908 124,426 119,841 106,901 91,072 Non-interest income 39,807 36,786 35,500 43,996 37,090 Non-interest expense 81,812 86,522 90,282 95,649 84,040 - ------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Income before taxes 84,903 74,690 65,059 55,248 44,122 Taxable equivalent adjustment 1,189 1,188 1,346 1,451 1,687 Applicable income taxes 30,446 25,789 22,731 18,694 14,092 - ------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Net income $ 53,268 $ 47,713 $ 40,982 $ 35,103 $ 28,343 - --------------------------------------------------------------========== ========== ========== ========== ========== The taxable equivalent adjustments are calculated using the federal statutory tax rate of 35% for 1996, 1995, 1994 and 1993, and 34% for 1992. Per Share Data Primary earnings $ 3.23 $ 2.93 $ 2.54 $ 2.24 $ 1.91 Fully diluted earnings $ 3.18 $ 2.85 $ 2.48 $ 2.17 $ 1.84 Common dividends declared $ 1.24 $ 1.08 $ 0.96 $ 0.81 $ 0.68 Common dividend payout ratio 38.39% 36.86% 37.80% 36.17% 35.52% Book value $ 18.68 $ 17.09 $ 14.65 $ 13.63 $ 12.20 Fully diluted book value $ 18.66 $ 17.05 $ 14.68 $ 13.71 $ 12.39 Averages for the Year Total assets $2,971,225 $2,766,634 $2,645,508 $2,484,696 $2,341,473 Earning assets 2,784,222 2,571,745 2,460,554 2,289,298 2,168,834 Total loans 2,031,127 1,916,374 1,748,639 1,626,068 1,563,903 Total deposits 2,381,533 2,282,771 2,199,501 2,089,102 1,989,108 Long-term debt 5,175 19,666 23,144 26,358 28,613 Shareholders' equity 282,777 255,433 223,972 197,401 167,556 Net interest margin 4.63% 5.03% 5.10% 4.94% 4.60% At December 31 Total assets $3,133,265 $2,968,231 $2,688,716 $2,595,451 $2,376,312 Earning assets 2,916,083 2,731,663 2,492,839 2,407,669 2,167,852 Total loans 2,177,915 1,971,939 1,860,155 1,716,394 1,541,083 Total deposits 2,594,912 2,457,392 2,272,057 2,191,913 2,034,404 Long-term debt 2,036 18,490 20,389 24,696 28,822 Shareholders' equity 311,624 275,906 234,049 214,994 179,046 Return on Average Total assets 1.79% 1.72% 1.55% 1.41% 1.21% Shareholders' equity 18.84% 18.68% 18.30% 17.78% 16.92% Realized shareholders' equity 18.66% 18.41% 17.93% 17.78% 16.92% Selected Ratios Average shareholders' equity to: Assets 9.52% 9.23% 8.47% 7.94% 7.16% Loans 13.92% 13.33% 12.81% 12.14% 10.71% Period-end shareholders' equity to: Assets 9.95% 9.30% 8.70% 8.28% 7.53% Loans 14.31% 13.99% 12.58% 12.53% 11.62% Long-term debt to shareholders' equity 0.65% 6.70% 8.71% 11.49% 16.10% Efficiency ratio 48.56% 52.15% 56.23% 61.19% 62.03%
Annual Report 1996 1 4 Management's Discussion & Analysis Income Statement Analysis - ------------------------------------------------------------------------------ Earnings Summary Mark Twain Bancshares, Inc. reported record earnings for 1996 with consolidated net income of $53.3 million, an increase of 11.6% over 1995 earnings of $47.7 million. Primary earnings per share were $3.23 compared to $2.93 in 1995, an increase of 10.2%. Fully diluted earnings per share were $3.18, an 11.6% increase over the $2.85 earned in 1995. Net income has grown at a compound rate of 21.2% over the last five years. Fully diluted earnings per share have grown 17.3% on a compound basis over the same period. Return on assets for 1996 was 1.79% compared to 1.72% for 1995 and 1.55% for 1994. Return on realized shareholders' equity was 18.66% for the year compared to 18.41% for 1995 and 17.93% for 1994. Net interest income, on a fully tax equivalent basis, decreased to $128.9 million for 1996 compared to $129.4 million for 1995. Net interest margin for the year was 4.63% compared to 5.03% for 1995 and 5.10% for 1994. Average earning assets increased 8.3% in 1996 compared to increases of 4.5% in 1995 and 7.5% in 1994. The provision for loan losses was less than the prior year due to lower net charge-offs and consistent asset quality. The allowance for loan losses as a percentage of loans was 1.55% at December 31, 1996, the same level of loans as at year-end 1995 and 1994. Net charge-offs as a percentage of average loans decreased to 0.06% in 1996 compared to 0.18% in 1995 and 0.21% in 1994. The percentage of non-performing assets to loans plus foreclosed real estate was 0.58% at December 31, 1996 compared to 1.00% at year-end 1995 and 0.95% at year-end 1994. Non-interest income increased 8.2% in 1996 following a 3.6% increase in 1995 and a decrease of 19.3% in 1994. The increase in 1996 resulted from a 17.1% increase in service charges on deposit accounts and an increase of 10.7% in revenues from the Company's fee income divisions. The increase for 1995 was primarily due to increased revenue from the Company's Bond Division and appreciation in the Company's proprietary trading account. This followed 1994 when the decrease in non-interest income was due to the Company's decision to curtail its Mortgage Division as a line of business and Bond and Brokerage revenues fell below expectations due to market conditions. See "Non-Interest Income" for further discussion. Non-interest expenses decreased 5.4% in 1996 following a decrease of 4.2% in 1995 and a decrease of 5.6% in 1994. The Company's efficiency ratio for 1996 was 48.56% compared to 52.15% in 1995 and 56.23% in 1994. Other operating expenses decreased $6.2 million or 23.9% in 1996 compared to a decrease of 10.4% in 1995 and 14.6% in 1994. For 1996, the Company's FDIC insurance premiums decreased $2.6 million following the $2.3 million decrease experienced in 1995. In addition, charitable contributions decreased $2.0 million in 1996 due to a non-recurring charitable contribution of foreclosed property made in the fourth quarter of 1995. While increasing non-interest expense by $2.1 million in 1995, the effect of the transaction on net income was zero due to a combination of tax credits and tax deductions associated with the donation. The changes for 1994 primarily reflect expenses directly associated with the change in revenues in the fee-based divisions. See "Non-Interest Expense" for further discussion. Net Interest Income Tax equivalent net interest income declined $519 thousand or 0.4% in 1996 compared to increases of 3.2% in 1995 and 10.8% in 1994. Net interest margin was 4.63% in 1996 compared to 5.03% in 1995 and 5.10% in 1994. The decrease in net interest income and net interest margin was due to the combined effect of a falling prime rate in late 1995 and early 1996, and the change in the mix of deposits to higher rate time deposits. Net interest margin declined steadily from 5.08% in the second quarter of 1995 to 4.85% in the fourth quarter of that year. Net interest margin decreased to 4.62% in the first quarter of 1996 and remained unchanged before rising to 4.67% in the fourth quarter of 1996. Net interest margin stabilized as the prime rate remained unchanged for the remainder of the year. Table 1 provides the components of average assets and liabilities together with their respective yields. Table 2 provides a reconciliation of the changes in net interest income attributable to variations in balances and yields. Average earning assets increased $212.5 million or 8.3% in 1996. The increase in 1996 compares with increases of $111.2 million in 1995 and $171.3 million in 1994. Average loans increased $114.8 million, or 6.0% in 1996, compared to an increase of $167.7 million or 9.6% in 1995. Most of the growth in 1996 occurred in the first and second quarters of the year. The Company's securities portfolio (held-to-maturity and available-for-sale securities) increased on average by $94.9 million or 16.0% in 1996, compared with a decrease in 1995 of 0.6%. Part of the increase in average securities is the result of purchases made in the fourth quarter of 1995 and early 1996 to reduce the Company's sensitivity to changing interest rates. The Company's earning assets comprised 93.7% of average total assets in 1996, compared to 93.0% in 1995 and 1994. The Company strives to maintain this level at or above 92%. Average interest bearing liabilities increased $168.8 million or 8.2% in 1996 compared to increases of 3.2% in 1995 and 5.8% in 1994. In 1996, interest rates, competition and customer preferences continued to exert pressure on the Company's core deposit mix. The composition of average interest bearing liabilities continued to shift to time deposits from interest bearing checking and savings and money market accounts. This shift represents the Company's efforts to gather marginal funds at the lowest cost, given the interest rate environment and customer preferences. Average time deposits increased $75.1 million or 7.7% versus an increase of $14.6 million or 1.6% for interest bearing checking and savings and money market accounts combined. 2 Mark Twain Bancshares, Inc. 5 Financial Review (continued) Table 1: Consolidated Average Balance Sheet and Net Interest Margin
Year Ended December 31, 1996 Year Ended December 31, 1995 Year Ended December 31, 1994 ---------------------------- ---------------------------- ---------------------------- Average Yield/ Average Yield/ Average Yield/ (in thousands of dollars) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------ Assets Loans $2,031,127 $183,261 9.02% $1,916,374 $181,975 9.50% $1,748,639 $147,817 8.45% Held-to-maturity securities: Taxable 233,145 15,080 6.47% 331,174 22,207 6.71% 356,037 24,581 6.90% Non-taxable 2,528 203 8.03% 3,161 266 8.42% 12,019 1,034 8.60% Available-for-sale securities 451,222 28,128 6.23% 257,669 15,959 6.19% 227,591 15,070 6.62% Trading account securities 53,099 3,425 6.45% 47,559 3,003 6.31% 64,466 4,197 6.51% Mortgage loans held for resale -- -- -- -- -- -- 33,513 2,453 7.32% Interest bearing deposits with banks 988 33 3.34% -- -- -- 114 3 2.63% Federal funds sold and securities purchased under resale agreements 12,113 700 5.78% 15,808 951 6.02% 18,175 804 4.42% - ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ---- Total interest earning assets 2,784,222 230,830 8.29% 2,571,745 224,361 8.72% 2,460,554 195,959 7.96% - ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ---- Cash and due from banks 107,362 107,551 115,279 Other assets 115,230 122,970 104,662 FASB No. 115 allowance (4,284) (5,938) (7,431) Allowance for loan losses (31,305) (29,694) (27,556) - ---------------------------------------------- ---------- ---------- Total $2,971,225 $2,766,634 $2,645,508 - ------------------------------------========== ========== ========== Liabilities and Shareholders' Equity Interest bearing demand deposits $ 225,781 4,470 1.98% $ 225,609 4,833 2.14% $ 251,849 4,933 1.96% Savings and money market deposits 692,856 25,282 3.65% 678,466 25,950 3.82% 727,797 22,018 3.03% Time deposits 1,052,659 59,450 5.65% 977,600 54,223 5.55% 821,545 35,528 4.32% Short-term borrowings 249,610 12,370 4.96% 155,939 8,414 5.40% 169,715 6,337 3.73% Long-term debt 5,175 348 6.72% 19,666 1,512 7.69% 23,144 1,776 7.67% - ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ---- Total interest bearing liabilities 2,226,081 101,920 4.58% 2,057,280 94,932 4.61% 1,994,050 70,592 3.54% - ---------------------------------------------- -------- ---- ---------- -------- ---- ---------- -------- ---- Non-interest bearing deposits 410,237 401,096 398,310 Other liabilities 52,130 52,825 29,176 Shareholders' equity 282,777 255,433 223,972 - ---------------------------------------------- ---------- ---------- Total $2,971,225 $2,766,634 $2,645,508 - ------------------------------------========== ========== ========== Net interest income $128,910 $129,429 $125,367 - -------------------------------------------------======== ======== ======== Net interest margin 4.63% 5.03% 5.10% - -----------------------------------------------------------==== ==== ==== Adjusted to a fully taxable basis using federal statutory rate of 35%. Includes non-accrual loans.
Average non-interest bearing deposits grew $9.1 million or 2.3% during 1996 compared to increases of 0.7% in 1995 and 7.1% in 1994. The increase in 1996 was a return to the trend of growth generated by the Company's commercial operations, as previous years included fluctuations due to the Company's mortgage servicing portfolio. Also the interest rate and economic environment was partially responsible for the decreased growth rates in 1996 and 1995, as businesses are able to maintain smaller balances in their accounts without paying fees due to the higher earnings credit rates in effect for the majority of 1995 and into early 1996. Average short-term borrowings increased by $93.7 million or 60.1% in 1996, representing the financing of securities purchased and the reduction of long-term debt. Long-term debt decreased $11.6 million through the calling for redemption of the Company's 8.5% debentures in the first quarter of 1996. The Company's net interest spread declined 40 basis points from 4.11% in 1995 to 3.71% in 1996. This follows a decrease of 31 basis points in 1995. The current year decline occurred from a decrease on the yields of earning assets of 43 basis points with only a 3 basis point decline in rates paid on interest-bearing liabilities. The decrease on the yields of earning assets of 43 basis points follows increases of 76 basis points and 22 basis points in 1995 and 1994, respectively. The decrease in 1996 is due in large part to the decline in loan yields stemming from a decline in the Company's prime lending rate charged on its variable rate loans. The Company's prime rate based loan portfolio comprised 49.7% of the total portfolio and 36.2% of earning assets at December 31, 1996. Amortized loan fees decreased $1.3 million from the previous year as competitive pressure has limited the ability of the Company to charge fees on commercial loan originations. Annual Report 1996 3 6 Management's Discussion & Analysis (continued) Table 2: Rate/Volume Analysis
1996 Compared to 1995 1995 Compared to 1994 --------------------------------- --------------------------------- Increase (Decrease) Increase (Decrease) Attributable to Attributable to Total Change in Total Change in Increase ------------------- Increase ------------------- (in thousands of dollars) (Decrease) Volume Rate (Decrease) Volume Rate - ------------------------------------------------------------------------------------------------------------------------------ Interest Income Loans $ 1,286 $10,600 $(9,314) $34,158 $14,944 $19,214 Held-to-maturity securities: Taxable (7,127) (6,365) (762) (2,374) (1,682) (692) Non-taxable (63) (51) (12) (768) (746) (22) Available-for-sale securities 12,169 12,065 104 889 1,905 (1,016) Trading account securities 422 356 66 (1,194) (1,071) (123) Mortgage loans held for resale -- -- -- (2,453) (2,453) -- Interest bearing deposits with banks 33 33 -- (3) (3) -- Federal funds sold and securities purchased under resale agreements (251) (215) (36) 147 (115) 262 - ------------------------------------------------------------------ ------- ------- ------- ------- ------- Total increase (decrease) in interest earned on assets 6,469 16,423 (9,954) 28,402 10,779 17,623 - ------------------------------------------------------------------ ------- ------- ------- ------- ------- Interest Expense Interest bearing demand deposits (363) 4 (367) (100) (539) 439 Savings and money market deposits (668) 542 (1,210) 3,932 (1,573) 5,505 Time deposits 5,227 4,224 1,003 18,695 7,515 11,180 Short-term borrowings 3,956 4,691 (735) 2,077 (550) 2,627 Long-term debt (1,164) (1,164) -- (264) (267) 3 - ------------------------------------------------------------------ ------- ------- ------- ------- ------- Total increase (decrease) in interest paid on liabilities 6,988 8,297 (1,309) 24,340 4,586 19,754 - ------------------------------------------------------------------ ------- ------- ------- ------- ------- Total increase (decrease) in net interest income $ (519) $ 8,126 $(8,645) $ 4,062 $ 6,193 $(2,131) - -----------------------------------------------------------======= ======= ======= ======= ======= ======= For the purpose of this table, changes which are not due solely to volume changes or rate changes are allocated to such categories based on the respective percentage changes in average balances and average rates.
This had the effect of decreasing the yield on the loan portfolio by 6 basis points in 1996. Yields from the Company's securities portfolio declined by 17 basis points from the reinvestment of principal being made at rates significantly below maturing rates and the yields on securities purchased in late 1995 and early 1996 being below the rest of the portfolio. The marginally lower rates paid on interest bearing liabilities of 3 basis points compares with increases of 107 basis points in 1995 and 15 basis points in 1994. The decrease represents the impact of lower short-term rates paid on interest bearing checking and savings and money market deposit accounts. The decrease in rates paid on these accounts was largely offset by higher volumes and rates paid on the Company's time deposits. Non-Interest Income Non-interest income, excluding securities gains, increased 8.4% and totaled $39.6 million in 1996. This followed a 3.7% increase in 1995 and an 18.3% decrease in 1994. Non-interest income, excluding securities gains, has increased at a five-year compound growth rate of 5.1% without adjusting for the effects of Mortgage Division revenues. Service charges on deposits increased $1.2 million or 17.1% in 1996. Service charges on commercial and retail transaction accounts increased $612 thousand and $593 thousand, respectively, as compared to 1995. The increase in service charges on commercial transaction accounts was due to a reduction in the earnings credit rate paid to commercial accounts in 1996 to offset the cost of deposit services. The increase in service charges on retail accounts was the result of increasing the charge for first presentment of items against demand deposit accounts with insufficient balances. This increase in revenue for 1996 followed a 4.7% decrease in 1995 and a 10.9% decrease in 1994. Other income, as shown in Table 3, increased 6.4% or $1.9 million in 1996. This followed a 5.9% increase in 1995 and a 20.2% decrease in 1994. Table 3: Other Income
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ Bond Division revenue $12,889 $11,903 $ 8,897 Brokerage revenue 4,799 4,215 5,174 Trust Division revenue 7,206 6,364 6,084 Mortgage Division revenue -- -- 2,178 Credit card income 955 676 764 International Division revenue 1,135 973 1,046 Net gains (losses) on foreclosed property 785 (330) (85) Other bank income 1,201 1,020 896 All other income 2,347 4,618 2,839 - ------------------------------------------------------------ ------- ------- Total $31,317 $29,439 $27,793 - -----------------------------------------------------======= ======= =======
The Company's Bond Division gross revenues increased $986 thousand, or 8.3%, compared to 1995. The Division's foreign exchange operation revenues increased $1.3 million as compared to 1995 as investors continued to be attracted to foreign fixed income markets compared to domestic fixed income markets for value. This followed a 33.8% increase in revenues for 1995 compared to 1994 when the foreign exchange operation grew revenues by $2.7 million. 4 Mark Twain Bancshares, Inc. 7 The Brokerage operation reported a 13.9%, or $584 thousand, increase in gross revenues for 1996. The increase in Brokerage revenues was indicative of the general market conditions in 1996 where increases in sales volumes of equity securities, annuities and mutual funds were experienced. In 1995, Brokerage revenues decreased 18.5% compared to 1994, as a result of poor market conditions and an adverse change in the product mix purchased by brokerage customers. The Trust Division generated revenues of $7.2 million for 1996. This represented an $842 thousand or 13.2% increase over the prior year. The increase is attributed to growth in the market value of managed assets on which some fees are based and fees resulting from increased sales of proprietary mutual funds. Trust Division revenues have increased at a five-year compound growth rate of 12.9%. Net credit card income increased $279 thousand in 1996 compared to 1995. The increase for 1996 was due to a $350 thousand fee received in the third quarter from participation in a commission on the transfer of the Company's credit card base to a new issuing bank. Excluding this item, net credit card income decreased $71 thousand in 1996 following a $88 thousand decrease experienced in 1995. These decreases in net revenues are primarily due to third party expenses for processing merchant deposits increasing at a rate greater than the fees paid by the merchants. International Division revenues increased $162 thousand or 16.6% in 1996 compared to a decrease of $88 thousand for 1995. The changes in revenue are due to changes in the volume of trade and standby letters of credit issued and the related fees which are amortized into revenue over the commitment period of the instruments. Gains or losses on foreclosed property represent the net gain or loss on the disposition of foreclosed assets. Additionally, losses are recorded when the carrying values of existing foreclosed property are adjusted for declines in market values. The Company attempts to take conservative positions by periodically revaluing its foreclosed property. The net gains of $785 thousand for 1996 resulted from the sale of several parcels of foreclosed property and the partial sale of another parcel. These sales are reflected in the net $2.7 million reduction in the balance of foreclosed property during 1996. Other bank income increased $181 thousand in 1996 over 1995 levels. This follows an increase of $124 thousand experienced in 1995. The primary factor leading to the growth in revenues was the increase in fees generated by use of the Company's debit card and ATM products. The all other income category decreased $2.3 million in 1996 compared to 1995. The primary reason for the decline of other income was a $1.4 million decrease in the net realized and unrealized appreciation in the Company's proprietary trading account for 1996. Net realized and unrealized appreciation was $639 thousand for 1996 compared to $2.0 million for 1995. During 1996, the majority of the securities held in the proprietary trading account were sold as reflected in the balance of the account decreasing to $1.6 million at year-end 1996 compared to $21.0 million at year-end 1995. Other factors affecting 1996 compared to 1995 were a $420 thousand decrease in the rental income from a low-to-moderate-income housing project owned by one of the Company's community development corporations which was sold in 1995, and a $410 thousand gain on the sale of the aforementioned housing project recorded in 1995. Partially offsetting these items was a $142 thousand gain recorded on the sale of a parcel of land which was held for future expansion. The land was owned by one of the banks acquired by the Company in 1994. Non-Interest Expense Total operating expenses decreased $4.7 million or 5.4% during 1996, compared to a $3.8 million or 4.2% decrease in 1995 and a $5.4 million or 5.6% decrease in 1994. In 1996, the variance was primarily attributed to the Company's FDIC insurance premiums which decreased $2.6 million and a $2.0 million decrease in charitable contribution expense due to a $2.1 million non-recurring charitable contribution of foreclosed property in 1995. Looking at the past three years, the largest component of the reduction in operating expenses was the decision to exit mortgage as a line of business in 1994. This decision, coupled with reduced volumes in early 1994, resulted in approximately a $2.0 million decrease in operating expenses in 1995 and approximately a $6.7 million reduction in operating expenses in 1994. The Company's efficiency ratio, determined by dividing total operating expenses by total tax-equivalent revenue excluding securities transactions, was 48.56% in 1996, and reflected continued improvement over the 52.15% in 1995 (50.90% excluding the 1995 non-recurring item) and the 56.23% in 1994. Total salaries and employee benefits increased $2.2 million or 4.6% for 1996 compared to decreases of $120 thousand or 0.3% during 1995 and $922 thousand or 1.9% during 1994. Salary expense increased $1.3 million or 4.3% for 1996, compared to decreases of $2.2 million or 6.9% for 1995 and 1.2% for 1994. The number of full-time equivalent employees at December 31, 1996 was 1,091, compared to 989 and 1,014 the previous two years. The average number of full-time equivalent employees was 1,018 for 1996, 998 for 1995 and 1,066 for 1994. The increase for 1996 is attributed to the staff of acquired banks. The decrease in the number of full-time equivalent employees for 1995 relates primarily to the reduction in support staff in the Company's Mortgage Division during 1994. Bonuses increased $60 thousand or 2.2% for 1996 and $506 thousand or 22.6% for 1995, compared to a decrease of $151 thousand or 7.2% for 1994. The Company paid a one-time bonus to all employees not already participating in a commission or incentive-based program which accounted for approximately 50% of the increase in 1995. Excluding this Annual Report 1996 5 8 Management's Discussion & Analysis (continued) item, incentive based bonuses increased approximately 12% in 1996 compared to 1995 due to a combination of normal salary increases, increased pay-out percentages and the addition of personnel to the program. The Company continues to emphasize incentive compensation based on achieving annual profitability goals. The incentive compensation arrangements are reviewed annually by the Compensation Committee of the Company's Board of Directors. Commissions, which are directly related to the level of sales revenues reported by the Company's fee divisions previously discussed, increased $608 thousand or 7.7% during 1996 compared to a 27.2% or $1.7 million increase for 1995. For 1994, commissions paid decreased $627 thousand or 9.2%. Benefit expenses increased $209 thousand during 1996 compared to decreases of $69 thousand and $55 thousand during 1995 and 1994, respectively. Employee retirement expense increases of $158 thousand for 1996, $161 thousand for 1995 and $329 thousand for 1994 were associated with changes in actuarial assumptions and higher wages. Employee insurance expense decreased $177 thousand following relatively level expenses for 1995 and 1994. The remaining changes in benefit expense are directly related to the levels of compensation expense discussed earlier. A summary of personnel costs is provided in Table 4. Table 4: Personnel Costs
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ Salary expense $31,705 $30,407 $32,645 Bonuses 2,809 2,749 2,243 Commissions 8,463 7,855 6,174 Employee benefits 6,729 6,520 6,589 - ------------------------------------------------------------ ------- ------- Total $49,706 $47,531 $47,651 - -----------------------------------------------------======= ======= =======
Occupancy and furniture and equipment costs decreased $730 thousand or 5.5% during 1996 and $648 thousand or 4.7% during 1995 compared to an increase of 3.6% in 1994. In June 1995, the Company sold a low-to-moderate income housing project which it owned and operated. This resulted in reductions of expense associated with the property of $373 thousand and $522 thousand for 1996 and 1995, respectively. Computer hardware which became fully depreciated in the second quarter of 1995, coupled with a general decline in depreciation expense, also contributed to the 1996 decrease. The expiration of a computer equipment lease and subsequent equipment acquisition in late 1994 also contributed to the decrease in 1995. Expenses for 1994 reflected increases in real estate rental rates and equipment rental expenses associated with system conversions. Other expenses decreased $6.2 million or 23.9% during 1996, following decreases of $3.0 million or 10.4% for 1995 and $4.9 million or 14.6% in 1994. Table 5 shows the major components of other expenses. Table 5: Other Expenses
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ FDIC premiums $ 6 $ 2,558 $ 4,833 Charitable contributions 1,062 3,057 713 Data processing 4,776 4,461 4,764 Legal fees 643 1,003 1,287 Loan and collection 515 525 876 Marketing and advertising 1,246 1,665 1,928 Amortization 927 900 1,501 Postage and freight 1,519 1,474 1,482 Telecommunication 1,470 1,327 1,295 Insurance expense 512 850 1,132 Expenses on foreclosed property 217 426 616 Conventions and meetings 443 502 554 Stationery and supplies 588 710 756 Distribution expenses 641 681 666 Consulting services 252 744 605 Taxes other than income 423 525 430 Operating losses 548 629 1,063 All other expenses 3,826 3,732 4,260 - ------------------------------------------------------------ ------- ------- Total $19,614 $25,769 $28,761 - -----------------------------------------------------======= ======= =======
FDIC insurance premiums decreased $2.6 million in 1996 compared to $2.3 million in 1995. In 1996, the premium charged to the Company's bank subsidiaries was reduced to $2 thousand per charter per year. The Company did not hold any deposits which were subject to the one-time SAIF assessment charged in the third quarter of 1996. Effective June 1, 1995, the FDIC Board of Directors voted to reduce deposit insurance premiums to $.04 from $.23 per $100 of assessable deposits. The decrease of $49 thousand in 1994 resulted from an increase in premiums due to increased deposit levels offset by a decrease in the premium rate charged by the FDIC under its tiered premium schedule. Charitable contributions decreased $2.0 million in 1996 compared to a $2.3 million increase for 1995. The expense for 1995 includes $2.1 million related to the donation of a parcel of foreclosed property as discussed earlier. Excluding this non-recurring item, charitable contribution expense increased $105 thousand in 1996, increased $244 thousand in 1995 and remained level in 1994. Marketing and advertising expense decreased $419 thousand in 1996 following a decrease of $263 thousand in 1995 and a $37 thousand increase in 1994. Approximately 50% of the current year decrease was due to the Company bringing in-house work previously performed by a third-party advertising agency. The remainder in the decrease for 1996 and 1995 was due to the curtailment of television advertising during 1995. Amortization expense increased $27 thousand in 1996 following decreases of $601 thousand during 1995 and $3.3 million during 1994. The reduction of 1995 expense is a result of curtailing mortgage operations as a line of business in 1994. In 1994, proceeds received from the sale of the Company's mortgage servicing portfolio approximated the remaining carrying value of purchased mortgage servicing rights and excess servicing fees. This resulted in the reduction of amortization expense in 1994. 6 Mark Twain Bancshares, Inc. 9 Loan and collection expense for the year remained level following decreases of $351 thousand and $1.6 million during 1995 and 1994, respectively. The reduction in 1995 and 1994 expense was a result of the decision to exit mortgage as a line of business. The decrease in 1994 was also attributable to the loan servicing and loan origination volumes in the Company's Mortgage Division. These expenses included such items as appraisal fees paid by the Company for mortgage loan applications and curtailment payments associated with prepayments of mortgage-backed securities serviced by the Company. Data processing expenses increased $315 thousand in 1996 compared to 1995. Data processing expenses decreased $303 thousand in 1995. In late 1995, a $355 thousand reduction of data processing expense was recorded related to a settlement of a contract dispute with a systems vendor which essentially reimbursed the Company for the difference between the contract rates and actual expenses paid by the Company due to nonperformance under the contract. Excluding the effect of the settlement, 1996 expense decreased $40 thousand compared to 1995 expense which had increased $52 thousand related to accrued conversion costs. The increases in data processing expense of $685 thousand in 1994 was primarily due to conversion costs and increased transactions volume resulting from acquisitions. Legal fees continued to decline, showing decreases of $360 thousand in 1996, $284 thousand in 1995 and $866 thousand in 1994. Costs for 1994 included legal fees incurred with respect to the U.S. Treasury Department settlement noted below. In addition, the resolution of three specific lawsuits in 1993 accounted for the reduction of legal expense in 1994 compared to 1993. The Company believes that pending litigation will not result in any material losses. Insurance expense decreased $338 thousand during 1996 compared to decreases of $282 thousand in 1995 and $206 thousand in 1994. A change in insurance carriers and renegotiated insurance contract terms in 1995 resulted in reduced premiums. Increases in the cash surrender value of life insurance policies offsetting the premium expense also contributed to the reduction in expense in 1996, 1995 and 1994. The Company purchased these life insurance policies (Company as beneficiary) to partially finance benefits under the Company's non-qualified non-contributory pension plan. Consulting services decreased $492 thousand for 1996, following an increase of $139 thousand in 1995. The decrease for 1996 was primarily due to consulting engagements performed in 1995 targeted at increasing bank service charge and other fee-based income. Similar engagements were not performed in 1996. Expenses on foreclosed property decreased $209 thousand, $190 thousand and $370 thousand in 1996, 1995 and 1994, respectively, and was related to the reduction in the levels of foreclosed property over the past few years. Foreclosed property was $3.4 million at year-end 1996 compared to $6.1 million at year-end 1995 and $10.5 million at year-end 1994. Operating losses decreased $81 thousand in 1996 and $434 thousand in 1995, and increased $788 thousand in 1994. For 1996 and 1995, there were no individually significant items. Operating losses for 1994 included a $750 thousand settlement agreement reached with the U.S. Treasury Department regarding compliance by a subsidiary with record keeping and reporting requirements under the Currency and Foreign Transactions Reporting Act. Balance Sheet Analysis - -------------------------------------------------------------------------------- Securities Portfolio The Company's securities portfolio consists of securities classified as held-to-maturity, available-for-sale and trading account securities. The Company designates these securities upon purchase into one of these three categories. As of December 31, 1996, held-to-maturity securities amounted to $218.5 million and represent the securities the Company intends to hold to maturity. Securities designated as available-for-sale totaled $458.2 million. This account represents securities which the Company may sell to meet liquidity needs or in response to significant changes in interest rates or prepayment risks. Trading account securities totaled $30.8 million at December 31, 1996. This account represents securities involved in the normal operations of the Company's brokerage and bond businesses and approximately $1.6 million in the Company's proprietary trading account. For the purposes of the following discussion, the held-to-maturity and available-for-sale portfolios will be described in the aggregate as the securities portfolio. At December 31, 1996 the securities portfolio totaled $676.6 million, a decrease of $13.3 million, or 1.9% from year-end 1995. Excluding the $38.8 million security portfolios of banks acquired during the year, the securities portfolio decreased $52.1 million or 7.7% from year-end 1995 levels. On average the securities portfolio increased $94.9 million or 16.0% compared to a decrease in 1995 of 0.6%. Securities represented, on average, 24.7%, 23.0% and 24.2% of earning assets in 1996, 1995 and 1994, respectively. The increase in average 1996 levels compared to average 1995 levels was due to the Company's decision to reduce its exposure to falling interest rates by purchasing additional fixed rate securities beginning in the fourth quarter of 1995 and first quarter of 1996. This follows the average decrease in 1995 due in part to the Company's decision early in the year to fund loan growth with maturing securities. The Company continues to have a large percentage of its securities portfolio in mortgage-backed securities. Mortgage-backed securities, including Collateralized Mortgage Obligations (CMOs), totaled $472 million or 69.8% of the securities portfolio at December 31, 1996. These securities are either obligations of Government Standard Equivalent Agencies or otherwise carry triple A ratings. Mortgage-backed securities offer the Company enhanced yields for accepting prepayment risk associated with the underlying mortgages. Annual Report 1996 7 10 Management's Discussion & Analysis (continued) Table 6: Maturity Distribution at December 31, 1996
After One But After Five But Within One Year Within Five Years Within Ten Years After Ten Years --------------- ----------------- ---------------- --------------- (in thousands of dollars) Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------------------- United States Treasuries and agencies $ 58,933 6.40% $122,526 6.12% $ 5,052 5.49% $ -- -- Obligations of states and political subdivisions 279 7.68% 3,013 8.05% 1,644 8.17% 1,093 9.13% Mortgage-backed securities 55,246 6.80% 276,397 6.23% 85,398 6.39% 52,343 6.13% Other securities 8,607 6.19% 1,078 7.27% 1,094 7.16% 3,940 7.13% - --------------------------------------------------------------- -------- ------- ------- Total $123,065 $403,014 $93,188 $57,376 - -------------------------------------------------------======== ======== ======= ======= The carrying value of the securities portfolio at December 31, 1996, by expected maturity, are shown above. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yields on tax-exempt obligations have been computed on a fully tax equivalent basis using a tax rate of 35%, and mortgage-backed securities have been presented based on the expected final maturity dates, rather than contractual maturity dates.
The Company manages the prepayment risk by having 65.1% of the mortgage-backed securities in CMOs, such as Planned Amortization Class tranches, which can limit the prepayment risk of the portfolio. The Company utilizes analytical systems to monitor the prepayment risk of the portfolio and estimate principal prepayments. Table 7 summarizes the composition of the Company's securities portfolio. The maturity distribution for the securities portfolio, together with the weighted average yields for each maturity range is provided in Table 6. Table 7: Held-to-Maturity and Available-for-Sale Securities
December 31, ---------------------------------------------------- (in millions of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ United States Treasuries and agencies $187 $164 $125 Obligations of states and political subdivisions 6 5 12 Mortgage-backed securities 469 513 437 Other securities 15 8 8 - ------------------------------------------------------------ ---- ---- Total $677 $690 $582 - --------------------------------------------------------==== ==== ====
Loan Portfolio The loan portfolio totaled $2,177.9 million at December 31, 1996, an increase of $206.0 million or 10.4% from December 31, 1995. This follows an increase of 6.0% in 1995 and 8.4% in 1994. The loan portfolios of banks acquired during 1996 totaled $93.3 million as of the respective acquisition dates. Average total loan outstandings for 1996 were $2,031.2 million, a 6.0% increase over 1995 average outstandings. Loan outstandings have grown at a five-year compound annual growth rate of 4.8% based on average outstandings and 6.7% based on year-end outstandings. Refer to Table 8 for an expanded categorization of the loan portfolio to provide a greater understanding of the Company's loan portfolio. Commercial and industrial loans increased $88.3 million or 10.2% for the year and represented 44% of the total loan portfolio. Of the increase for 1996, approximately $41.3 million represented the commercial and industrial loan portfolios of the banks acquired during the year. Excluding these loans, the commercial and industrial loan portfolio increased 5.4% for the year, following a 3.1% increase in 1995. The growth rate over the last two years reflects the effects of increased competition for middle-market commercial loans. Both components of the commercial and industrial loan classification involve a diverse mix of middle-market borrowers and owner/operators in the manufacturing, wholesaling, retail, and service industries, with no concentration in any one segment. Real estate is often a material component of collateral on the commercial and industrial loans even though operating cash flows are unrelated to the real estate. This real estate provides the Company with additional collateral protection. Essentially all of the loans were generated within the Company's primary market areas. The Company has no highly leveraged transactions or foreign credits, and has an insignificant amount of participations purchased. Real estate construction loans have increased $73.0 million or 26.7% from the previous year. This follows an increase of $42.2 million in 1995. Banks acquired in 1996 accounted for $11.8 million of the current year increase. This growth can be attributed to the continued economic growth in the Company's primary markets. Commercial construction loans increased $51.0 million while residential construction and development loans increased $22.0 million. Commercial construction loans now comprises 40.3% of the total real estate construction loan category as compared to 32.4% in 1995 and 25.0% in 1994. The growth is reflected by a diversified number of construction projects, with no concentration in any large individual commercial construction and development projects. Residential construction loans still remain an important part of the construction portfolio. Both commercial and residential construction loans cover a diverse number of builders and developers within the Company's primary market areas. The majority of residential construction loans are origi-nated after the builder has received a signed purchase contract. The majority of commercial construction loans are originated once minimum pre-leasing levels are achieved. The majority of commercial development loans are originated based on the equity position of the developer in the project. The Company monitors construction disbursements and controls the number of display and inventory homes by builder and location. Real estate mortgage loans represent 33% of the total loan portfolio and are split 72% commercial and 28% residential. The commercial mortgage loan category has increased $18.5 million or 3.6% from year-end 1995. The residential mortgage loan category has increased $23.0 million or 13.0% during the same period. The growth in real estate mortgage loans is also a byproduct of the continued economic expansion in the Company's primary markets. The increase in commercial mortgage loans, similar to the increase in construction 8 Mark Twain Bancshares, Inc. 11 Table 8: Summary of Loan Portfolio
December 31, ---------------------------------------------------------- (in thousands of dollars) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Commercial and industrial: Commercial and industrial $ 796,637 $ 745,193 $ 724,491 $ 694,590 $ 520,810 Commercial and industrial secured by real estate 159,518 122,706 117,007 81,773 115,316 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total commercial and industrial 956,155 867,899 841,498 776,363 636,126 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Real estate construction: Residential construction and development 206,676 184,621 173,325 164,435 144,938 Commercial office 30,588 21,841 8,155 14,746 5,194 Commercial warehouse 22,233 10,989 9,359 6,060 6,960 Commercial retail centers 32,623 28,812 20,944 7,417 13,603 Commercial land and development 54,101 26,934 19,167 7,951 6,203 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total real estate construction 346,221 273,197 230,950 200,609 176,898 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Real estate mortgage: Residential 200,273 177,285 172,613 134,665 153,721 Commercial office 134,728 126,473 114,012 113,343 107,346 Commercial warehouse 93,869 96,712 92,113 79,134 71,762 Commercial retail centers 60,290 60,747 58,559 62,093 56,941 Other commercial 235,898 222,376 200,795 189,447 163,642 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total real estate mortgage 725,058 683,593 638,092 578,682 553,412 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Consumer 150,481 147,250 149,615 160,740 174,647 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total loans 2,177,915 1,971,939 1,860,155 1,716,394 1,541,083 Less allowance for loan losses 33,745 30,508 28,894 27,012 25,356 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Net loans $2,144,170 $1,941,431 $1,831,261 $1,689,382 $1,515,727 - --------------------------------------------------------------------========== ========== ========== ========== ==========
Table 9: Maturity Distribution
Over One Year Through Five Years Over Five Years ------------------- ----------------- One Year Fixed Floating Fixed Floating (in thousands of dollars) Or Less Rate Rate Rate Rate Total - ----------------------------------------------------------------------------------------------------------------------------- Commercial and industrial $502,643 $169,459 $244,211 $24,030 $15,812 $956,155 Real estate construction 209,224 82,170 49,472 4,767 588 346,221 Real estate mortgage 218,061 266,261 114,110 95,715 30,911 725,058
loans, is represented by a broad base of properties which meet the Company's underwriting standards for equity, sponsorship, and cash flows. The increase in residential mortgage loans was primarily the result of the acquisitions completed during 1996. Consumer loans increased $3.2 million at year-end 1996 compared to year-end 1995 levels. Excluding the effects of the consumer loan portfolios of the banks acquired in 1996, the consumer loan portfolio decreased $7.0 million during 1996. This compares to a decrease of $2.4 million experienced in 1995. Declines in the traditional installment loan category were primarily responsible for the change. Prime Equity Accounts, which represent lines of credit secured by the borrower's primary residence, decreased modestly and represent approximately 75% of the consumer loan portfolio. The amount of certain loans outstanding as of December 31, 1996, is shown in Table 9 based on time remaining to maturity. Demand loans are reported in the one-year-or-less category. All other loans are reported at contractual maturities. See "Liquidity" and "Interest Rate Sensitivity" for further discussion. Allowance for Loan Losses In 1996, the allowance for loan losses increased $3.2 million, $2.4 million from banks acquired and represented 1.55% of loans at year-end. The provision for loan losses was $2.0 million for 1996, a reduction of $3.0 million from the prior year. Net charge-offs for the year were $1.2 million, a decrease of $2.2 million from 1995. The ratio of net charge-offs to average loans was 0.06% for 1996 which compares favorably with 0.18% for 1995 and 0.21% for 1994. The level and allocation of the allowance for loan losses is based upon qualitative and quantitative factors. Qualitative factors include assessments of current economic conditions, particularly as those conditions affect segments of the Company's primary markets. Quantitative factors include the level and composition of non-performing assets, recent and expected net charge-offs, and a detailed review by the Company's loan review staff. The results of the quarterly internal loan reviews are the primary basis upon which the adequacy of the reserve is determined. Annual Report 1996 9 12 Management's Discussion & Analysis (continued) Table 10: Summary of Loan Loss Experience
(in thousands of dollars) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Loans at year-end $2,177,915 $1,971,939 $1,860,155 $1,716,394 $1,541,083 - --------------------------------------------------------------------========== ========== ========== ========== ========== Average loan outstandings $2,031,127 $1,916,374 $1,748,639 $1,626,068 $1,563,903 - --------------------------------------------------------------------========== ========== ========== ========== ========== Allowance at beginning of year $ 30,508 $ 28,894 $ 27,012 $ 25,356 $ 24,096 Allowance of acquired banks 2,424 -- -- 1,091 -- Loans charged off: Commercial and industrial 1,628 1,959 3,601 3,834 4,516 Commercial and industrial secured by real estate -- 51 123 192 2,641 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total commercial and industrial 1,628 2,010 3,724 4,026 7,157 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Commercial real estate construction -- -- -- 278 253 Residential real estate construction 16 217 117 78 213 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total real estate construction 16 217 117 356 466 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Commercial real estate mortgage 216 1,027 238 2,067 136 Residential real estate mortgage 209 528 353 257 217 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total real estate mortgage 425 1,555 591 2,324 353 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Consumer 351 560 336 671 695 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total loans charged off 2,420 4,342 4,768 7,377 8,671 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Recoveries: Commercial and industrial 889 281 743 369 722 Commercial and industrial secured by real estate 3 -- 8 467 142 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total commercial and industrial 892 281 751 836 864 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Commercial real estate construction -- -- 3 114 30 Residential real estate construction 67 16 47 55 74 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total real estate construction 67 16 50 169 104 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Commercial real estate mortgage 90 261 71 305 39 Residential real estate mortgage 98 306 172 13 52 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total real estate mortgage 188 567 243 318 91 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Consumer 84 89 80 337 185 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Total recoveries 1,231 953 1,124 1,660 1,244 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Net loans charged off 1,189 3,389 3,644 5,717 7,427 Additions to allowance charged to expense 2,002 5,003 5,526 6,282 8,687 - ------------------------------------------------------------------------------ ---------- ---------- ---------- ---------- Allowance at end of year $ 33,745 $ 30,508 $ 28,894 $ 27,012 $ 25,356 - --------------------------------------------------------------------========== ========== ========== ========== ========== Net charge-offs to average loans 0.06% 0.18% 0.21% 0.35% 0.47% Allowance to year-end loans 1.55% 1.55% 1.55% 1.57% 1.65% Earnings coverage of net charge-offs 70.41x 21.69x 17.48x 9.41x 5.71x
Table 11: Allocation of the Allowance for Loan Losses at December 31
1996 1995 1994 1993 1992 -------------- -------------- -------------- -------------- -------------- (in thousands of dollars) Allowance % Allowance % Allowance % Allowance % Allowance % - ----------------------------------------------------------------------------------------------------------------------- Commercial and industrial $11,045 44% $10,934 44% $10,355 45% $ 9,681 45% $ 8,723 42% Real estate construction 6,003 16% 3,156 14% 2,989 13% 2,795 12% 2,708 11% Real estate mortgage 12,679 33% 12,897 35% 12,215 34% 11,419 34% 11,041 36% - ------------------------------------------ --- ------- --- ------- --- ------- --- ------- --- Total real estate loans 18,682 49% 16,053 49% 15,204 47% 14,214 46% 13,749 47% - ------------------------------------------ --- ------- --- ------- --- ------- --- ------- --- Consumer loans 938 7% 918 7% 870 8% 814 9% 906 11% Not allocated 3,080 -- 2,603 -- 2,465 -- 2,303 -- 1,978 -- - ------------------------------------------ --- ------- --- ------- --- ------- --- ------- --- Total $33,745 100% $30,508 100% $28,894 100% $27,012 100% $25,356 100% - -----------------------------------======= === ======= === ======= === ======= === ======= ===
10 Mark Twain Bancshares, Inc. 13 Table 12: Risk Elements
December 31, ------------------------------------------------------- (in thousands of dollars) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Non-accrual loans $ 7,086 $13,663 $ 6,813 $ 9,079 $15,161 Restructured loans 2,244 109 484 484 -- Foreclosed property 3,424 6,099 10,523 11,230 12,167 - ------------------------------------------------------------------------------ ------- ------- ------- ------- Total non-performing assets $12,754 $19,871 $17,820 $20,793 $27,328 - -----------------------------------------------------------------------======= ======= ======= ======= ======= Percentage of non-performing assets to loans plus foreclosed property 0.58% 1.00% 0.95% 1.20% 1.76% Loans contractually past due 90 days or more $ 321 $ 530 $ 1,132 $ 251 $ 791 Percentage of non-performing assets plus 90 days past due to loans plus foreclosed property 0.60% 1.03% 1.01% 1.22% 1.81% Percentage of allowance for loan losses to non-performing loans 349.65% 213.31% 342.79% 275.24% 158.95% Percentage of allowance for loan losses to total non-performing assets 264.58% 153.53% 162.14% 129.91% 92.78% Percentage of allowance for loan losses to risk elements 258.09% 149.54% 152.46% 128.36% 90.17% Percentage of risk elements to total average assets 0.44% 0.74% 0.72% 0.85% 1.20% Risk elements include total non-performing assets plus loans contractually past due 90 days or more.
Table 11 summarizes the allocation of the allowance for loan losses by major category and identifies the percentage of each loan category to the total loan portfolio balance. This reserve allocation follows very closely the loan portfolio risk classifications assigned by individual loan officers which are reviewed by internal loan review. In addition, prior loss experience, anticipated volume levels, and management's evaluation of the effect of general economic conditions are factored into the allocation. As each of these criteria are subject to change, the allocation of the allowance for loan losses is not necessarily indicative of the trend of future losses in a particular loan category. Risk Elements Non-performing assets totaled $12.8 million at December 31, 1996, a decrease of $7.1 million over December 31, 1995. Excluding the effects of banks acquired during 1996, non-performing assets decreased $8.9 million during 1996. The decrease in non-accrual loans is primarily through payments received related to the $5.5 million relationship put on non-accrual status during the fourth quarter of 1995. The increase in restructured loans from year-end 1995 reflects the restructuring of one relationship during 1996 which was identified by management as a potential problem credit as of December 31, 1995. The decrease in foreclosed property is due to sales of numerous parcels of property during 1996. As a percentage of loans plus foreclosed property, non-performing assets were 0.58% at December 31, 1996 compared to 1.00% at year-end 1995 and 0.95% at year-end 1994. Non-performing assets plus loans past due 90 days or more totaled $13.1 million and represent 0.60% of loans plus foreclosed property at December 31, 1996, a 43 basis point reduction over year-end 1995 levels, and represented the lowest level experienced in the previous five years. The allowance for loan losses covers 349.65% of non-performing loans at December 31, 1996 up from 213.31% at December 31, 1995. Table 13 illustrates the changes in the Company's non-performing assets while Table 12 summarizes the composition of the Company's risk elements. Loans not included in the past due, non-accrual or restructured categories, but where known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms over the next six months totaled approximately $21.9 million at December 31, 1996. Principal and interest payments on these loans were current at December 31, 1996. The Company is continually analyzing its loan portfolio in order to identify early risk elements that require management attention. The loan portfolio is subject to review by lending management, the Company's internal loan review staff and various regulatory agencies. The Company believes that its consistently low levels of risk elements are a reflection of both the Company's strict underwriting discipline and its practice of early problem recognition and resolution. Table 13: Changes in Non-performing Assets
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ Balance at beginning of year $19,871 $17,820 $20,793 Balance from acquired banks 1,742 -- -- Additions 9,775 23,457 15,919 Payments received and loans returned to accrual status (12,912) (9,941) (11,904) Disposals of foreclosed property (3,972) (7,218) (2,977) Charge-offs and writedowns (1,750) (4,247) (4,011) - ------------------------------------------------------------ ------- ------- Balance at end of year $12,754 $19,871 $17,820 - -----------------------------------------------------======= ======= =======
Deposits Average deposits, as shown in Table 14, increased 4.3% in 1996. Average time deposits less than $100 thousand increased $85.9 million or 11.1% for 1996. This follows an increase of 15.6% in this category in 1995. Average time deposits $100 thousand or greater decreased $10.9 million or 5.3% in 1996 after an increase of $51.7 million or 33.6% in 1995. All other deposit accounts, on average, showed modest growth during 1996. As noted earlier, the composition of average interest bearing liabilities continued to shift to time deposits from interest bearing checking and savings and money market accounts. This shift represents the Company's efforts to gather marginal funds at the lowest cost, given the interest rate environment and customer preferences. Annual Report 1996 11 14 Management's Discussion & Analysis (continued) Table 14: Deposit Composition
December 31, ---------------------------------------------------------- (in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Non-interest bearing demand deposits $ 410,237 $ 401,096 $ 398,310 Interest bearing demand deposits 225,781 225,609 251,849 Savings and money market deposits 692,856 678,466 727,797 Time deposits (less than $100 thousand) 857,938 771,989 667,605 Time deposits ($100 thousand or greater) 194,721 205,611 153,940 - ------------------------------------------------------------------------------ ---------- ---------- Total average deposits $2,381,533 $2,282,771 $2,199,501 - --------------------------------------------------------------------========== ========== ========== Non-interest bearing demand deposits $ 498,431 $ 519,155 $ 461,958 Interest bearing demand deposits 232,091 234,686 240,290 Savings and money market deposits 726,573 664,155 700,258 Time deposits (less than $100 thousand) 927,383 840,948 718,955 Time deposits ($100 thousand or greater) 210,434 198,448 150,596 - ------------------------------------------------------------------------------ ---------- ---------- Total deposits $2,594,912 $2,457,392 $2,272,057 - --------------------------------------------------------------------========== ========== ==========
Table 15 sets forth, by time remaining to maturity, time deposits in amounts of $100 thousand or greater as of December 31, 1996. Table 15: Time Deposits $100 Thousand or Greater
(in thousands of dollars) - ------------------------------------------------------------ Less than three months $ 91,810 Three to six months 61,895 More than six months to twelve months 37,200 More than twelve months 19,529 - ------------------------------------------------------------ Total $210,434 - ----------------------------------------------------========
Short-term Borrowings Table 16 summarizes the composition of the Company's short-term borrowings, while Table 17 provides selected data related to federal funds purchased and securities sold under repurchase agreements. As discussed earlier, the increase in short-term borrowings during 1996 represents the financing of investment securities purchased during the year and the reduction of long-term debt. See "Interest Rate Sensitivity" and "Liquidity" for further discussion of the use of short-term borrowings by the Company. Table 16: Summary of Short Term Borrowings
December 31, -------------------------------------------------------- (in thousands of dollars) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- Federal funds purchased $ 30,000 $ 55,000 $ -- Securities sold under agreements to repurchase 155,751 108,964 93,174 Treasury tax and loan, note option accounts 7,490 1,767 2,317 Commercial paper -- -- 9,455 Other short term borrowings 350 -- 43,172 - -------------------------------------------------------- -------- -------- Total $193,591 $165,731 $148,118 - ------------------------------------------------======== ======== ========
Table 17: Selected Data for Federal Funds Purchased and Securities Sold Under Repurchase Agreements
December 31, -------------------------------------------------------- (in thousands of dollars) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- Amount outstanding at year-end $185,751 $163,964 $ 93,174 Weighted average interest rate at year-end 4.70% 5.13% 4.84% Average balances outstanding for the year $238,769 $137,771 $ 2,317 Average interest rate for the year 4.92% 5.31% 3.63% Maximum amount outstanding at any month-end during the year $326,903 $191,271 $235,867
Table 18: Maturities of Off-Balance Sheet Investment Products
Total Notional Unrealized (in thousands of dollars) 1997 1998 1999 2000 2001+ Value Gain (Loss) - --------------------------------------------------------------------------------------------------------------------------------- Receive fixed generic interest rate swaps (Prime Rate) Notional value $ -- $50,000 $ -- $85,000 $ -- $135,000 $(1,359) Weighted average receive rate -- 8.82% -- 8.17% -- 8.41% Purchased interest rate floors (Prime Rate): Notional value $75,000 $40,000 $ -- $ -- $ -- $115,000 $ 128 Weighted average receive rate 9.00% 8.50% -- -- -- 8.83% The maximum rate received on the $75 million floor is 1.00%
12 Mark Twain Bancshares, Inc. 15
Table 19: Rate Sensitivity at December 31, 1996 0-1 2-12 13-24 25-36 Over 36 (in thousands of dollars) Months Months Months Months Months Total - ------------------------------------------------------------------------------------------------------------------------------ Earning Assets Loans $1,268,722 $ 246,127 $ 150,279 $174,985 $337,802 $2,177,915 Federal funds sold and securities purchased under resale agreements 23,500 -- -- -- -- 23,500 Held-to-maturity securities 2,938 30,811 54,536 25,386 104,808 218,479 Available-for-sale securities 15,876 59,002 98,160 97,002 188,124 458,164 Trading account securities 30,772 -- -- -- -- 30,772 Interest bearing due from banks 4,387 -- -- -- -- 4,387 Interest rate swaps and interest rate floors (160,000) (15,000) 90,000 -- 85,000 -- - ----------------------------------------------------------------- --------- --------- -------- -------- ---------- Total earning assets $1,186,195 $ 320,940 $ 392,975 $297,373 $715,734 $2,913,217 - -------------------------------------------------------========== ========= ========= ======== ======== ========== Interest Bearing Liabilities Interest bearing demand deposits $ 121,420 $ -- $ 18,446 $ 18,446 $ 73,779 $ 232,091 Savings and money market deposits 680,092 -- 7,747 7,747 30,987 726,573 Time deposits 100,903 777,780 144,414 64,225 50,495 1,137,817 Short-term borrowings 193,591 -- -- -- -- 193,591 Long-term debt -- -- -- -- 2,036 2,036 - ----------------------------------------------------------------- --------- --------- -------- -------- ---------- Total interest bearing liabilities $1,096,006 $ 777,780 $ 170,607 $ 90,418 $157,297 $2,292,108 - -------------------------------------------------------========== ========= ========= ======== ======== ========== Monthly Gap $ 90,189 $(456,840) $ 222,368 $206,955 $558,437 - -------------------------------------------------------========== ========= ========= ======== ======== Cumulative Gap $ 90,189 $(366,651) $(144,283) $ 62,672 $621,109 - -------------------------------------------------------========== ========= ========= ======== ========
Interest Rate Derivatives During 1995 and 1996, the Company engaged in a limited number of interest rate derivative transactions to reduce the Company's sensitivity to falling interest rates. There were no such transactions prior to 1995. The Company has established policies and procedures to manage the risks associated with these financial instruments. Such transactions are directly approved by the Company's Asset/Liability Committee. Only those products which qualify under current accounting rules for hedge accounting treatment are allowed by policy. Management believes that interest rate derivatives are a critical tool in managing the Company's net interest income and net income through periods of sudden changes in interest rates. Table 18 summarizes the Company's interest rate derivative transactions as of December 31, 1996. The Company has transacted two types of interest rate derivatives - interest rate floors and interest rate swaps. Interest rate floors are transactions whereby the Company pays another party an upfront premium to receive the difference of a fixed rate less the reference rate, with no further obligation from the Company. Premiums paid and amounts due from the floors are accrued over the term of the floor. Interest rate swaps are transactions whereby the Company swaps its floating rate assets to a fixed rate. Amounts due from or to the Company are accrued during the term of swap. All of the Company's current interest rate derivatives reduce the sensitivity of the Company's earnings from decreases in the prime rate. Interest Rate Sensitivity The Company's Asset/Liability Committee monitors the interest rate sensitivity of the balance sheet on a monthly basis. The committee reviews asset and liability repricing in the context of current and possible interest rate scenarios and the economic climate, both nationally and in the Company's market areas. The Company manages net interest income on a continuous 12-month cycle through various interest rate scenarios and simulations. The objective of the committee is to minimize the earnings sensitivity to changes in interest rates while maintaining a net interest margin in keeping with company objectives. Table 19 represents a point in time analysis of the Company's interest rate sensitivity using known repricing of loans and deposits and estimated prepayments from mortgage-backed securities. The estimates on mortgage-backed security prepayments are based on management's experience of how these bonds will perform over their expected lives. These estimates are believed to be conservative. While this table indicates the expected timing in repricing, it does not address the extent to which changes in market prices impact rates earned and paid or the basis on which those rates may change. To allow for more dynamic changes in the balance sheet and repricing, the bank utilizes simulation modeling. Using simulations, management can more effectively determine the interest rate sensitivity of net interest income in a wide variety of interest rate environments. Using both the information from the simulations and from Table 19, the Company is asset sensitive in the most immediate time frames and liability sensitive thereafter. The structure Annual Report 1996 13 16 Management's Discussion & Analysis (continued) of the balance sheet is deliberately positioned for a rising rate environment in the near term by management preference. Declines in net interest rates could have a short-term adverse effect on the net interest income of the Company. Liquidity Long-term liquidity is a function of a large core deposit base and a strong capital position. The Company remains committed to growth of its stable core deposit base through pricing and product development as the primary source of long-term liquidity. The capital position of the Company is a result of earnings growth and earnings retention. The Company manages dividends to retain sufficient capital for long-term liquidity and growth. Short-term liquidity needs arise from the continuous fluctuations in the flow of funds on both sides of the balance sheet from growth and, to a lesser extent, seasonal and cyclical customer demands. The Asset/Liability Committee analyzes its liquidity position by projecting cash flows from the balance sheet on a monthly basis and by taking appropriate measures. The position of the balance sheet is then analyzed by comparing net cash flows to external sources of liquidity. The securities portfolio provides a stable long-term earnings base, provides sources of liquidity and represents one of the primary means of adjusting and managing interest rate risk. The designation of securities as available-for-sale and held-to-maturity does not impact the portfolio as a source of liquidity due to the ability to transact repurchase agreements using those securities. The Company maintains federal funds lines of approximately $200 million and repurchase agreement lines for the sale and repurchase of securities. Liquidity needs, as well as the economic and interest rate environment, are all assessed on a continuous basis when analyzing the Company's securities portfolio. If alterations in the securities portfolio are deemed necessary, decisions are not materially influenced by unrealized gains or losses that may exist at any point in time in the portfolio. Effects of Inflation Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and, therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment, and inventory. During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth. Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation. Management believes the most significant impact on financial results is the Company's ability to align its asset/liability management program to react to changes in interest rates. Capital Total shareholders' equity increased 12.9% in 1996 to total $311.6 million at December 31, 1996 compared to $275.9 million at year-end 1995. Excluding the change in net unrealized gains (losses) on available-for-sale securities, shareholders' equity increased 14.0% in 1996. The Company's average equity-to-asset ratio was 9.52% for 1996, the highest level in the history of the Company. At year-end 1996, the Company's equity-to-asset ratio was 9.95%, also the highest level in Company history. Dividends paid during 1996 increased 14.8% to $1.24 per share from $1.08 per share in 1995. This represents a dividend payout ratio of 38.39%. The Company expects to maintain a payout ratio between 35% and 45%. The Company also analyzes its capital and the capital position of its subsidiaries in terms of regulatory risk-based capital guidelines. Under the capital adequacy guidelines regulatory framework for prompt corrective action, the Company and its subsidiaries must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. Management believes, as of December 31, 1996, that the Company and its subsidiaries meet all capital adequacy requirements to which they are subject. Note 22 - Regulatory Matters, to the Consolidated Financial Statements summarizes the capital requirements and capital ratios for the Company and its significant subsidiaries. In April 1995, the Company's board of directors authorized the purchase of up to one million shares of the Company's common stock in a systematic pattern to meet the common stock issuance requirements of the Company's 1995 Stock Option Plan and other corporate purposes. During 1995, the Company purchased approximately 109,000 shares under this program for the benefit plan and other ongoing needs. During 1996, the Company purchased approximately 486,000 shares under the program. Approximately 307,000 of the shares purchased in 1996 were purchased for and reissued upon the conversion of the Company's 7% convertible subordinated capital notes. The remainder of the shares purchased in 1996 were for the benefit plan. Coincidental with entering into the Agreement and Plan of Reorganization between the Company and Mercantile Bancorporation Inc. on October 27, 1996, the Company terminated its stock repurchase program. 14 Mark Twain Bancshares, Inc. 17 Statement by Management The financial statements and related financial information presented here were prepared by management in accordance with generally accepted accounting principles and include amounts that are based on management's best estimates and judgements. The Company maintains an accounting system and related controls that are sufficient to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and recorded. The concept of reasonable assurance is based on the recognition that the cost of an accounting and control system must be related to the benefits derived. The accounting system and related controls are monitored by an extensive internal audit program and by the Company's independent auditors in accordance with generally accepted auditing standards. The Company's internal auditor and independent auditors meet regularly with the Audit Committee of the Board of Directors to ensure that respective responsibilities are being properly discharged and to discuss the results of examinations. Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders Mark Twain Bancshares, Inc. We have audited the accompanying consolidated balance sheet of Mark Twain Bancshares, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mark Twain Bancshares, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP St. Louis, Missouri January 15, 1997 Annual Report 1996 15 18 Consolidated Balance Sheet
December 31, --------------------------- (in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Assets Cash and due from banks $ 150,926 $ 156,207 Interest bearing deposits with banks 4,387 -- Federal funds sold and securities purchased under resale agreements 23,500 7,900 Held-to-maturity securities (market value of $217,414 and $245,355, respectively) 218,479 244,094 Available-for-sale securities 458,164 445,808 Trading account securities 30,772 63,579 Loans, net of allowance for loan losses of $33,745 and $30,508, respectively 2,144,170 1,941,431 Premises and equipment 24,977 20,764 Accrued income receivable 18,701 17,830 Other assets 59,189 70,618 - ------------------------------------------------------------------------------------------------------- ---------- Total assets $3,133,265 $2,968,231 - ---------------------------------------------------------------------------------------------========== ========== Liabilities Non-interest bearing deposits $ 498,431 $ 519,155 Interest bearing deposits 2,096,481 1,938,237 - ------------------------------------------------------------------------------------------------------- ---------- Total deposits 2,594,912 2,457,392 - ------------------------------------------------------------------------------------------------------- ---------- Short-term borrowings 193,591 165,731 Other liabilities 31,102 50,712 Long-term debt 2,036 18,490 - ------------------------------------------------------------------------------------------------------- ---------- Total liabilities 2,821,641 2,692,325 - ------------------------------------------------------------------------------------------------------- ---------- Shareholders' Equity Common stock, $1.25 par value, authorized 30,000,000 shares, issued 17,114,839 and 16,508,220 shares, respectively 21,394 20,635 Surplus 75,492 63,630 Undivided profits 229,149 194,888 Net unrealized gains (losses) on available-for-sale securities (1,774) 1,026 - ------------------------------------------------------------------------------------------------------- ---------- 324,261 280,179 Less common treasury stock at cost, 432,333 and 362,685 shares, respectively 12,637 4,273 - ------------------------------------------------------------------------------------------------------- ---------- Total shareholders' equity 311,624 275,906 - ------------------------------------------------------------------------------------------------------- ---------- Total liabilities and shareholders' equity $3,133,265 $2,968,231 - ---------------------------------------------------------------------------------------------========== ========== See accompanying notes to consolidated financial statements.
16 Mark Twain Bancshares, Inc. 19 Consolidated Statement of Income
Years Ended December 31, ----------------------------------------------- (in thousands of dollars, except per share data) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Interest Income Interest and fees on loans $ 182,201 $ 180,955 $ 146,845 Interest on held-to-maturity securities: Taxable 15,080 22,207 24,581 Non-taxable 132 173 674 Interest on available-for-sale securities 28,070 15,884 15,056 Interest on trading account securities 3,425 3,003 4,197 Interest on mortgage loans held for resale -- -- 2,453 Interest on deposits with banks 33 -- 3 Interest on federal funds sold and securities purchased under resale agreements 700 951 804 - ------------------------------------------------------------------------------------ ----------- ----------- Total interest income 229,641 223,173 194,613 - ------------------------------------------------------------------------------------ ----------- ----------- Interest Expense Interest on deposits 89,202 85,006 62,479 Interest on short-term borrowings 12,370 8,414 6,337 Interest on long-term debt 348 1,512 1,776 - ------------------------------------------------------------------------------------ ----------- ----------- Total interest expense 101,920 94,932 70,592 - ------------------------------------------------------------------------------------ ----------- ----------- Net interest income 127,721 128,241 124,021 Provision for loan losses 2,002 5,003 5,526 - ------------------------------------------------------------------------------------ ----------- ----------- Net interest income after provision for loan losses 125,719 123,238 118,495 - ------------------------------------------------------------------------------------ ----------- ----------- Other Income Service charges on deposit accounts 8,256 7,051 7,398 Securities transactions 234 296 309 Other income 31,317 29,439 27,793 - ------------------------------------------------------------------------------------ ----------- ----------- Total other income 39,807 36,786 35,500 - ------------------------------------------------------------------------------------ ----------- ----------- Other Expenses Salaries and employee benefits 49,706 47,531 47,651 Net occupancy and furniture and equipment expense 12,492 13,222 13,870 Other expenses 19,614 25,769 28,761 - ------------------------------------------------------------------------------------ ----------- ----------- Total other expenses 81,812 86,522 90,282 - ------------------------------------------------------------------------------------ ----------- ----------- Income before income taxes 83,714 73,502 63,713 Applicable income taxes 30,446 25,789 22,731 - ------------------------------------------------------------------------------------ ----------- ----------- Net income $ 53,268 $ 47,713 $ 40,982 - -------------------------------------------------------------------------=========== =========== =========== Primary Earnings per Share Weighted average shares 16,473,190 16,288,839 16,103,109 - -------------------------------------------------------------------------=========== =========== =========== Net income $ 3.23 $ 2.93 $ 2.54 - -------------------------------------------------------------------------=========== =========== =========== Fully Diluted Earnings per Share Weighted average shares 16,813,065 16,904,113 16,715,863 - -------------------------------------------------------------------------=========== =========== =========== Net income $ 3.18 $ 2.85 $ 2.48 - -------------------------------------------------------------------------=========== =========== =========== See accompanying notes to consolidated financial statements.
Annual Report 1996 17 20 Consolidated Statement of Changes in Shareholders' Equity
Net Unrealized Gains (Losses) Common Stock on Available- Total ----------------- Undivided for-Sale Treasury Shareholders' (in thousands) Shares Amount Surplus Profits Securities Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1993 16,267 $20,334 $57,855 $137,813 $ 1,013 $ 2,021 $214,994 Net income -- -- -- 40,982 -- -- 40,982 Cash dividends declared -- -- -- (14,282) -- -- (14,282) Common stock issued upon conversion of 7% convertible subordinated capital notes 109 135 1,588 -- -- -- 1,723 Reissuance of treasury stock pursuant to employee benefit and stock issuance plans (95 shares) -- -- 776 -- -- (465) 1,241 Change in net unrealized gain (loss) on available-for-sale securities, net of tax -- -- -- -- (10,636) -- (10,636) Other, net -- -- 27 -- -- -- 27 - ---------------------------------------------------------- ------- ------- -------- -------- ------- -------- Balance, December 31, 1994 16,376 20,469 60,246 164,513 (9,623) 1,556 234,049 Net income -- -- -- 47,713 -- -- 47,713 Cash dividends declared -- -- -- (17,338) -- -- (17,338) Common stock issued upon conversion of 7% convertible subordinated capital notes 117 147 1,719 -- -- -- 1,866 Purchase of treasury stock (109 shares) -- -- -- -- -- 3,303 (3,303) Reissuance of treasury stock pursuant to employee benefit and stock issuance plans (145 shares) -- -- 1,241 -- -- (586) 1,827 Change in net unrealized gain (loss) on available-for-sale securities, net of tax -- -- -- -- 10,649 -- 10,649 Other, net 15 19 424 -- -- -- 443 - ---------------------------------------------------------- ------- ------- -------- -------- ------- -------- Balance, December 31, 1995 16,508 20,635 63,630 194,888 1,026 4,273 275,906 Net income -- -- -- 53,268 -- -- 53,268 Cash dividends declared -- -- -- (20,099) -- -- (20,099) Changes in equity due to acquisitions 607 759 14,750 1,092 31 -- 16,632 Purchase of treasury stock (486 shares) -- -- -- -- -- 18,495 (18,495) Reissuance of treasury stock upon conversion of 7% convertible subordinated capital notes (307 shares) -- -- (1,905) -- -- (6,776) 4,871 Reissuance of treasury stock pursuant to employee benefit and stock issuance plans (110 shares) -- -- (1,013) -- -- (3,355) 2,342 Change in net unrealized gain (loss) on available-for-sale securities, net of tax -- -- -- -- (2,831) -- (2,831) Other, net -- -- 30 -- -- -- 30 - ---------------------------------------------------------- ------- ------- -------- -------- ------- -------- Balance, December 31, 1996 17,115 $21,394 $75,492 $229,149 $ (1,774) $12,637 $311,624 - ----------------------------------------------------====== ======= ======= ======== ======== ======= ======== See accompanying notes to consolidated financial statements.
18 Mark Twain Bancshares, Inc. 21 Consolidated Statement of Cash Flows
Years Ended December 31, --------------------------------------------- (in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Operating Activities Net income $ 53,268 $ 47,713 $ 40,982 Adjustments to reconcile to net cash provided by operating activities: Provision for loan losses 2,002 5,003 5,526 Provision for depreciation and amortization 3,968 4,883 5,758 Amortization of security premiums and accretion of discounts (793) (1,194) (2,104) Provision for deferred income taxes (335) (2,214) (3,248) Net decrease in mortgage loans held for resale -- -- 112,304 Net (increase) decrease in trading account securities 32,807 (30,670) 8,556 Securities transactions (234) (296) (309) (Increase) decrease in accrued income receivable 294 (258) (3,001) Increase (decrease) in interest payable (421) 1,771 1,862 Other (5,668) 9,574 (1,913) - ------------------------------------------------------------------------------------ -------- -------- Net cash provided by operating activities 84,888 34,312 164,413 - ------------------------------------------------------------------------------------ -------- -------- Investing Activities Net increase in loans (113,677) (112,292) (144,731) Net proceeds from sales of foreclosed property 4,762 4,864 2,977 Net (increase) decrease in premises and equipment (3,029) 3,133 (2,354) Purchase of assets to be leased (936) (2,979) (2,664) Proceeds from sale of available-for-sale securities 36,498 29,185 2,962 Proceeds from maturities and prepayments of securities available for sale 66,625 26,584 50,132 Purchase of available-for-sale securities (87,247) (99,593) (53,106) Proceeds from maturities and prepayments of held-to-maturity securities 46,605 54,995 165,711 Purchase of held-to-maturity securities (19,074) (99,805) (241,361) Net cash of acquired companies 25,138 -- -- - ------------------------------------------------------------------------------------ -------- -------- Net cash used by investing activities (44,335) (195,908) (222,434) - ------------------------------------------------------------------------------------ -------- -------- Financing Activities Net increase (decrease) in deposits (386) 185,335 80,144 Net increase in short-term borrowings 22,446 17,613 8,422 Payments on long-term debt (11,655) (32) (2,582) Cash dividends (20,099) (17,338) (14,282) Purchase of treasury stock (18,495) (3,303) -- Reissuance of treasury stock 2,342 1,827 1,241 Other -- -- 25 - ------------------------------------------------------------------------------------ -------- -------- Net cash provided (used) by financing activities (25,847) 184,102 72,968 - ------------------------------------------------------------------------------------ -------- -------- Increase in cash and cash equivalents 14,706 22,506 14,947 Cash and cash equivalents at beginning of year 164,107 141,601 126,654 - ------------------------------------------------------------------------------------ -------- -------- Cash and cash equivalents at end of year $178,813 $164,107 $141,601 - ----------------------------------------------------------------------------======== ======== ======== See Note 14 for supplemental disclosures. See accompanying notes to consolidated financial statements. Annual Report 1996 19 22 Notes to Consolidated Financial Statements Summary of Significant 1 Accounting Policies - ----------------------------------------------------------------------------- Mark Twain Bancshares, Inc. (the Company) is a multi-bank holding company which, through its subsidiaries, operates 42 banking locations in the St. Louis, Kansas City, and Springfield, Missouri metropolitan areas. The Company's subsidiaries provide commercial and retail financial services which include providing financing to small and middle-market businesses, bond and brokerage services, and trust services. The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed in the preparation of the financial statements: Basis of Presentation. For purposes of comparability, certain prior year amounts have been reclassified to conform with current year presentation. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all its subsidiaries. Intercompany accounts and transactions have been eliminated. Cash Equivalents. For purposes of the Consolidated Statement of Cash Flows, the Company considers cash and due from banks, interest-bearing deposits with banks, and federal funds sold and securities purchased under resale agreements as cash and cash equivalents. Securities. Securities that management has both the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are carried at cost, adjusted for amortization of premiums and accretion of discounts using the interest method. Securities which are purchased with the intent to hold for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy or that may be sold to meet liquidity needs, are classified as available-for-sale securities. Available-for-sale securities are carried at fair value, with unrealized gains and losses reflected as a separate component of shareholders' equity, net of tax, until realized. Securities which are purchased with the intent to hold for a short period of time are classified as trading account securities and are carried at fair value, with unrealized gains and losses reflected as adjustments to other income. Interest and dividends on securities, including the amortization of premiums and accretion of discounts, are reported in interest income using the interest method. Gains and losses on securities are determined on an identified certificate basis. Mortgage Loans Held for Resale. Prior to December 31, 1994, in its mortgage lending activities, the Company originated and purchased certain loans which were sold in the secondary mortgage market. Mortgage loans held for resale were hedged primarily with forward delivery contracts. Gains and losses from hedging transactions were deferred and included in the cost of the loans until the loans were sold. Mortgage loans held for resale were carried at the lower of aggregate cost or fair value. Interest and Fees on Loans. Interest on loans is accrued on the basis of the daily amount of principal outstanding. The accrual of interest on loans is discontinued when, in management's judgement, the interest will not be collected in the normal course of business. When a loan is placed on non-accrual status, the accrued interest for the current year is reversed against interest income, and accrued interest from prior years is charged against the allowance for loan losses. Interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has demonstrated payment performance for a reasonable period of time, and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. The Company defers and amortizes all non-refundable loan fees and direct costs of origination over the respective life of the loans as an adjustment to the yield of the related loan. Allowance for Loan Losses. The allowance for loan losses is increased by the provision for loan losses charged to operating expenses and reduced by net loans charged off. The level of the allowance and the current year provision are based on management's evaluation of potential losses in the loan portfolio, past loan loss experience, and other factors that warrant current recognition in providing an adequate allowance. Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are charged to expense using the straight-line method over the estimated useful lives of the assets. Foreclosed Property. Foreclosed property represents properties acquired through customer loan defaults and is classified as other assets. The property is stated at an amount equal to the lesser of the loan balance prior to foreclosure, plus certain costs incurred for improvements to the property, or fair value less estimated selling costs of the property. The carrying value of foreclosed property at December 31, 1996 and 1995 was $3,424,000 and $6,099,000, respectively. 20 Mark Twain Bancshares, Inc. 23 Intangible Assets. The unamortized amount of intangible assets is included in other assets. The excess of cost over the fair value of net assets acquired for all acquisitions accounted for as purchases is amortized on a straight-line basis over periods ranging from 15 to 40 years from the respective dates of acquisition. The identifiable intangible assets, representing the acquired deposit base premium on acquisitions accounted for as purchases, are being amortized on a straight-line basis over a period of 5 to 10 years from the respective dates of acquisition. At December 31, 1996 and 1995, the Company had no capitalized purchased mortgage servicing rights and excess servicing fees. Total amortization expense for purchased mortgage servicing rights and excess servicing fees was $0, $0, and $450,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Derivative Financial Instruments. The Company utilizes a limited number of derivative financial instruments as part of its interest rate risk management strategy and in conjunction with its customer service activities. Derivative financial instruments utilized include interest rate swaps, interest rate caps and floors, and foreign forward exchange contracts. Interest rate swaps are used principally as a tool to manage the interest sensitivity of the Company's balance sheet. These contracts represent an exchange of interest payment streams based on an agreed-upon notional principal amount with at least one stream based on a specified floating-rate index. The underlying principal balances of the assets or liabilities are not affected. Net settlements are reported as adjustments to interest income or interest expense, as appropriate. The swap agreements are carried on the accrual basis and are not adjusted to fair values in the consolidated financial statements. Interest rate caps and floors require the seller (for an initial fee) to pay the purchaser, at specified dates, the amount, if any, by which a market interest rate exceeds the agreed-upon cap or falls below the agreed-upon floor, applied to a notional principal amount. Realized gains and losses on positions used in the management of specific asset and liability positions are amortized (including periodic amortization of the premium paid) over the terms of the items hedged as adjustments to interest income or expense. The interest caps and floors are carried on the accrual basis and are not adjusted to fair values in the consolidated financial statements. The Company enters into forward exchange contracts to hedge foreign currency transactions on a continuing basis for periods consistent with its committed exposures. Committed exposures include foreign currency denominated deposit accounts and commercial letters of credit. Realized and unrealized gains and losses are deferred and recognized in other income in the same period as the hedged transactions. See Note 21 for a discussion of the risks associated with derivatives and the Company's policies to monitor such risks. Stock-based Compensation. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the time of grant or such higher price as may be required under the Internal Revenue Code at the time of grant in the case of a grant to a 10% shareholder. In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company follows Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock options. Accordingly, the Company does not recognize compensation expense for the stock option grants. If the Company had elected to recognize compensation cost based on the fair value of the options granted at the grant date as prescribed by SFAS No. 123, net income and earnings per share would not have been reduced by a material amount. Income Taxes. The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Share. Primary earnings per share is based on the average number of common shares and common share equivalents outstanding during each year, and elimination of interest and dividends paid on the common share equivalents. Fully diluted earnings per share gives effect to both the increase in the average shares outstanding which would have resulted from conversion of all of the outstanding convertible notes and the elimination of interest paid thereon and the exercise of dilutive stock options as of the beginning of each year. 2 Acquisitions and Pending Affiliation - ---------------------------------------------------------------------------- On October 27, 1996, the Company entered into an Agreement and Plan of Reorganization between the Company, Mercantile Bancorporation Inc. (Mercantile) and Ameribanc, Inc. (Merger Sub) under which Mercantile would acquire the Company through a merger of the Company with and into Merger Sub. Upon consummation of the merger, each issued and outstanding share of the Company's common stock would be converted into and become the right to receive .952 shares of Mercantile common stock. Shareholder and regulatory approvals of the merger are pending. If approved, plans call for the merger to be completed in the second quarter of 1997. It is anticipated that the merger will be accounted for as a pooling of interests. On December 27, 1996, the Company acquired First City Bancshares, Incorporated of Springfield, Missouri, owner of First City National Bank, Springfield, Missouri, for 243,656 shares of the Company's common stock. An additional 25,011 shares are contingently issuable and are held in escrow. Annual Report 1996 21 24 Notes to Consolidated Financial Statements (continued) These escrowed shares are not shown as outstanding as of December 31, 1996. The acquisition was accounted for under the purchase method of accounting. The excess of the purchase price over the fair value of net assets acquired was approximately $4,920,000. The results of operations were included in the consolidated financial statements from the acquisition date. On September 10, 1996, the Company acquired Northland Bancshares, Inc., owner of the First National Bank of Platte County in the Kansas City, Missouri, metropolitan area for 362,963 shares of the Company's common stock. The acquisition was accounted for under the pooling-of-interests method of accounting. The financial statements for prior periods were not restated as the transaction was not material to the consolidated financial statements. On August 12, 1994, the Company acquired C.B. Bancshares, Inc., owner of Century Bank in St. Louis, Missouri, for 705,110 shares of the Company's common stock. On November 15, 1994, the Company acquired United Kansas Bank Group, Inc., owner of United Kansas Bank in Merriam, Kansas, for 473,866 shares of the Company's common stock. The acquisitions were accounted for under the pooling-of-interests method of accounting and, accordingly, prior period financial statements were restated. 3 Held-to-Maturity Securities - ---------------------------------------------------------------------------- The amortized cost and fair value of held-to-maturity securities were as follows:
December 31, 1996 --------------------------------------------- Amortized Unrealized Unrealized Fair (in thousands of dollars) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------ Obligations of states and political subdivisions $ 4,180 $ 85 $ 15 $ 4,250 Mortgage-backed securities 213,828 985 2,122 212,691 Other securities 471 2 -- 473 - ------------------------------------------------------------------ ------ ------ -------- Total $218,479 $1,072 $2,137 $217,414 - ----------------------------------------------------------======== ====== ====== ========
December 31, 1995 --------------------------------------------- Amortized Unrealized Unrealized Fair (in thousands of dollars) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------ Obligations of states and political subdivisions $ 2,269 $ 14 $ 12 $ 2,271 Mortgage-backed securities 241,339 1,940 682 242,597 Other securities 486 1 -- 487 - ------------------------------------------------------------------ ------ ---- -------- Total $244,094 $1,955 $694 $245,355 - ----------------------------------------------------------======== ====== ==== ========
Held-to-maturity securities with a carrying value at December 31, 1996 and 1995, of $101,198,000 and $78,555,000, respectively, were pledged to secure public deposits and short-term borrowings and for other purposes required by law and remained under the Company's control. The following table summarizes the maturity distribution of the held-to-maturity portfolio at December 31, 1996:
Amortized Fair (in thousands of dollars) Cost Value - ------------------------------------------------------------------------------ Due in one year or less $ 179 $ 180 Due after one year through five years 1,575 1,581 Due after five years through ten years 1,638 1,673 Due after ten years 1,259 1,289 - ------------------------------------------------------------------ -------- 4,651 4,723 Mortgage-backed securities 213,828 212,691 - ------------------------------------------------------------------ -------- Total $218,479 $217,414 - ----------------------------------------------------------======== ========
There were no sales of held-to-maturity securities during 1996, 1995 and 1994. 4 Available-for-Sale Securities - ------------------------------------------------------------------------------- The amortized cost and fair value of available-for-sale securities were as follows:
December 31, 1996 --------------------------------------------- Amortized Unrealized Unrealized Fair (in thousands of dollars) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------ U.S. Treasuries and agencies $186,699 $ 910 $1,098 $186,511 Obligations of states and political subdivisions 1,790 59 -- 1,849 Mortgage-backed securities 257,627 570 2,641 255,556 Other securities 14,913 47 712 14,248 - ------------------------------------------------------------------ ------ ------ -------- Total $461,029 $1,586 $4,451 $458,164 - ----------------------------------------------------------======== ====== ====== ========
December 31, 1995 --------------------------------------------- Amortized Unrealized Unrealized Fair (in thousands of dollars) Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------ U.S. Treasuries and agencies $161,549 $2,305 $ 68 $163,786 Obligations of states and political subdivisions 2,112 73 10 2,175 Mortgage-backed securities 272,489 1,405 2,048 271,846 Other securities 8,001 -- -- 8,001 - ------------------------------------------------------------------ ------ ------ -------- Total $444,151 $3,783 $2,126 $445,808 - ----------------------------------------------------------======== ====== ====== ========
Available-for-sale securities with a carrying value at December 31, 1996 and 1995, of $233,061,000 and $189,680,000, respectively, were pledged to secure public deposits and short-term borrowings and for other purposes required by law and remained under the Company's control. 22 Mark Twain Bancshares, Inc. 25 The following table summarizes the maturity distribution of the available-for- sale portfolio at December 31, 1996:
Amortized Fair (in thousands of dollars) Cost Value - ------------------------------------------------------------------------------ Due in one year or less $ 67,917 $ 67,640 Due after one year through five years 125,153 125,042 Due after five years through ten years 6,290 6,152 Due after ten years 4,042 3,774 - ------------------------------------------------------------------ -------- 203,402 202,608 Mortgage-backed securities 257,627 255,556 - ------------------------------------------------------------------ -------- Total $461,029 $458,164 - ----------------------------------------------------------======== ========
The following table summarizes the proceeds, gross gains, and gross losses from sales of available-for-sale securities for the years ended December 31, 1996, 1995, and 1994:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------ Proceeds $36,498 $29,185 $2,962 Gross gains 264 302 3 Gross losses 30 6 2
5 Loans - ------------------------------------------------------------------------------- At December 31, 1996 and 1995, the carrying value of loans consisted of the following:
(in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------ Commercial and industrial $ 956,155 $ 867,899 Real estate construction 346,221 273,197 Real estate mortgage 725,058 683,593 Consumer 150,481 147,250 - ------------------------------------------------------------------ ---------- Loans 2,177,915 1,971,939 Less allowance for loan losses 33,745 30,508 - ------------------------------------------------------------------ ---------- Net loans $2,144,170 $1,941,431 - --------------------------------------------------------========== ==========
Loans are presented net of unearned discount and net deferred loan fees (expenses) of $19,000 and $(162,000) at December 31, 1996 and 1995, respectively. During 1996 and 1995, the subsidiary banks made loans to some of the directors and officers of the Company and its significant subsidiaries, as well as to certain related persons, interests or organizations of the directors and executive officers. All such loans were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable loans made to other persons. None involved more than normal risk of collectibility or presented other unfavorable features. At December 31, 1996 and 1995, these loans, exclusive of any loans to any such persons for which the aggregate did not exceed $60,000 during the latest year, amounted to approximately $67,915,000 and $67,726,000, respectively. For the year ended December 31, 1996, $13,743,000 in new loans were made, and $13,554,000 represented repayments. At December 31, 1996 and 1995, the Company had advanced $1,668,000 and $2,169,000, respectively, to 17 and 23 officers of the Company or its subsidiaries for the purpose of purchasing shares of stock of the Company. Transactions in the allowance for loan losses for the years ended December 31, 1996, 1995, and 1994, were as follows:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------------------ Balance at beginning of year $30,508 $28,894 $27,012 Allowance of acquired banks 2,424 -- -- Provision for loan losses 2,002 5,003 5,526 - ------------------------------------------------------------------ ------- ------- 34,934 33,897 32,538 - ------------------------------------------------------------------ ------- ------- Loans charged-off 2,420 4,342 4,768 Recoveries of loans charged-off 1,231 953 1,124 - ------------------------------------------------------------------ ------- ------- Net loans charged-off 1,189 3,389 3,644 - ------------------------------------------------------------------ ------- ------- Balance at end of year $33,745 $30,508 $28,894 - -----------------------------------------------------------======= ======= =======
At December 31, 1996, the recorded investment in loans that are considered to be impaired under SFAS No. 114, as amended by SFAS No. 118, was $9,330,000 (of which $7,086,000 were on non-accrual status). Included in this amount is $9,184,000 of impaired loans for which the related allowance for loan losses is $2,583,000 and $146,000 of impaired loans that as a result of write-downs do not have an allowance for loan losses. At December 31, 1995, the recorded investment in loans that were considered to be impaired was $13,663,000 (all of which are on non-accrual status). Included in this amount is $13,387,000 of impaired loans for which the related allowance for loan losses was $2,009,000 and $276,000 of impaired loans that as a result of write-downs did not have an allowance for loan losses. The average recorded investments in impaired loans for the years ended December 31, 1996 and 1995, were approximately $9,185,000 and $8,933,000, respectively. Interest income, recorded using the cash basis method, for those loans for the years ended December 31, 1996 and 1995, was insignificant. 6 Premises and Equipment - ------------------------------------------------------------------------------- At December 31, 1996 and 1995, premises and equipment by classification consisted of the following:
(in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------ Land $ 4,546 $ 3,334 Buildings 11,612 9,727 Leasehold improvements 19,631 17,510 Furniture, fixtures and equipment 23,188 20,226 - ------------------------------------------------------------------ ------- Total cost 58,977 50,797 Less accumulated depreciation and amortization 34,000 30,033 - ------------------------------------------------------------------ ------- Net carrying value $24,977 $20,764 - -----------------------------------------------------------======= =======
Depreciation and amortization charged to expense amounted to $3,040,000, $3,983,000 and $4,257,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Annual Report 1996 23 26 Notes to Consolidated Financial Statements (continued) 7 Deposits - ------------------------------------------------------------------------------- At December 31, 1996 and 1995, the carrying value of deposits consisted of the following:
(in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------ Non-interest bearing demand deposits $ 498,431 $ 519,155 Interest bearing demand deposits 232,091 234,686 Savings and money market deposits 726,573 664,155 Time deposits 1,137,817 1,039,396 - ----------------------------------------------------------------- ---------- Total deposits $2,594,912 $2,457,392 - -------------------------------------------------------========== ==========
Scheduled maturities of time deposits at December 31, 1996 are: 1997-$878,683,000; 1998-$144,414,000; 1999-$64,225,000; 2000-$47,944,000; and 2001 and thereafter $2,551,000. 8 Short-term Borrowings - ------------------------------------------------------------------------------ Short-term borrowings consisted of the following:
December 31, ---------------------------------- (in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Federal funds purchased $ 30,000 $ 55,000 $ -- Securities sold under agreements to repurchase 155,751 108,964 93,174 Treasury tax and loan, note option accounts 7,490 1,767 2,317 Commercial paper -- -- 9,455 Other short-term borrowings 350 -- 43,172 - ----------------------------------------------------- -------- -------- Total short-term borrowings $193,591 $165,731 $148,118 - ---------------------------------------------======== ======== ========
The Company has available lines of credit of $22,000,000 of which none had been utilized at December 31, 1996. Commitment fees range up to 14% for these lines of credit, and they may be withdrawn at any time without prior notice. The table below presents data concerning securities sold under repurchase agreements, which generally mature in less than 30 days:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Average balances outstanding for the year $152,737 $107,315 $122,276 Maximum amount outstanding at any month-end during the year 210,022 161,522 194,816
9 Long-term Debt - ------------------------------------------------------------------------------ At December 31, 1996 and 1995, long-term debt was as follows:
(in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------ Parent Company: 8 1/2% debentures due 1999 $ -- $11,579 7% convertible subordinated capital notes due 1999 2,036 6,911 - ------------------------------------------------------------------ ------- Total long-term debt $2,036 $18,490 - ------------------------------------------------------------====== =======
The 8 1/2% debentures due 1999 were issued on February 27, 1987. The debentures were called for redemption at a premium over par of 1%, effective March 1, 1996. The 7% convertible subordinated capital notes due in 1999, issued on June 23, 1987, are convertible into the Company's common stock at a conversion price of $15.889 per share. The notes are redeemable with certain limitations by the holders and by the Company beginning June 1, 1988, at a premium over par declining from 7% (0% as of December 31, 1996). At maturity, noteholders will receive common stock or cash to the extent that qualified funds are available. During 1996, 1995, and 1994, the noteholders converted notes into 306,723 shares, 117,467 shares, and 108,530 shares of common stock, respectively. At December 31, 1996, there were 128,138 shares of common stock reserved for issuance upon conversion of the notes. Scheduled maturity of the borrowed funds as of December 31, 1996, is 1999 - $2,036,000. 10 Income Taxes - ------------------------------------------------------------------------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996, 1995, and 1994 were as follows:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Deferred tax assets: Reserve for loan losses $12,932 $11,835 $10,672 Tax effect of SFAS No. 115 Allowance 1,092 -- 6,181 Pension obligation 2,415 2,193 2,013 Tax over book basis of premises and equipment 1,401 1,886 1,132 Tax over book basis of foreclosed real estate 347 646 573 Deferred gain on sale/leaseback 323 338 410 Deferred loan fees -- -- 484 - ------------------------------------------------------ ------- ------- Total deferred tax assets 18,510 16,898 21,465 - ------------------------------------------------------ ------- ------- Deferred tax liabilities: Lease financing transactions 1,641 2,212 1,644 Tax effect of SFAS No. 115 Allowance -- 631 -- Book over tax basis of partnership investments -- -- 418 Discount accretion 486 466 293 Others, net 604 432 553 - ------------------------------------------------------ ------- ------- Total deferred tax liabilities 2,731 3,741 2,908 - ------------------------------------------------------ ------- ------- Net deferred tax asset $15,779 $13,157 $18,557 - -----------------------------------------------======= ======= =======
24 Mark Twain Bancshares, Inc. 27 Applicable income taxes (benefits) for the years ended December 31, 1996, 1995, and 1994, including the tax effect of securities transactions of $82,000, $103,000, and $108,000, respectively, were as follows:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Current (Federal and State) $30,781 $28,003 $25,979 Deferred (335) (2,214) (3,248) - ------------------------------------------------------ ------- ------- Total applicable income taxes $30,446 $25,789 $22,731 - -----------------------------------------------======= ======= =======
The total tax differs from that computed by applying the U.S. Federal income tax rate of 35% to income before taxes. A reconciliation of these differences is as follows:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Computed expected Federal tax expense $29,300 $25,726 $22,299 Increase (decrease) in Federal taxes resulting from: State income taxes (net of Federal income tax benefit) 1,953 608 1,841 Tax-exempt interest (831) (825) (870) Low-income housing tax credit (827) (806) (1,095) Disallowed expenses 782 548 971 Other, net 69 538 (415) - ------------------------------------------------------ ------- ------- Total applicable income taxes $30,446 $25,789 $22,731 - -----------------------------------------------======= ======= =======
11 Restrictions on Subsidiary Dividends - ------------------------------------------------------------------------------ Subsidiary bank dividends are the principal source of funds for payment of dividends by the Company to its shareholders. The payment of dividends by the banks are subject to regulation by the Federal Deposit Insurance Corporation. The state-chartered banks are also subject to regulation by the states of Missouri, Kansas and Illinois. The nationally chartered bank is subject to regulation by the Comptroller of the Currency. These payments are not restricted as to the amount of dividends that can be paid, other than what prudent and sound banking principles permit and what must be retained to meet minimum legal capital requirements. Accordingly, approximately $108,390,000 could be paid at December 31, 1996, without prior regulatory approval. Extensions of credit by subsidiaries to the Company are permitted by regulatory authorities but are limited in amount and subject to collateral requirement. At December 31, 1996, approximately $21,811,000 would have been available under Federal Reserve guidelines. 12 Stock Option Plans - ------------------------------------------------------------------------------ Under the 1995, 1992, and 1983 Incentive Stock Option Plans, 900,000, 675,000, and 450,000 shares of common stock, respectively, were available for grant to officers and key employees. Options are granted at fair market value at the date of grant for a term of five to ten years. At December 31, 1996 and 1995, 553,385 shares and 829,585 shares, respectively, were available for grant under the Option Plans. Exercise prices for options outstanding as of December 31, 1996, ranged from $16.67 to $42.03. The weighted-average remaining contractual life of those options is 2.49 years. The fair value of the options granted was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1995: risk-free interest rate of 6.0%; dividend yield of 3.28%; volatility factors of the expected market price of the Company's common stock of 0.17; and a weighted-average expected life of the options of 4.5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The following table summarizes option activity and related information for 1996, 1995, and 1994:
1996 1995 1994 ------------------------ ------------------------ ------------------------ Weighted-Average Weighted-Average Weighted-Average Options Exercise Price Options Exercise Price Options Exercise Price - ---------------------------------------------------------------------------------------------------------------------------------- Outstanding-January 1 817,141 $23.83 700,364 $19.93 562,237 $16.26 Granted 276,200 38.61 244,500 27.81 220,700 25.54 Exercised (94,668) 18.26 (127,723) 10.63 (75,223) 9.31 Cancelled -- -- -- -- (7,350) 16.38 - ------------------------------------------------------- ------ ------- ------ ------- ------ Outstanding-December 31 998,673 $28.45 817,141 $23.83 700,364 $19.93 - ------------------------------------------------======= ====== ======= ====== ======= ====== Exercisable-December 31 375,121 $22.98 254,298 $20.71 184,534 $15.39 - ------------------------------------------------======= ====== ======= ====== ======= ====== Weighted-average fair value of options granted during the year $7.34 $5.14 - --------------------------------------------------===== =====
Annual Report 1996 25 28 Notes to Consolidated Financial Statements (continued) Restrictions on Cash 13 and Due From Banks - ------------------------------------------------------------------------------ At December 31, 1996, $34,426,000 in cash and due from bank balances were maintained in accordance with the guidelines as set forth by the Federal Reserve Bank to maintain certain average reserve balances. Supplemental Disclosures for the 14 Consolidated Statement of Cash Flows - ------------------------------------------------------------------------------ Supplemental disclosures of noncash investing and financing activities, and additional disclosures, including details of cash and cash equivalents from acquisitions accounted for as purchases or pooling-of-interests with no restatement, were as follows:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Fair value of assets purchased $161,685 $ -- $ -- Liabilities assumed 144,606 -- -- Issuance of common stock 16,632 -- -- - ------------------------------------------------------ -------- ------- Net cash paid for acquisitions (447) -- -- Cash and cash equivalents acquired 25,585 -- -- - ------------------------------------------------------ -------- ------- Cash and cash equivalents from acquisitions, net of cash paid $ 25,138 $ -- $ -- - ----------------------------------------------======== ======== ======= Conversion of 7% convertible subordinated capital notes into common stock $ 4,871 $ 1,866 $ 1,723 Held-to-maturity securities transferred to available-for-sale securities -- 184,801 -- Available-for-sale securities transferred to held-to-maturity securities -- 29,378 -- Transfer from loans to foreclosed property 896 1,940 2,386 Additional disclosures: Interest paid 102,349 93,161 68,732 Income taxes paid 31,224 27,370 26,232
In December 1995, the Financial Accounting Standards Board issued a special report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," which allowed all entities a one-time opportunity to reconsider the classification of securities. Accordingly, the Company reclassified certain securities during December 1995 between held-to-maturity securities and available-for-sale securities. 15 Net Trading Revenue - ------------------------------------------------------------------------------ The Company's trading activities involve secondary marketing in several financial markets. Trading revenue is earned on an as agent or principal basis in executing transactions for customers. The Company maintains a trading account in which it takes positions, primarily to provide a resource for institutional and retail activity to fill customers' investment needs. In addition, the Company maintains trading accounts in which it takes positions in the bond and equity markets based on expectations of future market conditions. Trading revenue results from combined portfolios of instruments that are managed on an aggregate basis. The following table summarizes the components of net trading revenue for the years ended December 31, 1996, 1995, and 1994.
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Mortgage-backed securities $ 3,342 $ 4,105 $3,437 U.S. Treasury and agency securities 2,041 2,264 2,361 Foreign securities 4,485 3,314 1,239 Corporate debt securities 449 479 439 Corporate equity securities 1,208 2,091 (408) State and political subdivision securities 820 936 890 Other 58 132 394 - ------------------------------------------------------ ------- ------ Total net trading revenue $12,403 $13,321 $8,352 - -----------------------------------------------======= ======= ======
For the years ended December 31, 1996, 1995, and 1994, the change in net unrealized holding gains (losses) on trading account securities included in net trading revenue was $(1,361,000), $2,267,000 and $(307,000), respectively. 16 Retirement Plans - ------------------------------------------------------------------------------ The Company maintains both qualified and non-qualified non-contributory pension plans that cover substantially all employees who meet certain age and service requirements. The Company does not provide any other post-retirement benefits. The qualified plan was established in 1989 and provides pension benefits based on the employee's length of service and compensation levels. The Company's funding policy is to contribute annually at least the minimum amount required by government funding standards but not more than is tax deductible. For 1996, 1995 and 1994, $1,600,000 was contributed to the plan each year. The non-qualified plan provides pension benefits to certain employees of the Company, which would have been provided under the qualified plan in the absence of limits placed on qualified plan benefits by the Internal Revenue Service. The Company's funding policy has been to fund benefits as they are paid. In 1993, the Company also purchased life insurance policies (Company as beneficiary) with a face value of $19,500,000 as a method to partially finance benefits under this plan. The cash surrender value of these policies was $1,936,000 and $1,176,000 at December 31, 1996 and 1995. Contributions under the non-qualified plan were not material for the three years in the period ended December 31, 1996. At December 31, 1996, 1995, and 1994, the qualified plan's assets were invested in the Arrow Equity Portfolio and Fixed Income Portfolio mutual funds managed by the Company's Trust Division, and in 27,250, 26,666 and 22,250 shares of common stock of the Company, respectively. 26 Mark Twain Bancshares, Inc. 29 The net periodic pension expense included in the consolidated statement of income is summarized as follows:
(in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost-benefits earned during the year $1,144 $ 956 $ 891 Interest cost on projected benefit obligation 1,597 1,409 1,178 Net amortization and deferral 636 2,039 (154) Actual return on assets (907) (2,092) 236 - ------------------------------------------------------ ------ ------ Total $2,470 $2,312 $2,151 - ------------------------------------------------====== ====== ======
The following table sets forth the plans' statuses and amounts recognized in the consolidated balance sheet:
December 31, ------------------- (in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------ Actuarial present value of: Vested benefit obligation $18,049 $15,792 - ------------------------------------------------------ ======= ======= Accumulated benefit obligation $18,307 $16,338 - ------------------------------------------------------ ======= ======= Projected benefit obligation $23,944 $21,778 Plan assets at fair value (12,410) (10,065) - ------------------------------------------------------ ------- ------- Projected benefit obligation in excess of plan assets 11,534 11,713 Unrecognized net transition obligation (2,715) (3,157) Unrecognized net gain (loss) (2,438) (2,756) - ------------------------------------------------------ ------- ------- Accrued pension liability $ 6,381 $ 5,800 - ------------------------------------------------------ ======= =======
Assumptions used in the actuarial present value determinations were as follows:
1996 1995 1994 - ------------------------------------------------------------------------------ Discount rate in determining benefit obligations 7.50% 7.50% 8.00% Rate of increase in compensation levels 4.50% 4.50% 4.50% Expected long-term rate on assets 8.50% 8.50% 8.50%
17 Other Income and Expenses - ------------------------------------------------------------------------------ A summary of the components of other income and other expenses exceeding one percent of revenues in any of the years presented is as follows:
Years Ended December 31, ------------------------------- (in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Bond Division revenue $12,889 $11,903 $8,897 Trust Division revenue 7,206 6,364 6,084 Brokerage revenue 4,799 4,215 5,174 Mortgage Division revenue -- -- 2,178 FDIC premiums 6 2,558 4,833 Data processing expense 4,776 4,461 4,764 Charitable contributions 1,062 3,057 713
18 Leases - ------------------------------------------------------------------------------ Commitments for leased banking and other premises and equipment expire or may be terminated at various dates through the year 2073. The future minimum annual rentals required under noncancelable leases, all of which are operating leases, having terms in excess of one year as of December 31, 1996, are as follows:
(in thousands of dollars) - ------------------------------------------------------ 1997 $ 5,852 1998 4,995 1999 4,720 2000 3,770 2001 2,841 Thereafter to 2073 14,747
Certain leases are renewable at the Company's option for varying extended terms at renewal rates relating to the then fair value of the item. The total rent expense for equipment, bank premises, and other property was $6,205,000, $6,258,000, and $6,473,000 for the years ended December 31, 1996, 1995, and 1994, respectively. 19 Legal Proceedings - ------------------------------------------------------------------------------ The Company and its subsidiaries are parties to a number of lawsuits, most of which are considered routine litigation incidental to doing business. The Company, after consultation with legal counsel, does not expect the outcome of any litigation to have a material effect on its consolidated financial position. 20 Fair Value of Financial Instruments - ------------------------------------------------------------------------------ The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and due from banks and federal funds sold and securities purchased under resale agreements approximate those assets' fair values. Held-to-maturity securities: Fair values for held-to-maturity securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Trading account and available-for-sale securities: Fair values for the Company's trading account and available-for-sale securities, which are also the amounts recognized in the consolidated balance sheet, are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Annual Report 1996 27 30 Notes to Consolidated Financial Statements (continued) Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans, prime home equity loans, and credit card loans were based on quoted market prices of similar loans sold in conjunction with securitization transactions. The fair values for other loans (e.g., commercial real estate, real estate construction, real estate, mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. Deposit liabilities: The fair values of demand deposits (e.g., interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term certificates of deposit and money market accounts approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. Long-term borrowings: The fair values of the Company's fixed-rate long-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Commitments to extend credit and letters of credit: Fair values for the Company's loan commitments and letters of credit are based upon fees currently charged to enter into similar agreements. Interest rate swaps, interest rate caps and floors, and foreign exchange contracts: The fair value of interest rate swaps, interest rate caps and floors, and foreign exchange contracts is estimated, using quoted market prices or dealer quotes, and represents the amount that the Company would receive or pay to execute a new agreement with terms identical to those remaining on the current agreements, considering current interest and exchange rates and the current creditworthiness of the counterparties. The estimated fair values of the Company's financial instruments as of December 31, 1996 and 1995, are summarized in the following table:
1996 1995 ----------------------------- ----------------------------- Carrying/ Estimated Carrying/ Estimated (in thousands of dollars) Contract Value Fair Value Contract Value Fair Value - ---------------------------------------------------------------------------------------------------------------------------------- Financial Assets Cash and due from banks $ 150,926 $ 150,926 $ 156,207 $ 156,207 Interest bearing deposits with banks 4,387 4,387 -- -- Federal funds sold and securities purchased under resale agreements 23,500 23,500 7,900 7,900 Trading account securities 30,772 30,772 63,579 63,579 Available-for-sale securities 458,164 458,164 445,808 445,808 Held-to-maturity securities 218,479 217,414 244,094 245,355 Loans, net of allowance 2,144,170 2,185,355 1,941,431 1,995,038 Financial Liabilities Deposits $2,594,912 $2,616,644 $2,457,392 $2,493,275 Short-term borrowings 193,591 193,591 165,731 165,731 Long-term debt 2,036 2,024 18,490 18,872 Foreign currency contracts 74,427 72,638 137,272 135,993 Unrecognized Financial Instruments Commitments to extend credit $ 411 $ 411 $ 314 $ 314 Commercial letters of credit 4 4 3 3 Standby letters of credit 333 333 291 291 Interest rate swaps 95 (1,264) 8 1,006 Interest rate caps and floors 127 255 258 928 The amounts shown under "carrying amount" represent accruals or deferred fees arising from those unrecognized financial instruments.
28 Mark Twain Bancshares, Inc. 31 21 Off-Balance Sheet Risk - ----------------------------------------------------------------------------- In the normal course of business, the Company utilizes a variety of off-balance sheet financial instruments to service the financial needs of its customers and as part of its interest rate risk management strategy. These instruments involve varying degrees of risk in excess of the amount recognized in the Company's balance sheet as either an asset or liability. As such, the contractual or notional amounts of these instruments may or may not be an appropriate indicator of the credit or market risk associated with these instruments. The Company controls the credit risk arising from these instruments through its credit approval process and through the use of risk control limits and monitoring procedures. The Company issues loan commitments, commercial letters of credit and standby letters of credit. For these instruments, the contractual amount represents the maximum potential credit risk if the counterparty does not perform according to the terms of the contract. A large majority of these commitments expire without being drawn upon. As a result, total contractual amounts do not represent future credit exposure or liquidity requirements. Commercial and standby letters of credit are subject to the same credit policies and underwriting standards used when making loans or extending loan commitments. The amount of collateral obtained is based on management's credit evaluation of the customer and generally consists of securities, receivables, inventory, fixed assets and deeds of trust. Interest rates, in the event of funding these commitments, are predominantly based on floating rates or prevailing market rates at the time of funding. Substantially all of the loan commitments and standby letters of credit expire within one year unless renewed by the Company. The Company enters into forward exchange contracts to hedge foreign currency transactions on a continuing basis for periods consistent with its committed exposures. Committed exposures include foreign currency denominated deposit accounts and commercial letters of credit. The risks inherent in these contracts are the potential inability of a counterparty to meet the terms of each contract and the risk associated with changes in the market values of the underlying contracts. The contractual amounts of these instruments greatly exceed the possible loss that could arise from counterparty default or changes in currency rates. The Company does not engage in speculation. The Company's foreign exchange contracts do not subject the Company to significant risk due to exchange rate movements because gains and losses on these contracts offset gains or losses on the liabilities and transactions being hedged. The exposure to credit loss for foreign exchange contracts can be estimated by calculating the cost to replace all profitable outstanding contracts at current market rates. At December 31, 1996 and 1995, the Company's exposure to credit loss from commitments to purchase and sell foreign exchange contracts was $402,000 and $1,006,000, respectively. The Company enters into interest rate swap and interest rate cap and floor contracts as part of its interest rate risk management strategy. These contracts involve the exchange of interest payments without the exchange of the underlying notional amount on which the interest payments are calculated. The notional amounts do not represent direct credit risk exposures. The Company's direct credit exposure is limited to the net difference between the calculated pay and receive amounts on each transaction, which is generally netted and paid quarterly, and the ability of the counterparty to perform its payment obligation under the contract. The Company has very strict policies governing such contracts, including the evaluation of the creditworthiness of the counterparties and the inclusion of collateral arrangements within the contracts to minimize credit risk. The methods used to determine counterparties are formally reviewed and approved annually. At December 31, 1996, there were no past due payments related to the interest rate contracts. The following table summarizes the contractual amounts of the Company's off-balance sheet financial instruments as of December 31, 1996 and 1995, as defined under FASB Statement No. 119.
(in thousands of dollars) 1996 1995 - ----------------------------------------------------------------------------- Financial instruments, the maximum credit risk of which is represented by contract amount: Commitments to extend credit $656,779 $502,443 Commercial letters of credit 3,283 2,058 Standby letters of credit 88,060 83,174 Financial instruments, the credit risk of which is represented by other than contract amounts: Foreign forward exchange contracts 74,427 137,272 Interest rate swaps 135,000 50,000 Interest rate caps and floors 115,000 115,000
Annual Report 1996 29 32 22 Regulatory Matters - ----------------------------------------------------------------------------- The Company and its subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its subsidiaries must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and its subsidiaries to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 1996, that the Company and its subsidiaries meet all capital adequacy requirements to which they are subject. The following table summarizes the capital ratios for the Company and its significant subsidiaries. As of December 31, 1996, the most recent notification from the Federal Deposit Insurance Corporation categorized the Company's significant subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the subsidiaries' classifications.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ---------------- ------------------------------ ----------------------------- (in thousands of dollars) Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------------------ As of December 31, 1996 Total Capital (to risk-weighted assets): Consolidated $338,018 12.8% greater than greater than N/A N/A or equal to or equal to $210,963 8.0% Mark Twain Bank 203,244 12.1% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 134,666 8.0% $168,333 10.0% Mark Twain Kansas City Bank 94,509 12.7% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 59,350 8.0% 74,188 10.0% Tier I Capital (to risk-weighted assets): Consolidated $303,009 11.5% greater than greater than N/A N/A or equal to or equal to $105,481 4.0% Mark Twain Bank 182,202 10.8% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 67,333 4.0% $101,000 6.0% Mark Twain Kansas City Bank 85,652 11.5% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 29,675 4.0% 44,513 6.0% Tier I Capital (to average assets): Consolidated $303,009 9.9% greater than greater than N/A N/A or equal to or equal to $122,214 4.0% Mark Twain Bank 182,202 9.0% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 81,229 4.0% $101,536 5.0% Mark Twain Kansas City Bank 85,652 10.1% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 33,868 4.0% 42,334 5.0% As of December 31, 1995 Total Capital (to risk-weighted assets): Consolidated $304,647 13.0% greater than greater than N/A N/A or equal to or equal to $188,022 8.0% Mark Twain Bank 197,676 12.6% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 125,351 8.0% $156,689 10.0% Mark Twain Kansas City Bank 76,702 12.3% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 49,900 8.0% 62,375 10.0% Tier I Capital (to risk-weighted assets): Consolidated $268,344 11.4% greater than greater than N/A N/A or equal to or equal to $ 94,011 4.0% Mark Twain Bank 178,074 11.4% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 62,676 4.0% $ 94,014 6.0% Mark Twain Kansas City Bank 69,074 11.1% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 24,950 4.0% 37,425 6.0% Tier I Capital (to average assets): Consolidated $268,344 9.5% greater than greater than N/A N/A or equal to or equal to $112,982 4.0% Mark Twain Bank 178,074 9.2% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 77,404 4.0% $ 96,755 5.0% Mark Twain Kansas City Bank 69,074 9.9% greater than greater than greater than greater than or equal to or equal to or equal to or equal to 27,998 4.0% 34,997 5.0%
30 Mark Twain Bancshares, Inc. 33 23 Condensed Financial Information--Parent Company Only - ----------------------------------------------------------------------------- Condensed Balance Sheet
December 31, -------------------- (in thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------ Assets Cash $ 323 $ 6,828 Available-for-sale securities 4,686 2,505 Trading account securities 1,604 6,441 Receivables from non-banking subsidiaries -- 299 Investment in subsidiaries representing the Company's equity in underlying assets: Bank subsidiaries 299,747 272,416 Other subsidiaries 2,366 1,981 Premises and equipment, less accumulated depreciation and amortization of $2,726 and $2,558, respectively 443 582 Excess of cost over equity in underlying net assets of subsidiary banks at dates of acquisition, less accumulated amortization of $2,574 and $2,430, respectively 3,692 3,836 Other assets 8,583 7,677 - ------------------------------------------------------------------ -------- Total assets $321,444 $302,565 - ----------------------------------------------------------======== ======== Liabilities Other liabilities $ 7,784 $ 8,169 Long-term debt 2,036 18,490 - ------------------------------------------------------------------ -------- Total liabilities 9,820 26,659 - ------------------------------------------------------------------ -------- Shareholders' Equity Common stock 21,394 20,635 Surplus 75,492 63,630 Undivided profits 229,149 194,888 Net unrealized gains (losses) on available-for-sale securities (1,774) 1,026 - ------------------------------------------------------------------ -------- 324,261 280,179 Less common treasury stock at cost 12,637 4,273 - ------------------------------------------------------------------ -------- Total shareholders' equity 311,624 275,906 - ------------------------------------------------------------------ -------- Total liabilities and shareholders' equity $321,444 $302,565 - ----------------------------------------------------------======== ========
Condensed Statement of Income
Years Ended December 31, ------------------------------- (in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Revenues Revenues from subsidiaries: Dividends from bank and non-bank subsidiaries $41,600 $32,585 $22,314 Service fees 8,374 8,856 6,950 Other income 21 228 425 Other interest income 581 523 415 Other 1,312 2,181 (268) - ------------------------------------------------------ ------- ------- Total revenue 51,888 44,373 29,836 - ------------------------------------------------------ ------- ------- Expenses Interest on short-term borrowings 282 269 481 Interest on long-term debt 348 1,512 1,773 Salaries and benefits 7,332 7,176 5,673 Occupancy expense 530 547 472 Furniture and equipment expense 236 275 286 Other 3,536 3,348 3,645 - ------------------------------------------------------ ------- ------- Total expenses 12,264 13,127 12,330 - ------------------------------------------------------ ------- ------- Income before income tax benefit and equity in undistributed earnings of subsidiaries 39,624 31,246 17,506 Income tax benefit 566 5 1,928 - ------------------------------------------------------ ------- ------- Income before equity in undistributed earnings of subsidiaries 40,190 31,251 19,434 Equity in undistributed earnings of subsidiaries: Bank subsidiaries 12,892 17,390 21,476 Non-bank subsidiaries 186 (928) 72 - ------------------------------------------------------ ------- ------- Net income $53,268 $47,713 $40,982 - -----------------------------------------------======= ======= =======
Annual Report 1996 31 34 Notes to Consolidated Financial Statements (continued) Condensed Statement of Cash Flows
Years Ended December 31, ------------------------------- (in thousands of dollars) 1996 1995 1994 - ------------------------------------------------------------------------------ Operating Activities Net income $53,268 $47,713 $40,982 Adjustments to reconcile net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (13,078) (16,462) (21,548) Trading account securities 4,837 (1,398) (5,043) Other (1,011) 856 107 - ------------------------------------------------------ ------- ------- Net cash provided by operating activities 44,016 30,709 14,498 - ------------------------------------------------------ ------- ------- Investing Activities Investment in subsidiaries (200) 2 (106) Net decrease in loans 638 5,414 1,136 Other (2,624) (180) 1,921 - ------------------------------------------------------ ------- ------- Net cash provided (used) by investing activities (2,186) 5,236 2,951 - ------------------------------------------------------ ------- ------- Financing Activities Decrease in borrowings (500) (10,365) (2,276) Payments on long-term debt (11,583) (32) (2,307) Cash dividends (20,099) (17,338) (14,282) Purchase of treasury stock (18,495) (3,303) -- Reissuance of treasury stock 2,342 1,827 1,241 Other -- -- 27 - ------------------------------------------------------ ------- ------- Net cash used by financing activities (48,335) (29,211) (17,597) - ------------------------------------------------------ ------- ------- Increase (decrease) in cash and cash equivalents (6,505) 6,734 (148) Cash and cash equivalents at beginning of year 6,828 94 242 - ------------------------------------------------------ ------- ------- Cash and cash equivalents at end of year $ 323 $ 6,828 $ 94 - -----------------------------------------------======= ======= =======
Impact of New Financial 24 Accounting Standards - ------------------------------------------------------------------------------ In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 addresses the accounting for all types of securitization transactions, securities lending and repurchase agreements, collateralized borrowing arrangements, and other transactions involving the transfer of financial assets. It also addresses the ongoing servicing of financial assets and extinguishment of liabilities. The provisions of SFAS No. 125 were to be effective for fiscal years beginning after December 31, 1996; however, in December 1996, the FASB issued SFAS No. 127 "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125 (An Amendment of FASB Statement No. 125)," which delayed the effective date of certain provisions of SFAS No. 125 until January 1, 1998. The Company does not expect adoption of the standards to have a material impact on the consolidated financial statements. Summary of Quarterly Financial 25 Information (Unaudited) - ------------------------------------------------------------------------------ The following is a summary of quarterly operating results for the years ended December 31, 1996 and 1995:
(in thousands of dollars, First Second Third Fourth except per share data) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------ 1996 Interest income $57,114 $56,164 $56,931 $59,432 Interest expense 25,705 24,846 25,252 26,117 - ------------------------------------------------------------------ ------- ------- ------- Net interest income 31,409 31,318 31,679 33,315 - ------------------------------------------------------------------ ------- ------- ------- Provision for loan losses 981 514 506 1 Securities transactions 234 -- -- -- Net income $12,521 $12,985 $13,464 $14,298 Net income per share: Primary $ 0.76 $ 0.80 $ 0.83 $ 0.85 Fully diluted $ 0.75 $ 0.79 $ 0.82 $ 0.84 1995 Interest income $53,799 $56,170 $56,700 $56,504 Interest expense 21,759 24,023 24,517 24,633 - ------------------------------------------------------------------ ------- ------- ------- Net interest income 32,040 32,147 32,183 31,871 - ------------------------------------------------------------------ ------- ------- ------- Provision for loan losses 1,332 1,299 713 1,659 Securities transactions 46 -- -- 250 Net income $11,368 $11,625 $12,223 $12,497 Net income per share: Primary $ 0.70 $ 0.72 $ 0.75 $ 0.76 Fully diluted $ 0.68 $ 0.70 $ 0.73 $ 0.74
32 Mark Twain Bancshares, Inc. 35 Shareholder Interests Transfer Agent, Registrar and Dividend Disbursing Agent Harris Trust and Savings Bank P.O. Box A-3504 Chicago, IL 60690-3504 Toll-free: (800) 720-0417 Chicago area: (312) 360-5175 TDD: (312) 461-5633 For hand deliveries or drop-off: 311 W. Monroe Street, 11th Floor Chicago, IL 60690-3504 Automatic Dividend Reinvestment Plan The Company offers an Automatic Dividend Reinvestment and Voluntary Cash Only Payment plans. Information may be obtained from: Carl A. Wattenberg Jr. Corporate Secretary 8820 Ladue Road St. Louis, MO 63124 (314) 889-0708 Form 10-K Notice Stockholders, analysts, or potential investors desiring a copy of the Annual Report Form 10-K of Mark Twain Bancshares, Inc., as filed with the Securities and Exchange Commission, may make their requests in writing to Carl A. Wattenberg Jr., Corporate Secretary, at the address of the Company. Stock Listing On September 19, 1996, the Common Stock of the Company ($1.25 par value) commenced trading on the New York Stock Exchange (ticker symbol - MTB). Prior to September 19, 1996, the Common Stock of the Company was traded on the Nasdaq Stock Market (Symbol - MTWN). The following table presents the high and low sales prices as furnished by the New York Stock Exchange and the Nasdaq Stock Market, Inc., as well as the quarterly dividends declared per share. At December 31, 1996, there were approximately 2,500 holders of record of Common Stock.
Dividends Common Stock Declared Share Data High Low and Paid - ----------------------------------------------------------------------------- 1996 Fourth Quarter $50.25 $41.87 $0.31 Third Quarter $42.63 $35.25 $0.31 Second Quarter $38.50 $36.00 $0.31 First Quarter $39.75 $36.50 $0.31 1995 Fourth Quarter $39.50 $32.75 $0.27 Third Quarter $35.75 $31.50 $0.27 Second Quarter $32.75 $29.63 $0.27 First Quarter $30.00 $26.00 $0.27
For more information, analysts may contact: Keith Miller Chief Financial Officer (314) 889-0799 Executive Officers Alvin J. Siteman Chairman John P. Dubinsky President & Chief Executive Officer Peter F. Benoist Executive Vice President President, Banking Division Robert C. Butler Executive Vice President Keith Miller Executive Vice President, Finance Chief Financial Officer Sandra Friedman Burnham Senior Vice President, Risk Assessment Nancy E. Graves Senior Vice President Director of Retail Banking Timothy C. Peterson Senior Vice President, Corporate Development W. Thomas Reeves Senior Vice President, Lending Carl A. Wattenberg Jr. Senior Vice President, Secretary & General Counsel Thomas R. Wickenhauser Senior Vice President, Administration Kevin J. Cody Vice President, Treasurer/Assistant Secretary Board of Directors Alvin J. Siteman Chairman, Mark Twain Bancshares, Inc.; President & Director, Flash Oil Corporation, a petroleum products distributor; President & Director, The Siteman Organization, Inc., a real estate development and management company; President & Director, Site Oil Company of Missouri; Director, Insituform Technologies, Inc. (Nasdaq) John P. Dubinsky President & Chief Executive Officer, Mark Twain Bancshares, Inc. Robert J. Baudendistel,, Vice Chairman, Mark Twain Bancshares, Inc.; Real estate consultant; investor; partner, Fox Associates, a theatrical productions company Peter F. Benoist Executive Vice President, Mark Twain Bancshares, Inc. Director, Earthgrains, Inc. (NYSE) Robert A. Bernstein President and Chief Executive Officer, Bernstein-Rein Advertising, Inc., specializing in retail advertising Robert C. Butler Executive Vice President, Mark Twain Bancshares, Inc. Jack Deutsch President, Standard Machine & Manufacturing Company, a manufacturer of refrigeration and industrial valves; Executive Vice President, Dema Engineering Company, a manufacturer of automatic and hydraulic dispensing devices Henry J. Givens Jr., Ph.D. President, Harris-Stowe State College; Director, Laclede Gas Company (NYSE) B.D. (Bud) Hunter Chairman & Chief Executive Officer, Huntco, Inc., which owns and operates Steel Processing Centers (NYSE); Director, Service Corporation International (NYSE); Director, Cash America Investments, Inc. (NYSE); Director, Celebrity, Inc. (Nasdaq) Michael M. McCarthy, Chairman & Chief Executive Officer, McCarthy Building Companies, a group of construction building and design consulting companies; Director, Huntco, Inc. (NYSE) James J. Murphy Jr. President & Chief Executive Officer, Murphy Company [FN] Executive Committee Audit Committee Compensation Committee Mark Twain is an equal opportunity employer. All banks members FDIC. This report is printed on recycled paper. 36 MARK TWAIN BANCSHARES, INC. 8820 Ladue Road St. Louis, Missouri 63124-2096 (314) 727-1000 Fax: (314) 889-0755 http://www.marktwain.com EX-21 4 SUBSIDIARIES OF MARK TWAIN BANCSHARES, INC. 1 EXHIBIT 21 SUBSIDIARIES OF MARK TWAIN BANCSHARES, INC. The following list contains information regarding the Company and its subsidiaries (some of which do not constitute significant subsidiaries) as of December 31, 1996. The list also includes the state or jurisdiction of incorporation of each as well as names under which they do business, some names of which are service marks.
NAME UNDER WHICH CORPORATION STATE IT DOES BUSINESS - ------------ ----- ---------------- Mark Twain Bancshares, Inc. Missouri Mark Twain Bancshares, Inc. Gateway Research Associates Omne Advertising Agency Mark Twain "Advantage Club" Mark Twain Banks SUBSIDIARIES - ------------ Mark Twain Bank Missouri Mark Twain Bank Mark Twain Banks Mark Twain Bank Ladue Mark Twain Bank Frontenac Mark Twain Trust Division Mark Twain International Banking Division Mark Twain Investment Services Mark Twain Municipal Securities Mark Twain Capital Markets Group Mark Twain Bond Department Mark Twain International Markets Group Mark Twain Commercial Finance Division Mark Twain Credit Services Mark Twain Services Mark Twain Bank South County Mark Twain Bank 21 Mark Twain Bank State Mark Twain Bank Northland Mark Twain Bank Parkway Mark Twain Bank O'Fallon Mark Twain Bank St. Charles Mark Twain Bank St. Peters Mark Twain Bank Progress Mark Twain Bank Fenton Mark Twain Bank St. Louis Mark Twain Bank Clarkson/Clayton Mark Twain Bank Clarkson Square Mark Twain Bank Creve Coeur Mark Twain Bank Ellisville Mark Twain Bank Clayton Mark Twain Bank Des Peres Mark Twain Operations Center Mark Twain Leasing Division Mark Twain Mortgage Department Mark Twain Mortgage Shenandoah Mark Twain Illinois Bank Illinois Mark Twain Illinois Bank Mark Twain Bank Belleville Mark Twain Bank Edwardsville Mark Twain Trust Division Mark Twain Kansas City Bank Missouri Mark Twain Kansas City Bank Mark Twain Bank Kansas City Mark Twain Bank Plaza Mark Twain Bank South Mark Twain Bank Noland Mark Twain Bank Tower Mark Twain Bank North Mark Twain Trust Division Mark Twain Commercial Finance Division Mark Twain Bank Kansas Mark Twain Bank Shawnee Mark Twain Bank Parkway Mark Twain Bank Mission Mark Twain Bank Olathe Mark Twain Bank Platte Woods Mark Twain Bank 64th Street Mark Twain Bank Barry Road Mark Twain Bank Prairie Center First City National Bank Missouri First City National Bank Mark Twain Brokerage Services, Inc. Missouri Mark Twain Brokerage Services (owned by Mark Twain Bank) Mark Twain Brokerage Services, Inc. Mark Twain Brokerage Mark Twain Insurance Agency Infinet Securities 1 2 NAME UNDER WHICH CORPORATION STATE IT DOES BUSINESS - ------------ ----- ---------------- Mark Twain Real Estate Missouri Mark Twain Real Estate Development Corp. I Development Corp. I (owned by Mark Twain Kansas City Bank) Mark Twain Real Estate Missouri Mark Twain Real Estate Development Corp. II Development Corp. II (owned by Mark Twain Bank) Mark Twain Bank Community Missouri Mark Twain Bank Community Development Development Corp., Inc. Corp., Inc. (owned by Mark Twain Bank) Mark Twain Kansas City Bank Missouri Mark Twain Kansas City Bank Community Community Development Corp., Inc. Development Corp., Inc. (owned by Mark Twain Kansas City Bank) Mark Twain St. Louis Investment Delaware Mark Twain St. Louis Investment Company Company (business trust owned by Mark Twain Bank) Mark Twain St. Louis Real Estate Delaware Mark Twain St. Louis Real Estate Investment Trust Investment Trust (business trust owned by Mark Twain St. Louis Investment Company) Tarquad Corporation Missouri Tarquad Corporation Mark Twain Asset Recovery, Inc. Missouri Mark Twain Asset Recovery, Inc. MARI Mark Twain Community Missouri Mark Twain Community Development Corp. Development Corporation Mark Twain Acquisition Corp. II Missouri Mark Twain Acquisition Corp. II Mark Twain Properties, Inc. Missouri Mark Twain Properties, Inc. Name/Service Mark used by all banking units. December, 1996
2 EX-23 5 CONSENT OF EXPERT 1 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Mark Twain Bancshares, Inc. of our report dated January 15, 1997, included in the 1996 Annual Report to Shareholders of Mark Twain Bancshares, Inc. We also consent to the incorporation by reference into each registration statement listed below of our report dated January 15, 1997, with respect to the consolidated financial statements of Mark Twain Bancshares, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1996.
FORM NO. --------- -------- S-3 333-19811 Mark Twain Bancshares, Inc. registration of 67,167 shares of Common Stock on Form S-3 S-8 33-59075 Mark Twain Bancshares, Inc. 1995 Stock Option Plan S-8 33-48078 Mark Twain Bancshares, Inc. 1992 Stock Option Plan S-8 2-86364 Mark Twain Bancshares, Inc. 1983 Incentive Stock Option Plan As amended through Post Effective Amendment Number 6 dated May 2, 1992 S-8 2-88720 The Mark Twain Savings Challenge Plan As amended through Post Effective Amendment Number 4 dated April 28, 1987
ERNST & YOUNG LLP -------------------- Ernst & Young LLP St. Louis, Missouri February 19, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 150,926 4,387 23,500 30,772 458,164 218,479 217,414 2,177,915 33,745 3,133,265 2,594,912 193,591 31,102 2,036 0 0 21,394 290,230 3,133,265 182,201 43,282 733 229,641 89,202 101,920 127,721 2,002 234 81,812 83,714 53,268 0 0 53,268 3.23 3.18 4.63 7,086 321 2,244 21,900 30,508 2,420 1,231 33,745 33,745 0 3,080
EX-99 7 1 EXECUTIVE COMPENSATION REPORT OF THE COMPENSATION, BENEFITS AND STOCK OPTION COMMITTEE The Committee is composed of three independent non-employee directors. The Committee is responsible for setting and administering senior executive officer salaries, annual bonus, and incentive stock option grants; and, reviewing employee benefit plans generally. COMPENSATION POLICY Bancshares' compensation programs are designed to link executives' compensation to the performance of Bancshares and provide competitive compensation for executives with regard to similar companies of similar performance levels. The compensation program includes a blend of annual cash compensation, including incentive awards, and equity-based incentives, all under a policy that a substantial part of overall compensation for senior management should be at risk, based on Bancshares' performance. Bancshares' executive officer compensation, as with other members of senior management, consists of two primary elements: (1) an annual component comprised of base salary and annual incentive bonus and (2) a longer-term component comprised of stock option incentives. (1) ANNUAL COMPONENT: BASE SALARY AND ANNUAL BONUS Base salaries for executive officers are initially determined by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the competitive market place for executive talent, including a comparison to base salaries for comparable positions at other companies. Annual salary adjustments are determined by evaluating the performance of Bancshares and of each executive officer, and also take into account new responsibilities, if any. The Committee, where appropriate, also considers non-financial performance measures. To assist the Committee, each officer's performance is evaluated annually by his or her immediate supervisor. Bancshares' executive officers are eligible for annual cash bonuses under Bancshares' bonus plan for certain key supervisor and management personnel. Under such plan, the Committee establishes bonuses as a percentage of base salary to be paid if and to the extent the annual projections and objectives for net earnings are met or exceeded. The Committee believes that for a bonus program to be effective, it must be easily understood so that managers clearly understand what the rewards are and what they must do to earn them. The concept underlying the bonus plan is to link a significant part of compensation to the performance of Bancshares. Under the plan Bancshares must produce a pre- established level of income before any performance awards are paid. The plan is designed to challenge management to achieve levels of performance significantly higher than the Company's peer group. (2) LONG-TERM COMPONENT: STOCK OPTIONS The Committee believes that significant equity interest in Bancshares held by Bancshares' management aligns the interests of management with the interests of shareholders. To align shareholders' and executive officers' interests, Bancshares' long-term compensation plan uses stock option grants whose value is related to the value of Bancshares' common shares. Grants of stock options are made under Bancshares' stock option plans which are approved by the shareholders and are described more fully in this Exhibit. Stock options are granted annually to executive officers also in numbers based on their position in management, their current level of responsibility, and their performance during the prior year. Stock options provide incentive for the creation of shareholder value over the long term since the full benefit of the compensation package cannot be realized unless an appreciation in the price of Bancshares' common shares occurs over a specified number of years. Long-term stock option incentives are used to retain and reward senior management who have demonstrated the ability over time to achieve superior results related to peer groups (and consistent 2 with the Bancshares' overall mission statement and strategic plan) and who through their position of authority and responsibility demonstrate success in enhancing shareholder value. CONCLUSION Through the programs described above, a significant portion of Bancshares' executive compensation is linked to individual and corporate performance. The Committee intends to continue the policy of linking executive compensation to corporate performance while recognizing the desirability to retain superior executives, the goal of achieving both long-term objectives as well as short-term objectives, and recognizing that many external factors can affect corporate performance which may result in imbalances, for a particular time period. CEO COMPENSATION During 1996, Bancshares' most highly compensated executive officer was John Dubinsky, President and Chief Executive Officer. Mr. Dubinsky's 1996 performance was reviewed by the Committee which approved, on behalf of the Board of Directors, the annual component of base salary and annual bonus and the long-term component of stock options. The actions were based on the following considerations. Bancshares reported record profits for the sixth consecutive year, as more fully described in the 1996 Annual Report to Shareholders. Bancshares not only achieved its performance goals for 1996, but surpassed the established objectives by attaining an increase of 11.6% in consolidated net income and an increase of 11.6% in fully diluted earnings per share over 1995. In 1996, Bancshares' return on realized equity of 18.66% and return on assets of 1.79% were among the best for similar banks in the country. Bancshares' strong profits in 1996, as well as in past years, have in turn increased shareholder value significantly. That value has been reflected in the market value of Bancshares' stock, increasing during 1996 approximately 25.8% following a 42.2% increase in 1995. Total return to Bancshares' shareholders over the last five years has averaged 28.94% on an annual compounded basis. In addition to overall company performance the committee reviewed various Peer Group Comparisons on Bank CEO Compensation prepared by SNL Securities L.P. arranged by asset size, region, and performance levels of return on assets, all of which review led the Committee to conclude that 1996 compensation levels, and those approved for 1997, are within the middle percentile range for comparable companies by size and performance. The Committee also reviewed Mr. Dubinsky's performance as the leader of the management team and took particular note of the management team's budgeting and strategic planning, its leadership role in achieving diversity within the company, its management development program, and its maintaining a consistent, growing earnings stream, among others. The Committee has concluded that Mr. Dubinsky's performance warrants the compensation for 1996 as reflected in the Summary Compensation Table. COMPENSATION, BENEFITS AND STOCK OPTION COMMITTEE B.D. Hunter, Committee Chairman Robert J. Baudendistel Michael M. McCarthy January 31, 1997 2 3 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ---------------------------------------------- ------------ OTHER ALL OTHER ANNUAL COMPEN- NAME AND COMPEN- OPTIONS SATION PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION (#) ($) ----------------------- ---- ---------- --------- ---------- ------- --------- John P. Dubinsky 1996 432,889 220,269 0 30,000 3,750 President & Chief 1995 410,285 207,836 0 27,500 3,750 Executive Officer 1994 389,869 178,213 0 25,000 3,750 Alvin Siteman 1996 396,604 218,132 0 30,000 3,750 Chairman 1995 374,184 205,801 0 27,500 3,750 1994 354,046 176,501 0 25,000 3,750 Peter F. Benoist 1996 310,583 150,952 0 22,000 3,393 Executive Vice 1995 296,224 143,054 0 20,000 3,300 President 1994 281,460 122,667 0 18,000 3,300 W. Thomas Reeves 1996 231,650 116,836 0 14,500 3,750 Senior Vice President 1995 219,655 110,239 0 13,200 3,750 1994 209,457 94,596 0 12,000 3,750 Robert F. Borchert 1996 247,280 97,039 0 13,700 3,750 Chairman & Chief 1995 244,619 88,211 0 13,200 3,750 Executive Officer 1994 233,359 81,906 0 12,000 3,157 Mark Twain Bank - ------- Includes the President and Chief Executive Officer and the four other most highly compensated Executive Officers. See "Personal Benefits" below. See "Stock Option Plans" and two tables concerning options below. See "Mark Twain Savings Challenge Plan" below.
3 4 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Among Mark Twain Bancshares, Inc., S&P 500 Index, NASD Stock Index and SNL Securities $1-$5 Billion Bank Stock Index [GRAPH]
INVESTMENT VALUES AT DECEMBER 31 ----------------------------------------------------------- 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- Mark Twain Bancshares 100.00 144.23 164.66 187.71 276.26 358.96 S&P 500 Index 100.00 107.62 118.47 120.03 165.13 202.89 NASD Stock Index 100.00 116.38 133.60 130.59 184.68 227.16 SNL $1B - $5B Bank Index 100.00 144.84 174.08 183.28 246.47 319.51 - ------- The graph and table above show the values of $100 invested on December 31, 1991 in Bancshares' Common Stock, the S&P 500 Index, the NASD Stock Index and the SNL Securities $1-$5 Billion Bank Stock Index, assuming reinvestment of all dividends.
The SNL Securities $1-$5 Billion Bank Stock Index reflects the performance of over 100 publicly traded financial institutions having gross assets of $1-$5 billion. 4 5 OPTIONS GRANTED IN 1996
INDIVIDUAL GRANTS --------------------------------------------------------------------------- PERCENT OF POTENTIAL REALIZABLE VALUE AT TOTAL OPTIONS ASSUMED ANNUAL RATES OF GRANTED TO STOCK PRICE APPRECIATION FOR EMPLOYEES IN EXERCISE OPTION TERM OPTIONS FISCAL YEAR PRICE EXPIRATION ----------------------------- NAME GRANTED (#) ($/SH) DATE 5% 10% ---- ----------- ------------- -------- ---------- -------------- ------------- John Dubinsky, CEO.............. 30,000 11.0% $38.19 January, 2001 $ 316,500 $ 699,600 Alvin Siteman................... 30,000 11.0% 42.03 January, 2001 201,300 584,400 Peter F. Benoist................ 22,000 8.0% 38.19 January, 2001 232,100 513,040 W. Thomas Reeves................ 14,500 5.3% 38.19 January, 2001 152,975 338,140 Robert F. Borchert.............. 13,700 5.0% 38.19 January, 2001 144,535 319,484 - -------- The dollar amounts under these columns are the result of calculations at the 5% and 10% rates set by the SEC and therefore are not intended to forecast possible future appreciation of Bancshares stock. Bancshares did not use an alternative formula for a grant date valuation, as Bancshares is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. The assumed annual rates of appreciation of five and ten percent would result in the price of Bancshares' stock increasing to $48.74 and $61.51, respectively. This column will not total 100% as employees other than those named in the Summary Compensation Table received Options during the year. See "Stock Option Plans" for additional information.
AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FISCAL AT FISCAL YEAR END YEAR-END ($) VALUE ----------------- -------------------- SHARES ACQUIRED REALIZED EXERCISABLE (E) EXERCISABLE (E) NAME ON EXERCISE UNEXERCISABLE (U) UNEXERCISABLE (U) ---- --------------- -------- ----------------- -------------------- John Dubinsky, CEO........................... 6,741 $147,150 33,634(E) $ 810,352(E) 67,625(U) $1,146,588(U) Alvin Siteman................................ 5,065 $ 91,423 31,560(E) $ 674,146(E) 67,625(U) $ 933,027(U) Peter F. Benoist............................. 0 $ 0 37,250(E) $ 988,294(E) 49,750(U) $ 846,098(U) W. Thomas Reeves............................. 3,675 $113,988 22,500(E) $ 582,977(E) 33,025(U) $ 563,527(U) Robert F. Borchert........................... 2,500 $ 76,871 24,800(E) $ 662,410(E) 31,850(U) $ 545,539(U) - -------- Values realized are calculated by subtracting the exercise price from the fair market value of the stock on each exercise date. Year-end values of unexercised options are calculated by subtracting the exercise price from the fair market value of Bancshares' stock as of the fiscal year end ($48.4375, the average of the high and low prices quoted for December 31, 1996).
5 6 RETIREMENT PLANS Effective January 1, 1989, Bancshares established a Defined Benefit Pension Plan covering all eligible officers and employees of Bancshares and its subsidiaries. All officers and employees participate in the Pension Plan upon the completion of one year of service and the attainment of age 21. Under the Pension Plan, eligible employees receive annual retirement benefits based on the average of the highest five consecutive calendar years of compensation during the ten-year period ending on the normal retirement date or termination of employment. Benefits under the Pension Plan are computed on the basis of 0.9% of average compensation up to Covered Compensation wage base (the 35-year average of Social Security wage bases ending in the year Social Security retirement age is attained) plus 1.5% of average compensation over Covered Compensation wage base, times benefit service up to 30 years. Federal tax law limits the benefit payable under the Pension Plan. In 1983, Bancshares established an Executive Benefit Plan, as an amendment and restatement of an Officers' Benefit Plan established in 1978. The Executive Plan is an unfunded plan which provides for payments to participating officers and employees on retirement or other termination of employment, and which supplements the Pension Plan. In order to participate, an employee must have been employed by Bancshares for ten years and must earn base pay at least equal to Social Security Taxable Wage Base for the year for which the employee becomes a participant. The Executive Benefit Plan operated until January 1, 1989 as the sole retirement plan of the Company. This Plan was phased out when the Pension Plan was adopted on January 1, 1989, although those covered under the Plan as of that date continue to be so covered. The annual benefit payable under the Executive Benefit Plan is 25% of the average annual compensation for the five highest years of compensation, increased for each year of employment in excess of ten years, up to a maximum of 50% for employees with more than 25 years service; but the benefit is reduced by any benefits payable under the Pension Plan. The Executive Benefit Plan provides for a normal retirement date at age 65, and employees who retire on or after that age are entitled to receive the full accrued benefit. Employees who retire after age 55 with 15 years service with the consent of Bancshares, and employees who retire with 20 years service, are entitled to the full accrued benefit, actuarily reduced if retirement occurs prior to age 65. The normal method of payment of benefits is the payment of the basic annual benefit in equal monthly installments over the participant's lifetime, with a minimum of 120 months guaranteed. Benefits are fully vested on death or disability, and are vested on other termination of employment based on length of service. Participants must refrain from competing with Bancshares until at least three years after termination of employment in order to be eligible to continue to receive payments under the Executive Plan. 6 7 PENSION PLAN TABLE
YEARS OF CREDITED SERVICE ---------------------------------------------- REMUNERATION 15 20 25 30 OR MORE - ------------ ------- ------- ------- ---------- $150,000.......................................... 45,000 60,000 75,000 75,000 300,000.......................................... 90,000 120,000 150,000 150,000 400,000.......................................... 120,000 160,000 200,000 200,000 450,000.......................................... 135,000 180,000 225,000 225,000 600,000.......................................... 180,000 240,000 300,000 300,000 750,000.......................................... 225,000 300,000 375,000 375,000
The table above presents annual combined retirement benefits payable under the Pension and Executive Benefit Plans, based upon various assumed final average salaries and years of credited service for a person reaching age 65 in 1995 with benefits computed on a straight life annuity basis (with 10 years guaranteed). Amounts shown reflect the actual benefit under the Plan. There is no Social Security benefit offset. "Remuneration" is the average annual compensation for the highest five years of compensation as described above for each plan. The compensation used by Bancshares to compute the benefit under the Pension Plan includes 100% of base salary, 100% of the first $25,000 of variable compensation and 50% of variable compensation over $25,000. The credited service under the Pension and Executive Benefit Plans for each of the individuals named in the Summary Compensation Table are as follows: Alvin Siteman, 24 years (by separate agreement, Mr. Siteman is to be credited with 25 years upon termination of employment with Bancshares); John Dubinsky, 29 years; Peter F. Benoist, 20 years; W. Thomas Reeves, 16 years; and Robert F. Borchert, 24 years. Remuneration covered by the Plan is included in the Summary Compensation Table. MARK TWAIN SAVINGS CHALLENGE PLAN Bancshares has an employee benefit plan under Section 401(k) of the Internal Revenue Code. The Plan allows employees to contribute up to 9-15% of their base pay of which 50% of the amount up to 5% of base pay is matched by Bancshares. Employees may elect to have their contributions invested in Bancshares Common Stock; an equity mutual fund and a balanced fund, both managed by Mark Twain Bank Trust Division; and a pooled GIC fund, a managed small to midsized stock fund, and a managed small to midsized balanced fund, all of which are managed in whole or part by non-affiliated companies. All company matching contributions are contributed or invested in Mark Twain Common Stock. All common stock held by the Trustee (Mark Twain Bank Trust Division) is voted as directed by the respective participants to the extent vested, and otherwise by the Board of Directors. At December 31, 1996, there were 519,613 shares held by the Trustee. The amounts contributed by Bancshares to the persons listed in the Summary Compensation Table includes $3,750 for Alvin Siteman, $3,750 for John Dubinsky, $3,393 for Peter F. Benoist, $3,750 for W. Thomas Reeves and $3,750 for Robert F. Borchert. PERSONAL BENEFITS After inquiry, Bancshares has concluded that the aggregate amounts of personal benefits which cannot be specifically or precisely ascertained do not in any event exceed $15,000 as to each individual named in the Summary Compensation Table above and has concluded that the information set forth in the table is not rendered materially misleading by virtue of the omission of the value of such personal benefits. EXECUTIVE EMPLOYMENT AGREEMENTS Bancshares has entered into employment and compensation agreements with certain of its officers and directors. The basic purpose of these agreements is to provide a commitment to Bancshares from its key executives, and a reciprocal commitment to each of them from Bancshares. The 7 8 Board believes that the agreements will have the effect of providing Bancshares with greater continuity of management by giving key personnel incentives to remain with Bancshares, as well as disincentives to leaving. The standard agreements provide that each covered employee's base salary and incentive compensation (including bonus) will be determined each year by the Board of Directors or its delegatee. The standard agreements are for initial terms ranging from twelve to twenty-four months. Messrs. Dubinsky, Siteman, Benoist, Reeves, and Borchert each have standard agreements with initial terms of twenty-four months which began in 1995. The initial term normally is extended automatically for successive twelve month periods, with a maximum term of five years. Each standard agreement contains covenants not to compete or engage in activities which would be detrimental to Bancshares or its subsidiaries, which covenants survive termination. Each standard agreement is subject to: (i) termination by Bancshares or the employee upon at least twelve months' notice, except that the initial term cannot be shortened by giving this notice; (ii) termination by Bancshares without cause (as provided in the agreement); (iii) termination by the employee in response to certain actions by Bancshares affecting the employee's position or geographic location; (iv) termination by the employee for other reasons; (v) termination by Bancshares for cause; and (vi) termination upon the employee's death. If terminated by Bancshares under clause (i), the employee would receive whatever standard severance benefit Bancshares is paying at that time upon execution of Bancshares' standard severance agreement then being used. If terminated under clauses (ii) or (iii) in accordance with the terms of the agreement, the employee would be entitled, upon execution of Bancshares' standard severance agreement, to receive each month for a period equal to the initial term a special monthly severance benefit based generally upon the employee's average salary and regular incentive compensation paid during the preceding three years. If terminated under clauses (iv), (v), or (vi), no severance benefit would be payable. STOCK OPTION PLANS Bancshares has three plans providing for the grant of stock options (the "Option Plans"). The 1983 Incentive Stock Option Plan ("1983 Plan") was adopted and approved by shareholders in 1983, and expired in 1993 with some grants outstanding. The 1992 Stock Option Plan (the "1992 Plan") was adopted and approved by shareholders in 1992, and will expire on January 21, 2002. The 1995 Stock Option Plan (the "1995 Plan") was adopted and approved by shareholders in 1995, and will expire on January 15, 2005. The 1983 Plan authorized the grant of incentive stock options, as defined by federal tax law ("ISOs"). The 1992 and 1995 Plans authorize the grant of ISOs and non-qualified stock options ("NQSOs"). Up to 675,000 shares of Bancshares Common Stock may be issued under the 1992 Plan, and up to 900,000 shares may be issued under the 1995 Plan. Appropriate adjustments in the number of shares available under the Option Plans and in the terms of outstanding ISO and NQSOs ("options") are required for stock splits and similar events. Approximately 41 officers and management and supervisory employees of Bancshares and its subsidiaries are eligible to receive options under the Option Plans. Non-employee directors are ineligible for any option grant under any Plan. The Option Plans are administered by the Board's Compensation, Benefits and Stock Option Committee, which consists entirely of non-employee directors. Within the limits of each Plan, the Committee determines when and to whom options are granted, the number of shares subject to each option, each option's price and duration, when options become exercisable, whether the option is an ISO or NQSO, and other terms and conditions which the Committee deems appropriate. The 1992 and 1995 Plans impose a five-year limit on all options granted under them. All options granted to date under all plans become exercisable in four equal annual installments, beginning one year after grant; all outstanding options terminate five years after grant. All options reported in the table entitled "Option Grants in 1996" above were granted on January 12, 1996. 8 9 The option price of options cannot be less than 100% of the market value of Bancshares Common Stock on the grant date (110% in the case of ISOs granted to a 10% stockholder). Optionees may pay the option price in cash or Bancshares Common Stock. Bancshares may loan the option price to optionees to the extent allowed by law. The Committee permits required withholding taxes to be paid with Common Stock, including stock otherwise issuable in connection with an option exercise. The Committee may accelerate the exercisability of options at any time. All Option Plans provide for automatic acceleration upon death or disability of an optionee, or upon the occurrence of certain takeover events relating to Bancshares. Options may be forfeited if the optionee terminates employment within two years of grant or is dismissed at any time. Options (and any stock or other benefits derived from options) may be forfeited if the optionee competes with, or acts in any manner inimical to the best interests of, Bancshares and its subsidiaries. In addition, optionees must expressly covenant not to compete with Bancshares and its subsidiaries during the term of their employment and for three years thereafter. The Option Plans may be amended by the Board of Directors at any time. Under the 1992 and 1995 Plans, certain amendments which increase the number of authorized shares or change the class of eligible employees must be approved by Bancshares' shareholders. 9 -----END PRIVACY-ENHANCED MESSAGE-----